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Tariffs: Is Mexico Justified?

Is Mexico's decision to hike tariffs on U.S. goods justified? Yes, say experts. No, says a Democratric lawmaker.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue 

Last week, Mexico increased tariffs on 90 US products in retaliation for a move by the US that ended a pilot program allowing some Mexican truck drivers access to U.S. roads. Was Mexico's reaction justified and proportionate? What was its strategy in choosing which tariffs to raise? Can US and Mexican officials sort out a compromise and what would such a plan look like?

Andrés Rozental, of Rozental & Asociados and former deputy foreign minister of Mexico: It is wrong to use the word 'retaliation' to describe what Mexico did after the U.S. Congress removed funding for the pilot program that allowed Mexican trucks to cross the border and travel within the United States. After almost nine years of patiently waiting for U.S. administrations to fully comply with the NAFTA provisions allowing cross-border trucking, the Calderon government simply reacted to the shutoff in funds and the termination of the pilot program by taking 'compensatory measures,' which are provided for in the NAFTA treaty when any of the parties fails to comply with its international legal commitments. The Mexican reaction was not only justified, it was long overdue. There never seemed to be a real willingness on the part of the White House and involved cabinet departments to force compliance with the trucking provisions, nor to pick a fight with the Teamsters and some congressmen who are indebted to the union for political funding. The pilot program proved beyond a doubt that Mexican trucks are not only perfectly safe and compliant with ever-increasing discriminatory regulations, but even have a better record than the U.S. trucking industry in terms of safety and compliance. Although Mexico chose to apply compensatory tariffs to products that could be called 'non-essential' to the basic economy, it also selected categories that are particularly sensitive to states like California and Washington that export many of the goods affected. The only 'compromise' that is acceptable at this stage is for the Obama administration to comply with its treaty obligations and allow Mexican trucks to cross the border into the United States without delay.

Byron Dorgan, Democratic member of the U.S. Senate, representing North Dakota: The announcement by the Mexican government that it will apply $2.4 billion in tariffs to American agricultural and industrial products is an outrage. A country that has a $453 billion trade surplus with us over the past 10 years has a lot of nerve to suggest in any way that we are being unfair to them. In fact, our expectation should be that Mexico purchases much, much more from our country to restore some balance to our bilateral trade. For the Mexican government to complain about trade with the United States stands logic on its head. Congress shut down the pilot Mexican trucking program over serious safety concerns, and no trade agreement should obligate us to compromise our highway safety. Congress cut off funding for the NAFTA pilot program because the inspector general from the U.S. Transportation Department found that the Mexican government does not have equivalent standards to the United States with respect to highway safety. It reported that the Mexican government does not have centralized records for Mexican truck driver violations. They do not have centralized accident reports. They do not have centralized reports of vehicle inspections. In addition, the cross-border pilot trucking project was supposed to require that Mexican drivers be fluent in English. The inspector general's office has testified that the way the U.S. government determined whether Mexican drivers understood American road signs, as part of the English fluency test, was to show Mexican truck drivers a highway sign and allow them identify it in Spanish. Administering an English fluency test in Spanish makes no sense whatsoever. I have no problem with Mexican long-haul trucks being allowed into the United States if it can be done safely. I wrote a letter earlier this month to the secretary of transportation, saying that I was willing to work in good faith to this end. But rather than fixing these undeniable safety problems, the Mexican government has announced tariffs on American products that have nothing to do with trucking. That is an outrage and we should not let it stand.

Carlos Mateo Paz-Soldan, partner at DTB Associates: Mexico's action was justified by the simple fact that it had won a NAFTA dispute settlement challenge in 2001 and was authorized to retaliate at that time. The so-called pilot program did not bring the United States into full compliance with the dispute settlement decision, but Mexico recognized it as a political stepping stone to that outcome. When Congress ended that program, Mexico was left with no alternative but retaliation. Mexico has sought to minimize the impact of these measures on lower income consumers in Mexico. Notably, meats, grains, dairy products and other essential foodstuffs were not included on the retaliatory list. The reality, however, is that the U.S. and Mexican economies are now so intertwined that it is close to impossible to target a particular industry in a trade action without there being impacts on both countries. Washington pears and cherries, which were hit by a 20 percent duty, are a good example. Mexico is one of their largest export markets, yet most of the workers who could be affected by the duties on these industries are Mexican. Having sponsored the original bill to cut off funding to the pilot program as senators last year, the challenge for Obama, Clinton and other members of the administration will be to craft a new, NAFTA-compliant, pilot program that will gain at least the tacit support of most members of Congress and at a minimum provides equivalent benefits to Mexico, as it is unlikely to settle for anything less.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.

 

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