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United States attempting to solve trade dispute with Mexico

by Tim Linden | March 25, 2009
In mid-March, Mexico levied tariffs on dozens of U.S. products as a retaliatory measure to the ending of a cross-border trucking program that allowed a specific number of Mexican trucks to deliver their loads past the 20-25-mile commercial zone and to the point of destination within the United States.

The Obama administration announced the week of March 23 that it was engaged in efforts to end the dispute and hoped to do so by the time President Obama travels to Mexico in April.

Ken Gilliland, director of international trade and transportation for Western Growers Association in Irvine, CA, said that the dispute dates back to the original enactment of the North American Free Trade Agreement in 1994.

NAFTA, which established a protocol for free trade among the United States, Canada and Mexico, included a provision to allow trucks from each country to deliver the goods they were carrying to points of destination. The trucks were also allowed to pick up a backhaul destined for their home country.

The United States did not immediately enact this provision, and Mexico eventually took its case to the World Trade Organization, where it filed a claim against the United States for unfair trade practices. Mexico prevailed in 2000.

Negotiations began to solve the dispute, and the United States launched a pilot program in 2007 to allow a limited number of Mexican trucks access to the U.S. market.

Mr. Gilliland said that the program appeared to be working with few complaints, but the U.S. Congress cut funding for the effort as part of the budget bill passed and signed in early March, which he said effectively ended the program and led Mexico to slap $2.4 billion in tariffs on many U.S. goods. Among those affected items are pears, grapes, lettuce and onions.

The WGA executive said that under the provisions of the WTO ruling against the United States, Mexico is allowed to impose the tariffs as a remedy for the financial harm that has occurred because the United States is not allowing Mexican trucks to deliver goods throughout the United States. Instead, Mexican truckers must offload the produce within the commercial zone for transfer to U.S. trucks.

Congressional representatives who withdrew funding from the program pointed to safety concerns, although their fears do not appear to have the weight of evidence behind them.

According to a March 24 story in The Wall Street Journal, the U.S. Department of Transportation, which ran the pilot program and monitored the results, reported no major crashes caused by Mexican truckers. While as many as 500 trucks could participate in the program, only about 100 trucks were registered from 30 different Mexican carriers.

Mr. Gilliland said that the tariffs on fresh produce range from 10 to 45 percent, with grapes having the highest figure. In 2008, U.S. grape producers sent $59 million worth of grapes to Mexico, so if this tariff remains, it could have a limiting effect on exports.

However, this is not the time of year that U.S. producers export to Mexico, so there is plenty of time to address the issue before those shipments begin in earnest this summer.

But other crops may be affected in the short term.

Crops currently in production that may be shipping to Mexico are pears, lettuce and onions. Onions and lettuce have a 10 percent duty, while pears have a 20 percent tariff.

In 2008, the United States sent about $66 million worth of fresh pears to Mexico, according to Jeff Correa, international marketing director for the Pear Bureau Northwest, based in Milwaukie, OR. He said that between California and the Northwest, pears are shipped to Mexico 12 months of the year.

"Last week, I know shippers were trying to get their loads through the border quickly before the tariff took effect," he said. "On Thursday and Friday [March 19 and 20], sales stopped as Mexican buyers assessed the situation. But by this week, I hear they have resumed again."

But Mr. Correa said that the 20 percent tariff would probably have a negative impact on sales. He said that Mexican buyers already were having to pay more for the same goods than last year because the Mexican peso has dropped 40-50 percent in value compared to the U.S. dollar in the last six months.

Mr. Correa said that the Mexican peso has rebounded about 10 percent over the last week, which should help offset some of this tariff. But he said that U.S. shippers were hopeful for a quick resolution of this issue and the elimination of the tariffs.

Depending upon the grade, U.S. pears have been selling for $15-$20 per carton, which would equate to a $3-$4 tariff.

Mark Powers, vice president of the Northwest Horticultural Council, said that the newly imposed tariffs would cause "economic pain" to the Northwest fruit industry.

"During a recession is not the time you want to lose export markets," he said. Mr. Powers said that talks are ongoing in Washington, DC, to rectify the problem. He said that there does appear to be a sense of urgency to craft a program "that addresses the concerns of Congress with regard to safety and has the U.S. comply with its NAFTA obligations."

However, he added that the Department of Transportation report on the pilot program pointed to no safety issues. "We hope that this gets solved quickly, but we know a solution is in its early stages," he said.

Mr. Powers added that Congress will have to pass a new bill and the president will have to sign it. There is indication that this will be done quickly, but how quickly is the all-important question.