1. Introduction

2. NAFTA Provisions for the Trucking Industry

3. The Transportation Industry- Trucking

3.1 Canada

3.2 Mexico

4. Mexican Position during NAFTA Negotiations

5. Barriers to Mexican Entry into the United States

6. Economic Impact of NAFTA on the Trucking Industry

6.1 Canada

6.2 Mexico

7. Conclusion

8. Bibliography

1. Introduction

As The Economist (13 December 1997) put it, ‘You can’t trade without trucks." Where better to look then for the success or otherwise of NAFTA than in its effects on the trucking industry. Indeed, as the Mexican head of a leading transportation company said to us about the slowdown in the Mexican economy , "What crisis? 1998 was our best year ever".

A success story, or so one might think were it not for acute political debate (mainly in the US) which has blocked implementation of Chapter 12 of the NAFTA agreement. Cross border controls could have been started to have been implemented by December 1995 allowing trucks to move freely in the 10 border states. Currently, nothing has been implemented and officials are still talking. This works to the detriment of a growing multi-billion dollar trade.

This paper examines the provisions of NAFTA, the trucking industry in the Mexico and Canada, positions during the negotiations and barriers to Mexican entry into the US. We also look at the economic impact of NAFTA on the industry.

 

3. NAFTA Provisions for the Trucking Industry

The North American Free Trade Agreement (NAFTA) envisions surface transportation carriers from all three NAFTA countries eventually moving freely across the North American borders.

To accomplish this objective, the laws and rules of practice governing the transportation industry in all three countries must be harmonized. This process should include the unification and standardization of documents; documentary and operational practices; liability for loss, damage or delay, insurance requirements; and safety regulation. The efficient and effective transportation of goods is critical to the growth of trade between the United States, Mexico, and Canada.

Trucking falls mainly under Chapter 12 of NAFTA, Cross Border Trade in Services. NAFTA broke new ground in extending free trade commitments to services. There are three key principles: 1)national treatment, 2) most-favored-nation treatment and 3) no requirement for the service provider to maintain an office in the country as a condition to providing the service. Chapter 12 allows for certain reservations and quantitative restrictions. Licensing and certification cannot be used to create non-tariff barriers. This chapter excludes government procurement, financial services and energy related services which are treated elsewhere, nor does it affect most air services, basic telecommunications, social services and the maritime industry.

Hufbauer and Schott (1993) outline the NAFTA results for the transportation industry (See Appendix A.). Trucking industries in all three countries are affected by the following provisions:

1. cross-border access for trucking services. By the end of 1999 U.S., Canadian and Mexican carriers will have cross-border access to all parts of the countries.
2. investment in trucking services. US and Canadian companies may set up international cargo subsidiaries three years after implementation. U.S. and Canadian firms can acquire minority ownership in Mexican bus and trucking companies providing international cargo services by the end of 1995, 51 pc ownership by 2001, and 100 pc ownership by 2004.
3. technical and safety standards. Over a period of 6 years the partners will seek to harmonize technical and safety standards. A Land Transportation Services Standards Subcommittee would be established. In a Memorandum of Understanding signed in 1991, the U.S. and Mexico had agreed to accept the other’s commercial driving licenses beginning in April 1992.

Hufbauer and Schott rate cross-border access for trucking companies carrying international cargo as a very positive step. They also approve of NAFTA allowing foreign investment in trucking services and the harmonization of some technical and safety standards. However, only vague promises were made to address differing vehicle size and weight standards, and provisions to improve infrastructure and border inspection facilities were inadequate.

Chapter 5 on Customs Procedures and Chapter 16 on Temporary Entry are also important in opening up cross border trade in the trucking industry. Truck drivers were added to the list of business visitors engaged in international business activities in Schedule 1 of NAFTA.

Trucking includes a broad range of activities from freight trucks on the freeway to off-road trucks used to haul logs out of the bush. It also include many trucks not at all involved in intercity freight; for example, trucks are used in construction, collecting garbage, or hauling supplies such as poles, wires and pipes for utility companies. The trucking sector of the transportation industry consists of companies that move goods by means of road transport (carriers). These companies include those that undertake transport of goods for compensation (for-hire carriers), those that maintain their own fleets of vehicles (private carriers), and those owners-operators who haul trailers or other equipment using their own trucks, either leased or owned.

Trucking, a Canadian $37(approximately) billion industry , is divided into three major segments: for-hire trucking, private trucking and owner-operators. 1998 statistics (Government of Canada, Strategis) indicate that there are 3.7 million trucks in Canada, 680,000 of which are large trucks. For-hire trucking (80,000 large trucks) includes carriers principally engaged in the transportation of freight on a truckload or less-than-truckload basis. Private carriers (260,000 large trucks) generally carry their own goods using dedicated drivers on their company payroll, leased drivers or owner-operators Employment

Nearly 200,000 people are employed in the Canadian trucking industry (1.5% of total Canadian labor force. The wage bill, including owner-operator earnings, is over Canadian $5 billion. Average labor costs per employee were Canadian $44,000 in 1996, 30% above the average for the economy as a whole. The major expense items in the industry are labor (salaries, wages and benefits), fuel including taxes and ownership costs (eg debt interest and rent).

Most information is available on the for-hire segment of the Canadian trucking industry, which generated approximately 158,000 of the jobs. It is largely deregulated, but the government is involved in some aspects. The state owns and maintains the roads, with implications for taxation and vehicle regulations. In Canada, there are both provincial and territorial regulations, as well as federal laws. This complicate operations even within Canada.

Truck traffic, as measured by the number of tonne-kilometres, has increased steadily since 1992 in both domestic and international markets: Domestically, by approximately 50 pc and internationally by 98 pc. The relative traffic share between domestic and international markets has shifted since 1989 in favor of international traffic.

In 1996 the main commodity groups were general freight, food products and forest products; they represented over 70 pc of the carriers total tonne-kilometres.

Industry Driving Forces

Trade: Trade is the main driver of the Canadian economy and this is reflected in the trucking industry. Details are provided in the section on economic impact.

Economy: The major source of growth has been in transborder markets. Growth has been about 18 pc per year, closely to average growth in trade with the U.S. of 14 pc. The weaker Canadian dollar has significantly increased exports from Canada.

Alliances, mergers and acquisitions: The general business trend is reflected in the trucking industry.

Competition

In 1995 there were about 944 for-hire carriers, 39,000 owner-operators, 450 large private carriers and 2,400 courier companies in Canada. The trucking industry in Canada is extremely competitive as demonstrated by its perpetual state of change with new entrants, mergers and acquisitions and bankruptcies occurring all the time. Canadian companies are joining forces, as are Mexican and US companies. The number of bankruptcies in the Canadian trucking industry has been increasing significantly in 1996 and 1997.

For further details on transport infrastructure see Appendix B.

In comparison to Canada and the United States, researching the trucking industry in Mexico was hard. The information is far less accessible. Data has been collected from secondary sources and at times is conflicting. Industry surveys on Mexico are not readily available. Therefore, the following is not a complete picture of the Mexican industry.

We have not yet established the total number of trucks or trucking companies in Mexico. The Mexican trucking association, CANACAR (Camara Nacional del Autotransporte de Carga), founded in 1989 to represent the interests of the trucking industry in Mexico, represents 4,000 trucking companies or which 160 (5 pc) could be involved in trans-border trucking. The association is active in developing laws, regulations and standards related to the transport of cargo within Mexico and across the border. In Mexico 80 pc of cargo is hauled by truck.

Heavy trucks and Light trucks- e.g. courier companies

El Economista (25 July 1996) reported that the Camara Nacional del Autotransporte de Carga (CANACAR) said that the Mexican fleet comprised 280,000 trucks and at that time the average age of the fleet was 16-18 years and 15% would be upgraded. Heavy trucks in Mexico have "cajas" /boxes of less than 48 feet because of the state of Mexico´s roads. Later, El Economista (2 June 1997) said the fleet in Mexico consisted of 300,000 trucks (2 June 1997), of which only 10,000 were able to take advantage of NAFTA cross border trucking and that the average age of the fleet was said to be 15 years, as opposed to 5 years in the U.S. The same report indicated that of the 160 major cargo transporting firms, the majority met U.S. norms for safety and the environment, and that 100 of the 160 firms have drivers able to operate in the U.S.

Within Mexico the industry is competitive since, as noted above, there are 160 firms involved in "transporte de carga".

While NAFTA articles on cross border trucking have not yet been implemented, some U.S. firms have started to cross the border illegally and get involved in cabotage (trucking within the borders of Mexico) (El Economista, 25 July 1996). To date Consolidated Freightways (CF) is the only internationally licensed LTL (less-than-load)carrier operating in Mexico; CF’s Mexican filial is licensed as a Mexican carrier so that CF can carry cargo from the U.S. to any point in Mexico (Business Wire, 23 February 1999). There are joint ventures not involving investment commitments- e.g. ABF Freight Systems Inc. (Journal of Commerce, 16 February 1999).

NAFTA: The increase in trade between the U.S. and Mexico and to a lesser degree between Mexico and Canada has dramatically increased the demand for trucking services as 85% of trade between the U.S. and Mexico is by truck (The Economist, 13 December 1997). Higher demand for services came initially during a recession in Mexico after the peso crisis of 1994-95.

Just-in-time deliveries: JIT deliveries are increasing in importance. Hence, a greater increase in the LTL sector is expected than in truckload services (Journal of Commerce, 16 February 1999).

Rising Costs: Highway infrastructure: Some of the privatised toll roads were taken back by the government because of toll operator debts. These result from a serious overestimation of the use of highways by truckers. The flow of trucks on these roads has subsequently risen on these roads by 20% (El Universal, 22 February 1999). However, El Financiero reported (January 19, 1999) that truckers were threatening to boycott highways after 15.7 pc price increase in tolls. In the same article CANACAR insisted that Mexico’s highways are among the costliest in the world with a consequent damaging effect on competitiveness.

Diesel fuel, oil, inflation: The cost of hauling goods by truck in Mexico is expected to rise between 17 and 20 pc in 1999 (Dow Jones Newswires, 8 January 1999).

Crime: El Economista (25 July 1996) reported that in 1996 there were approximately two attacks daily on heavy trucks in Mexico. There are also many thefts of trucks in Mexico.

See Appendix B for more details on the infrastructure of the Mexican transportation industry.

While this purpose of this paper is not to focus on the U.S., the U.S. position during and after the negotiations is a barrier to Mexican entry to the U.S. (See section 5.4.)

In the original negotiations for NAFTA, the trucking companies, the American Trucking Association and the U.S. states close to the Mexico-U.S. border were strongly in favour of the opening up of cross-border trade in trucking. On the opposing side was the Brotherhood of Teamsters, a very powerful American union with an extremely powerful and effective lobby. California senator, Diane Feinstein, was also vocal in her opposition.

Just as the articles were to be implemented in December 1995, the Clinton administration refused to proceed because of the "safety hazard" involved. Many believe that the real reason was "political", to protect American truck drivers from foreign- i.e. Mexican- competition. Supporting the Teamsters were environmental and safety groups, many in the U.S. House of Representatives, many mayors, the insurance industry, the National Association of Independent Insurers, and the North American Truckers Summit. (See Appendix C for Teamsters controversial press releases.) To this day, the NAFTA articles on trucking have not been implemented. However, talks continue between the United States and Mexican governments, and Jeffery Davidow, the U.S. ambassador to Mexico, was reported to have said that the opening of the borders should happen this year (El Financiero, 26 February 1999).

The border between Canada and the U.S. had already been opened up by the Canada-U.S. Free Trade Agreement. In general there are no political issues between the U.S. and Canada and the level of trade between Mexico and Canada is still quite low. (See section 6.1 on the economic impact of NAFTA on the Canadian trucking industry.) This is a US/Mexico issue.

The Mexican government has been pressing for the opening up of the border to trucking and the delay in opening up to trucking has been high on the Mexican government’s negotiating agenda with the U.S. (The Economist, 13 December 1997). Since the peso crisis, Mexico has relied heavily on trucking exports to the US and the delay has been a barrier to increasing trade.

CANACAR, the Mexican trucking association, was in favour of opening the U.S.-Mexican border to cross border trucking, but some of its members now want to delay the opening because they fear that better-financed U.S. firms will be much more competitive. They want more time to recover from the crisis of 1994-95. Support for opening the border tends to be strongest among the larger Mexican trucking companies (Dow Jones International News, 8 February 1999).

Safety and regulatory standards for rigs and drivers have to be harmonized between the United States and Mexico. As noted above, in November 1991 Mexico and the U.S. signed a Memorandum of Agreement (MOU) to accept each other’s commercial driving licenses in April 1992. However, California truckers and the Teamsters have complained that Mexican drivers are not subject to the same safety rules as U.S. drivers- e.g. random drug testing. However, we note that Canadian drivers, who have open access to U.S. roads, are also not subject to random drug testing (Journal of Commerce, 1992, as reported in Hufbauer & Schott, 1993).

In particular, the Teamsters have waged a very high profile campaign against the implementation of the chapter 12 articles that would allow Mexican trucks entry to the U.S. (See Appendix C).

One figure that is being used in the safety battle is the differing average age of the truck fleets in the US and Mexico. This differential was noted above in the description of the Mexican trucking industry. However, the Mexican industry is independently modernizing its fleet.

5.2 Wages

Safety issues may not be the real issues. Rather the more important issues for the Teamsters in a very political battle are American jobs and American wages (Journal of Commerce, 1992, as reported in Hufbauer & Schott, 1993). Large wage differentials exist between U.S. and Mexican drivers: U.S. drivers make US $140 daily (1992) and Mexican drivers under 20pc of this.

The Land Transportation Standards Subcommittee is working towards compatible vehicle standards, such as weights, dimensions, inspections, emissions, when not covered by the North American Standards Council work program (Hubauer & Schott, 1993). Both Mexico and the U.S., for example, have thick books on vehicle standards: 250 safety and technical standards in Mexico and more than 1,370 in the United States. Different vehicle size and weight problems appear to be the most difficult to resolve because harmonization is not required under NAFTA. (This was also a contentious issue in the European Union). Mexico wants heavier trucks to go into the US (60,000-pound tri-axle trailers); Canada wants the U.S. to permit double and triple trailers to cross the U.S.; the US is pressing Canada and Mexico to allow 53 foot trailers.

The GAO (U.S. General Accounting Office) stated that a major implementation problem creating a barrier to Mexican entry was a shortage of customs and immigration officials (Hufbauer & Schott, 1993). The U.S. would need 1740 extra customs and 1463 extra immigration officials at an annual cost of US $375 million. According to the Journal of Commerce as reported by Hufbauer & Schott (1993), Mexico had completely changed its core of customs officers in 1991. 1200 new customs officers took over 47 customs points and 243 "points of vigilance".

The physical infrastructure at the Mexican-U.S. border does not appear to be a barrier to entry either way since infrastructure projects were started well before NAFTA. In particular, the Mexican infrastructure has improved with the involvement of the private sector.

5.5 Unions

The Teamsters effective lobbying to prevent the implementation of the NAFTA provisions on trucking (See section 4.1.) are clearly a barrier to Mexican entry to the U.S. Their publicity/propaganda clearly continues to influence the decision-makers and the population at large in the U.S. against Mexican trucking companies and truckers. (See Appendix C.)

Harmonization of laws among all three countries is required. This is not a barrier to just the Mexican entry to the U.S.; it is a trilateral issue. The following recommendations have been made by the trilateral National Law Center for Inter-american Free Trade (US department of State, Mexico Ministry of Foreign relations and UNAM and Canadian Ministry of Justice):

• North American Uniform Bill of Lading to satisfy all existing bill of lading requirements of the customs and transportation administrative agencies in the three NAFTA countries. It would have three main advantages over the current situation: enhanced Public safety as key information is easily found on the document because it is always located in the same position on the document, enforcement is facilitated by limiting the number of documents to be reviewed by a field officer and information can be easily transferred by electronic means.

• Uniform Liability Regime. Currently one of the primary areas of concern is the difference in liability standards and levels of carrier liability among the NAFTA countries.

• Rules of Practice. Standard set of rules or guidelines regarding procedures for the international movement of goods among the NAFTA countries

• Standard Insurance Policy, as a primary concern is the applicability and availability of insurance coverage for loss, damage, or delay of goods in transit.

7. Economic Impact of NAFTA on the Trucking Industry
1. Canada

The economic impacts of NAFTA on the Canadian trucking industry are hard to separate out from those of the Canada-U.S. Free Trade Agreement of 1989.

Increase in revenues: Trucking revenues have increased dramatically between the U.S. and Canada between 1992 and 1996 (more than 50 pc).

Increase in truck traffic: Since the implementation of NAFTA truck traffic has increased significantly in Canada, both domestically and internationally. International tonne-kilometres have almost doubled. This increase is attributed mostly to the Canada-U.S. free Trade Agreement of 1989 rather than NAFTA since the increase has been almost solely to and from the U.S.

Increase in trade: A principal driving force in the Canadian economy. Of the total Canadian $389 billion in goods that Canada traded with its NAFTA partners, Canadian $262 billion or 67 pc was transported by truck. In 1996 Canada exported Canadian $133 billion worth of goods to the United States and Mexico by truck, an increase of over 24 pc from 1994. These exports were mainly automobiles and auto parts, fabricated materials and equipment. In 1996 Canada imported Canadian $129 billion from the United States and Mexico by truck, accounting for 80 per cent of all goods imported. Imports from Mexico increased 32 pc from 1994, and from the United States 13 pc in the same period.

Increase in employment: Employment in the trucking industry began to increase in 1993, and increased by 20 pc between 1992 and 1996.

6.2Mexico

The trucking industry in Mexico has grown greatly with the growth of cross border trade and the promise of open borders. Bilateral trade is currently valued at more than U.S.$250,000 million per year and 85% is by "transporte terrestre" (The Economist, Ibid.). The trucking fleet has been modernized, the highway infrastructure and the training of the drivers improved. Cross border services such as customs and immigration facilities have been updated. Many of these improvements have been initiated unilaterally by the Mexican government.

The increase in trucking has also brought about an increase in the production of trucks, employment and construction. Dow Jones Newswires (13 January 1999) reported that Mexico’s truck (and bus) sales were up 33% from 1997. For example, the entry of CF Mexico has meant the purchase of a new fleet and equipment, the construction of a 20-door terminal in Nuevo Laredo and the doubling of its sales force (Business Wire, 23 February 1999). DF Mexico is improving the quality of trucking services to clients. Kenworth was increasing its daily production from 20 to 28 units at its Mexicali plant (El Economista, 1 September 1997).

Mexican companies have started to form strategic alliances with U.S. companies to enter the U.S. market. For example, the Mexican parcels and messenger service, Multipack, is joining forces with ABF, the fourth largest in the U.S. (El Universal, 11 February 1999).

 

 

8. Conclusion

With good reason does Mexican Trade Minister Blanco say that this issue is at the top of his list of NAFTA related complaints against the US (The Economist, ibid). Indeed, we believe it to be the only major industry where commitments have not been implemented. There is no resolution in sight, whatever officials may say in public. Indeed, while writing, we have heard of new obstacles being imposed at US border points. Political factors have been dominating the economic agenda and the practical inefficiency and heightened insecurity which the legal and bureaucratic blocks cause a serious impediment to the efficient flow of goods. This in turn could work to the long term detriment of regional trade and integration.