Reference no: EM131374144

When the North American Free Trade Agreement (NAFTA) went into effect in 1994, the treaty specified that by 2000 trucks from each nation would be allowed to cross each other's borders and deliver goods to their ultimate destination. T he argument was that such a policy would lead to great efficiencies. Before NAFTA, Mexican trucks stopped at the border, and goods had to be unloaded and reloaded onto American trucks, a process that took time and cost money. It was also argued that greater competition from Mexican trucking firms would lower the price of road transportation within NAFTA.

Given that two-thirds of cross-border trade within NAFTA goes by road, supporters argued that the savings could be significant. T his provision was vigorously opposed by the Teamsters union in the United States, which represents truck drivers. T he union argued that Mexican truck drivers had poor safety records, and that Mexican trucks did not adhere to the strict safety and environmental standards of the United States.

To quote James Hoffa, the president of the Teamsters: Mexican trucks are older, dirtier, and more dangerous than American trucks. American truck drivers are taken off the road if they commit a serious traffic violation in their personal vehicle. That's not so in Mexico. Limits on the hours a driver can spend behind the wheel are ignored in Mexico. Under pressure from the Teamsters, the United States dragged its feet on implementation of the truckbased on the statistics and publications available, prepare an executive summary describing the features you consider as crucial in completing your report.

Exercise 2 Trade agreements can impact the cultural interactions between countries. In fact, the establishment of the Free Trade Area of the Americas (FTAA) can be considered a threat as well as an opportunity for your company. Identify the main negotiating groups a country must consider when a member. Choose two negotiating groups and justify their importance to member countries. ing agreement. Ultimately the Teamsters sued to stop implementation of the agreement. An American court rejected their arguments and stated the country must honor the treaty. So did a NAFTA dispute settlement panel. T his panel ruled in 2001 that the United States was violating the NAFTA treaty and gave Mexico the right to impose retaliatory tariffs. Mexico decided not to do that, instead giving the United States a chance to honor its commitment.

The Bush administration tried to do just that, but was thwarted by opposition in Congress, which approved a measure setting 22 new safety standards that Mexican trucks would have to meet before entering the United States. In an attempt to break the stalemate, in 2007 the U.S. government set up a pilot program under which trucks from some 100 Mexican transportation companies could enter the United States, provided they passed American safety inspections. The Mexican trucks were tracked, and after 18 months, that program showed the Mexican carriers had a slightly better safety record than their U.S. counterparts. T he Teamsters immediately lobbied Congress to kill the pilot program. In March 2009 an amendment attached to a large spending bill did just that. T his time the Mexican government did not let the United States off the hook.

As allowed to under the terms of the NAFTA agreement, Mexico immediately placed tariffs on some $2.4 billion of goods shipped from the United States to Mexico. California, an important exporter of agricultural products to Mexico, was hit hard. Table grapes now faced a 45 percent tariff, while wine, almonds, and juices would pay a 20 percent tariff. Pears, which primarily come from Washington state, faced a 20 percent tariff ( 4 out of 10 pears that the United States exports go to Mexico). Other products hit with the 20 percent tariff include exports of personal hygiene products and jewelry from New York, tableware from Illinois, and oil seeds from North Dakota. The U.S. Chamber of Commerce has estimated that the current situation costs some 25,600 U.S. jobs. The U.S. government said it would try to come up with a new program that both addressed the "legitimate concerns" of Congress and honored its commitment to the NAFTA treaty. What that agreement will be, however, remains to be seen, and as of 2010, there was no agreement in sight.

Case Discussion Questions
1. What are the potential economic benefits of the trucking provisions in the NAFTA treaty? Who benefits?

2. What do you think motivated the Teamsters to object to the trucking provisions in NAFTA? Are these objections fair? Why did Congress align itself with the Teamsters?

3. Does it make economic sense for the United States to bear the costs of punitive tariffs as allowed for under NAFTA, as opposed to letting Mexican trucks enter the United States?