The Cross-Border Trucking Dispute

NACLE, Mexico, October 2009 1

The Cross-Border Trucking Dispute

David A. Gantz

Washington College of Law

Rogers College of Law


Article 1202: National Treatment

• 1. Each Party shall accord to service providers of another Party treatment no less favorable than that it accords, in like circumstances, to its own service providers.

• 2. The treatment accorded by a Party under paragraph 1 means, with respect to a state or province, treatment no less favorable than the most favorable treatment accorded, in like circumstances, by that state or province to service providers of the Party of which it forms a part.


Article 1203: Most-Favored-Nation Treatment

• Each Party shall accord to service providers of another Party treatment no less favorable than that it accords, in like circumstances, to service providers of any other Party or of a non-Party.


Annex I

• A person of Mexico will be permitted to obtain A person of Mexico will be permitted to obtain operating authority to provide:operating authority to provide:

• (a) three years after the (a) three years after the date of signaturedate of signature of this of this Agreement, cross-border truck services to or Agreement, cross-border truck services to or from border states (California, Arizona, New from border states (California, Arizona, New Mexico and Texas), and such persons will be Mexico and Texas), and such persons will be permitted to enter and depart the territory of permitted to enter and depart the territory of United States through different ports of entry;United States through different ports of entry;


Cross-Border Trucking Services

• (b) three years after the date of entry into force of this Agreement, cross-border scheduled bus services; and

• (c) six years after the date of entry into force of this Agreement, cross-border truck services.


NAFTA Panel Chronology

• Dec. 17, 1995: U.S. decides not to implement cross-border trucking obligations (then applicable only to border states) due to purported safety concerns.

• December 18, 1995: Mexico requests consultations under Chapter 20

• July 25, 1998: Mexico requests convening of the NAFTA Free Trade Commission

• Sep. 22, 1998: Mexico requests formation of a panel under Article 2008

• Feb. 2, 2000: Panel constituted• Feb. 6, 2001: Panel decision released


Chapter 20 Panel Decision

• 295. On the basis of the analysis set out above, the Panel unanimously determines that the U.S. blanket refusal to review and consider for approval any Mexican-owned carrier applications for authority to provide cross-border trucking services was and remains a breach of the U.S. obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1202 (national treatment for cross-border services), and Article 1203 (most-favored-nation treatment for cross-border services) of NAFTA. An exception to these obligations is not authorized by the “in like circumstances” language in Articles 1202 and 1203, or by the exceptions set out in Chapter Nine or under Article 2101.


• 296. The Panel unanimously determines that the inadequacies of the Mexican regulatory system provide an insufficient legal basis for the United States to maintain a moratorium on the consideration of applications for U.S. operating authority from Mexican-owned and/or domiciled trucking service providers.


• 297. The Panel further unanimously determines that the United States was and remains in breach of its obligations under Annex I (reservations for existing measures and liberalization commitments), Article 1102 (national treatment), and Article 1103 (most-favored-nation treatment) to permit Mexican nationals to invest in enterprises in the United States that provide transportation of international cargo within the United States.


• 298. It is important to note what the Panel is not determining. It is not making a determination that the Parties to NAFTA may not set the level of protection that they consider appropriate in pursuit of legitimate regulatory objectives. It is not disagreeing that the safety of trucking services is a legitimate regulatory objective. Nor is the Panel imposing a limitation on the application of safety standards properly established and applied pursuant to the applicable obligations of the Parties under NAFTA . . . .


• 299. The Panel recommends that the United States take appropriate steps to bring its practices with respect to cross-border trucking services and investment into compliance with its obligations under the applicable provisions of NAFTA.


• 300. The Panel notes that compliance by the United States with its NAFTA obligations would not necessarily require providing favorable consideration to all or to any specific number of applications from Mexican-owned trucking firms, when it is evident that a particular applicant or applicants may be unable to comply with U.S. trucking regulations when operating in the United States. Nor does it require that all Mexican-domiciled firms currently providing trucking services in the United States be allowed to continue to do so, if and when they fail to comply with U.S. safety regulations.

• The United States may not be required to treat applications from Mexican trucking firms in exactly the same manner as applications from U.S. or Canadian firms, as long as they are reviewed on a case by case basis. U.S. authorities are responsible for the safe operation of trucks within U.S. territory, whether ownership is U.S., Canadian or Mexican.


NAFTA, Article 2018: Implementation

of Final Report

• 1. On receipt of the final report of a panel, the disputing Parties shall agree on the resolution of the dispute, which normally shall conform with the determinations and recommendations of the panel, and shall notify their Sections of the Secretariat of any agreed resolution of any dispute.

• 2. Wherever possible, the resolution shall be non-implementation or removal of a measure not conforming with this Agreement or causing nullification or impairment in the sense of Annex 2004 or, failing such a resolution, compensation.


Article 2019: Non-Implementation-Suspension of Benefits

• 1. If in its final report a panel has determined that a measure is inconsistent with the obligations of this Agreement or causes nullification or impairment in the sense of Annex 2004 and the Party complained against has not reached agreement with any complaining Party on a mutually satisfactory resolution pursuant to Article 2018(1) within 30 days of receiving the final report, such complaining Party may suspend the application to the Party complained against of benefits of equivalent effect until such time as they have reached agreement on a resolution of the dispute.


U.S. Implementation Efforts

• 2001: Bush Administration removed restrictions on Mexican investment in U.S. trucking firms

• 2002: Legislation and regulations requiring 22 additional safety requirements for Mexican trucks delayed by political and court challenges

• DOT v. Public Citizen, 541 U.S. 752 (2004) confirmed President’s authority to implement legislation and regulations


• 2007: After extensive negotiations with Mexico U.S. implemented 3 year pilot program

• 18 months of operation saw 26 Mexican carriers (103 trucks) and 10 U.S. carriers (61 trucks) granted authority

• In 45,000 crossings there was no significant incident

• Mar. 11, 2009: President signed stimulus legislation, effectively halting pilot program after 18 months


Omnibus Appropriations Act, 2009, Pub. L.

111-8, 123 Stat. 524, sec. 136.

• “[N]one of the funds appropriated or otherwise made available under this Act may be used, directly or indirectly, to establish, implement, continue, promote, or in any way permit a cross-border motor carrier demonstration program to allow Mexican-domiciled motor carriers to operate beyond the commercial zones along the international border between the United States and Mexico, including continuing, in whole or in part, any such program that was initiated prior to the date of the enactment of this Act.”


Legal Basis for Mexican Suspension of (Tariff) Benefits

• “The cancellation of the Pilot Program demonstrates that the United States of America and Mexico have not reached a mutually satisfactory solution to the cross border trucking controversy according to the terms of Articles 2018 and 2019 of NAFTA, and the referenced nation remains out of compliance with its international obligations to conform with NAFTA under the recommendations of the arbitral panel . . . .” [Diario Oficial, Mar. 18, 2009; DAG translation]


• “[P]aragraph 1 of Article 2019 of NAFTA establishes the possibility that in the event that an arbitral panel determines in a controversy that the measure is incompatible with the obligations of said Agreement, if the responding Party has not reached a mutually satisfactory settlement with the complaining Party, the latter may suspend benefits of equivalent effect . . . until such time when a resolution to the controversy is reached.” [D.O.]


Retaliation in Context

• Increased duties on $2.4 billion worth of U.S. source imports (under 1% of 2008 trade of $368 billion)

• Increased duties range from 10%-45% on 90 U.S. products, previously zero under NAFTA

• List includes onions (10%), potatoes (20%), cherries (20%), mineral water (20%) wine (20%), shampoo (15%), cat/dog food (10%), frozen potatoes (20%).


Apparent Mexican Objectives

• Avoid causing further pain to Mexican consumers hurt by recession

• Target U.S. products from states or districts represented by Members of Congress and Senate opposed to Mexican trucks (e.g., California wines and North Dakota potatoes)

• Avoid stimulating fears of U.S. exporters of disproportionate reaction or generate fears of U.S. retaliation

• Limit tariff increases to pre-NAFTA duties?• Take the high road by continuing to permit U.S. truck

pilot program into Mexico to remain operable


Subsequent U.S. Actions

• March 2009: DOT tasked with developing a new pilot program

• April 2009: DOT Secretary LaHood releases set of “principles” to resolve dispute

• May 2009: LaHood waiting for White House authorization to resume discussions of a new plan with Congress

• August 2009: LaHood “shares” principles with Government of Mexico

One Advocate Group Estimate of Costs of Non-Implementation

• Higher product costs for U.S. consumers and producers (up to $2.2 billion)

• $2.6 billion in lost exports

• 25,000 lost American jobs

• (Study by Trade Partnership Worldwide/CofC, Sep. 2009)

• P&G cat food and shampoo production?NACLE, Mexico, October 2009 24

The Future?• A healthy economy “depends on our ability

to buy and sell goods in markets across the globe. And make no mistake, this administration is committed to pursuing expanded trade and new trade agreements.”

• (President Obama, Sep. 14, 2009)


The Future?

• “The trade decision [Tires from China] was the president’s first down payment on his promise to more effectively enforce trade laws . . . .”

• (Thea Lee, AFL-CIO chief economist, Sep. 14, 2009)

• No mention of United States’ own obligations


Documents

The Cross-Border Trucking Dispute