A while ago, I wrote that I was fairly sanguine about the Buy-USA provisions in the stimulus bill. I prognosticated that they would probably not be applied to our NAFTA partners, and even if they were, the NAFTA dispute-resolution mechanism would limit the damage. Now along comes another dispute, this time over trucking, that poses a greater threat to trade ... although I am still confident that it will end well.
What's the story? In 1994, NAFTA passed the U.S. Congress. It mandated that all three countries open up their long-distance trucking markets to the others. The U.S., however, punted when it came to Mexico, claiming that Mexican trucks weren't safe. In 1998, Mexico took the U.S. to NAFTA arbitration. On February 6, 2001, the U.S. lost ... partially. The panel ruled that the U.S. couldn't issue a blanket ban on Mexican trucks, but that it could assess their safety on a case-by-case basis. The Bush administration pushed Congress to issue enabling legislation that would bring the U.S. into compliance with the ruling, and with the political capital gained from 9-11, finally succeeded in November 2001. (Not everything the Bush Administration did was wrong, although much was botched ... keep reading.) Congress authorized the FMCSA to inspect Mexican trucks, and the Bush administration issued the required regulations to implement the law.
Problem solved! Not quite. The Bush regulations had some, well, holes big enough to drive a truck through. More below the fold.
The Bush administration failed, you see, to issue the required environmental impact statement under the National Environment Policy Act of 1969 and the Clean Air Act of 2000. (I said this was the Bush administration. Not all the ideas were bad, but the implementation ... ugh.) In May 2002, Public Citizen took the administration to court, and in January 2003, they won. End of opening.
Yet the story does not end. The Supreme Court unanimously overturned the Ninth Circuit's ruling in June 2004. The grounds? The FMSCA had no authority to stop the entry of Mexican trucks regardless of the inspection results. OK, not quite ... it had no authority to regulate their emission standards. Which meant that the Administration needed to work out another inspection regime.
Bored yet? There's more. In 2005, the Department of Transportation politely informed its political masters that U.S. law required that the FMSCA inspect at least half the Mexican companies that desired permits inside Mexico before it let any into the United States. Get that? In 2007, it reported that it had made some progress, but the administration needed to improve the way it reported the traffic records of Mexican drivers and the border states needed to pass laws allowing them to stop trucks that hadn't passed their FMSCA inspections. On February 26, 2007, the Mexican government agreed to allow on-site inspections, and on September 6, the FMSCA started inspecting Mexican trucks. In its first year, 27 Mexican companies used 104 trucks to make 1,272 crossings, with no accidents ... and ten American companies made 2,245 trips going the other way.
Until the U.S. Congress eliminated the funding for inspections in the recent budget bill. At which point a frustrated Mexican government announced that it would apply sanctions to American agricultural exports ... but only ones that weren't purchased by poor Mexican consumers. That would lose votes, you see: more Mexicans buy Iowa corn than drive trucks into Texas.
Now one of three things will happen. (1) the Obama administration will conduct a simultaneous negotiation with Mexico and Congress and the program will eventually be restarted, in all its half-assed lack of glory; (2) the Obama administration will subtly and quietly call the Mexicans bluff, betting that the Calderón administration really doesn't want to risk losing NAFTA; or (3) the U.S. takes Mexico to Chapter 20 arbitration, in order to stall for time. What won't happen is a tit-for-tat unravelling of free trade.
I bet on number (1). Senator Dorgan won't want to hold up the Administration's other goals ... except maybe, you know, agricultural subsidies ... only if the Mexicans are smart, they'll sucker-punch North Dakota. In 2008, the state exported $199 million to Mexico, of which $103 million was agricultural. I can't dig much further, but the Mexican government can, right here. Hint: follow the potatoes.
Still, even if Mexico can't target North Dakota, for its own reasons, I don't think this augurs a trade war. Or even a trade skirmish. The U.S. is being ridiculous and has been since the Bush administration lost its nerve in 2004, but NAFTA safeguards will keep this from escalating ... as long as both countries act in goodwill. Which shows every sign of being the case.