Is NAFTA a litmus test for Obama trade policy?

Let’s peel our eyes off of today’s Dow Jones Average for just a few minutes…

March has marked a rather curious point in US-Mexican relations, causing many to raise a speculative eyebrow toward our new direction in international trade policy. Is President Obama beginning to draw a dangerously protectionist “line-in-the-sand” in an attempt to secure economic interests here at home?

Given this month’s recent events, the aggregate cost of this fledgling Obama – Mexico relationship on the country is around $3.1 billion ($2.4 billion worth of U.S. imports by Mexican President Felipe Calderon, and another $700 million in plans to increase security at our borders), excluding, of course, current costs of any Homeland Security programs lingering from the Bush administration. And while the billion dollar price tags of the stimulus package in the U.S. seem to dramatically eclipse those associated with Mexico, there are some underlying costs that our country may be incurring that may prove more damaging in the long-term renewal of our global economic prowess.

Issue:

Obama signs omnibus spending bill in which NAFTA pilot program with Mexico is effectively terminated. Mexico responds with tariffs. Washington is now in a jam to salvage Mexican trade relations as drug-fueled hostilities rage at the border.

To educate myself on the backdrop surrounding the pilot truck program, I turned to Sidney Weintraub’s Forbes.com commentary found here. (Sidney Weintraub is the William E. Simon Chair of Political Economy at the Center for Strategic and International Studies in Washington, D.C.), which I found to be a thorough explanation of both the history and implications of this portion of the NAFTA agreement, though heavily weighted on one side. According to Weintraub, the NAFTA Agreement, effective 1 January 1994, contained a provision in which Mexican trucks would bring cargo to designated commercial zones at or near the border, at which the cargo was to be unloaded and reloaded into U.S. trucks for shipment to destination within the U.S. A 2000 dispute regarding the shipment of Mexican goods, led to an arbitration panel ruling the U.S. to be in violation of the 6 year NAFTA agreement. The Mexican government determined, however, it economically disadvantageous to seek retaliation as, some 12% of total U.S. exports go to Mexico, while around 80% of Mexican exports are shipped to the U.S.

Weintraub continues with his discussion of the pilot program currently at the center of U.S – Mexican discord. Put into effect in September 2007, a pilot program was funded with $500 million by President Bush with 26 Mexican carriers and 103 trucks to test the safety of trucks and the viability of continued operation. In 18 months and 45,000 border crossings (approximately 24 border crossings per truck each month), these trucks operated with no significant accident reported. The U.S. Department of Transportation and an independent evaluation commissioned by the department are even both cited as reporting the “safety and out-of-service” record of the Mexican long-haul trucks to be superior to that of U.S. trucks.

So when President Obama signed the $410 billion omnibus spending bill at the beginning of the month that effectively removed the safe, 18-month old, trade agreement with Mexico, in what manner did policymakers conclude that ceasing it would advantage an ailing American economy? Or did policymakers not understand the implications of yet again dishonoring the NAFTA agreement with Mexico and assume the project would not result in economic sanctions at a price 4 times greater than the programs initial cost?

If policymakers didn’t, the Teamsters sure did. The International Brotherhood of Teamsters is a 1.4 million-member labor union in both the U.S. and Canada, comprised mainly of blue collar and professional workers from both the private and public sector. Arguably one of the most influential and best known (yes, the “Jimmy Hoffa” Teamsters), the ITB has been advocating against this program for years, citing “safety” as their chief concern, not economic or job stimulation. President Hoffa, in a recent WSJ article, expressed the union’s concerns to “include but are not limited to, incomplete and inaccurate records on Mexican driver violations, an absence of any hours-of-service enforcement, and a lack of proper collection and custody procedures for drug and alcohol testing.” (See the full article, LaHood Pitches Mexico Truck Plan to Skeptical Lawmakers.) What’s been considered to be a primarily labor union-driven effort, their long-standing disapproval of the Mexican truck project gained legislative traction with Section 136 of the spending bill written as follows:

None of the funds appropriated or otherwise made available under this Act may be used, directly or indirectly, to establish, implement, continue, promote, or in any way permit a cross-border motor carrier demonstration program to allow Mexican-domiciled motor carriers to operate beyond the commercial zones along the international border between the United States and Mexico, including continuing, in whole or in part, any such program that was initiated prior to the date of the enactment of this Act.

Consequently, the Federal Motor Carrier Safety Administration announced the termination of the project, effective 11 March 2009, the docket for which can be found here.

Here are a few concerns of my own that I’d love to have addressed:

Was an 18-month old, $500 million project that, in 45,000 border crossings, produced limited (if any) significant safety issues creating such harrowing concerns that it was worth $2.4 billion given our national economic condition?

And at a time where extreme drug-related violence (not tractor-trailer crashes) has forced a $700 million increase in border control, does it make sense to remove one of the few programs that creates some semblance of cooperation in a relationship of increasing tension?

Unless during Sec. Clinton’s recent trip she had found a direct correlation between the program and the increase in drug trafficking or a threat to peace between the two countries  (and I won’t be fooled by a sudden “discovery” of “yellow cake” in these shipments, either) then I think that special interest in the United States won a decisive victory with this one.

Response.

On 16 March, while attempting to swim through a sea of questions surrounding AIG, Press Secretary Robert Gibbs was able to speak a bit to the President’s position on U.S – Mexican trade relations. During the press conference he stated:

Today, Mexico announced its intent to take retaliatory actions against a range of U.S. exports. This is in response to the termination of a cross-border, long-distance trucking demonstration project that allowed a small number of Mexican trucks to enter the United States beyond the border commercial zones, and provided reciprocal access to U.S. companies in Mexico…

…The President has tasked the Department of Transportation to work with the U.S. Trade Representative and the Department of State, along with leaders in Congress and Mexican officials, to propose legislation creating a new trucking project that will meet the legitimate concerns of Congress and our NAFTA commitments. Senator Dorgan, the sponsor of the amendment that ended the program, has written to us to express his willingness to work with the administration in good faith to address this issue…

…Obviously exports create jobs here in this country and we don’t want to find ourselves, in a time of economic slowdown, creating or erecting a barrier to that valuable trading partnership.

The full text of the press conference can be found here.

Whether a political faux pas made in an attempt to appease a strong support group from his liberal base or a poorly calculated attempt at national economic restoration, we cannot afford to risk our international trade reputation during this time of global economic calamity. Frankly, we’re internationally “overleveraged” now on all fronts, especially in our social and economic capital, and would do better to use this time to make drastic improvements to our international trade policy.

(For a very informative and entertaining bit on the importance of the issue of effective international trade policy, check out Columbia Professor Jagdish Bhagwati’s speech at the World Affairs Council of America’s 2009 National Conference found here.)

And as we prepare for the G-20 Summit in April, I start to question the appropriateness of this program’s termination within the omnibus bill (given both the President’s length of time in the White House and our current economic situation). And when I did, I found myself concluding this blog entry on words from the most unlikely of sources: Sen. McCain. During a 6 March Congressional Record hearing Sen. McCain stated a rather poignant view in the following:

When we signed a free-trade agreement with Mexico – I believe it was 14 years ago – part of the deal was that Mexican trucks, provided they met all the safety standards and all the requirements, would be able to come into the United States, with reciprocal access to each other’s markets. Thanks to the influence of the unions and others, there is an amendment in this bill that basically kills that. Now, you can take either side of that issue. Maybe there are a lot of Americans saying – even though these Mexican trucks are inspected, even though they meet the safety standards, even though we promised tin the North American Free Trade Agreement that they would have access to our markets – maybe we shouldn’t do that. But should we be doing it in an appropriations bill, in a bill this thick, in a statement of managers this thick? Should we be making policy changes in here?

…The President of Mexico, President Calderon, has staked everything on taking on the drug cartels, and the corruption he is fighting is at the highest levels of Government. So what have we done in this appropriations bill? We have just sent a signal to the Mexicans that we are not going to keep our agreements with them. We are not going to stand by our solemn pledges to them. And, by the way, we are going to do it in an obscure provision in one of these either 1,122 pages or 1,844 pages.

And I admit, as a former Obama staffer, I rarely agree with the Arizona Senator, but on this issue, McCain holds some serious validity. The issue with Mexico cannot become an issue of fairness, in which if our economic stake in Mexico is less than to theirs in the U.S., then we abandon the agreement, even in the face of a sensitive history. It is, however an issue of making good on our current relationships, strengthening them, and finding creative solutions to tackling problems that are currently shared by both countries.

So go out and “Buy American”, help restore our economy, but let’s not make it our only option in the process. Because whether it’s AIG today, or Sec. Geithner tomorrow, there will be far bigger issues in national economic recovery if, for any reason, we freeze up our current global trade relations.

And if you don’t believe me, see what the WTO has to say on growing protectionist measures and the effect on national stimulus, here.