Source: Bloomberg
By Mark Drajem
March 17 (Bloomberg) -- Mexico set the stage for the first trade war of President Barack Obama’s administration by slapping import tariffs on $2.4 billion of U.S. goods in retaliation for a ban of its trucks from American roads.
The tariffs, on about 90 items from 40 states, were imposed by Economy Minister Gerardo Ruiz Mateos yesterday after the U.S. suspended a program to allow Mexican 18-wheelers to deliver goods across the border. U.S. Republican lawmakers said Mexico, which didn’t provide details, would impose tariffs on farm goods such as rice, beef, wheat and beans.
Mateos said halting the trucking program violated the North American Free Trade Agreement among the U.S., Mexico and Canada, enacted 15 years ago amid opposition from U.S. labor unions. The International Brotherhood of Teamsters, which represents U.S. truckers, proclaimed the suspension a victory on the union’s Web site.
“The sanctity of our commitments to our Nafta partners is being put to the test here,” said John Magnus, a lawyer at Miller & Chevalier in Washington.
The Obama administration yesterday vowed to work with Congress to come up with an alternative to the pilot program, which was canceled under a provision in a $410 billion government spending bill passed by Congress.
“Typically in these situations, the U.S. response is to find a way to back down,” said Edward Alden, a fellow at the Council on Foreign Relations in Washington. “That’s going to be hard to do” given the sentiments in Congress, he added.
Total Trade
Obama, who criticized Nafta during his election campaign, directed his administration “to propose legislation creating a new trucking project that will meet the legitimate concerns of Congress and our Nafta commitments,” Robert Gibbs, a White House spokesman, said yesterday.
In 2008, the U.S. and Mexico had $368 billion in total trade, making Mexico the third-largest U.S. trading partner after Canada and China, according to the Commerce Department.
A panel of judges said in 2001 that the U.S. was violating Nafta by prohibiting Mexican trucks from American highways for long-haul deliveries. They ruled that American regulators could impose their own safety standards and restrict access for specific companies. The Bush administration started a demonstration program two years ago to allow some trucks to travel into the U.S.
Moving Freight
Democratic Senator Byron Dorgan of North Dakota, the sponsor of the amendment that removed money from the pilot program, said he is willing to work on the issue, the U.S. trade office said in a statement.
The American Trucking Associations and the U.S. Chamber of Commerce, both trade groups, supported the program and protested its withdrawal.
“Retaliation makes these U.S. products significantly less competitive and could close the Mexican market to many of our exports,” Representative Kevin Brady of Texas, the top Republican on the trade subcommittee of the House Ways and Means Committee, said in a statement yesterday. Brady said the tariffs could affect wheat, beans, beef and rice imports.
Groups including the Owner-Operator Independent Drivers Association, in Grain Valley, Missouri, said Mexican trucks are a hazard and allowing them across the border could dampen wages for U.S. drivers.
“The right response from Mexico would be to make sure its drivers and trucks are safe enough to use our highways without endangering our drivers,” Teamsters President Jim Hoffa said in a statement. “The border must stay closed until Mexico holds up its end of the bargain.”
Unintended Consequences
Tariffs may have unintended consequences for the Mexican economy, which contracted 1.6 percent in the fourth quarter. The Mexican currency has tumbled 32 percent in the past six months as the U.S. recession throttles demand for exports and slows dollar inflows from remittances, tourism and foreign direct investment.
The tariffs may be damaging for Mexicans, who would pay a higher price for the imported goods, said Claudio Loser, a former director of the International Monetary Fund’s Western Hemisphere department and now a fellow at the Inter-American Dialogue, a policy institute in Washington.
“If the tariff sticks, it has serious costs,” Loser said. “It creates distortions and reduces the welfare of the consumers in Mexico.”
To contact the reporter on this story: Mark Drajem in Washington at mdrajem@bloomberg.net
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