WASHINGTON — A key report from the Federal Motor Carrier Safety Administration this fall will go a long way toward determining how committed politicians and business leaders are to taking the North American Free Trade Agreement to the next level.
The FMCSA, the Department of Transportation agency responsible for regulating safety on U.S. roads, in October is expected to report to Congress on the results of a pilot program tracking 13 Mexican trucking companies hauling goods across the border to the U.S. and back. How Congress responds to the political hot potato — one the Teamsters union reheats with near-constant complaints — will demonstrate just how much an appetite there is for a so-called NAFTA 2.0.
Twenty years after the landmark free trade deal took effect, NAFTA trade is rising steadily, particularly between the U.S. and Mexico. Still, the trio has yet to resolve some major hurdles to NAFTA trade, namely streamlining cargo processing and raising the level at which shipments entering the three countries are free from tariffs, taxes and formal customs procedures.
Considering manufacturers from all three countries source components heavily from each other, reducing trade friction would increase the global competitiveness of North American manufacturing, free trade proponents argue. The rising cost of Chinese labor and transportation, along with shippers’ drive to shorten their supply chains to avoid disruptions, gives NAFTA members a rare opportunity to tap the so-called regionalization of trade.
But all three countries have work to do, and one of the first tests will come when Congress receives a report detailing how well the 13 Mexican trucking companies’ 63 drivers and 55 rigs measure up in terms of safety, said Federico Dominguez, director general of Mexico’s Federal Motor Transport agency. The report will reveal the results of more than 4,100 FMCSA inspections over three years.
NAFTA opponents are likely to criticize the study for not having enough Mexican motor carriers involved. The pilot originally called for at least 46 carrier participants, but the majority of the inspections have come from two larger trucking companies, said Fred McLuckie, director of the Teamsters’ department of federal legislation and regulation.
If Congress expands the long-haul pilot to all Mexican drivers, Dominguez doesn’t expect a flood of drivers hauling goods past the 20-mile border zone. The Mexican trucking industry is highly fragmented, and few carriers want to haul goods any farther than the cross-docks in U.S. border towns, he said, in part because it’s difficult for carriers to find loads to haul back across the border. For Mexican truckers, that means the deeper they travel into the U.S., the more empty miles they likely face on the return trip. Under NAFTA, the Mexican drivers can’t move freight from one U.S. destination to another, and U.S. drivers are hemmed in by the same rules when operating in Mexico and Canada.
There isn’t a whole lot of interest from U.S. trucking companies in hauling goods into Mexico past the border region, either. As of mid-April, the pilot program involved only 41 U.S. drivers and 67 vehicles. With this in mind, the pilot is more a symbol of commitment to the free trade pact, Dominguez said at April’s NAFTANEXT conference in Chicago. That commitment has wavered. Congress in 2009 defunded a pilot program that began in 2007 during the George W. Bush administration, and it took another two years before the Obama administration launched another pilot program.
Opponents of the pilot program have painted Mexican drivers as unsafe operators of faulty equipment, but that picture doesn’t hold up when inspections of pilot drivers are compared with the inspection records of U.S. drivers, according to a congressional report released in January. In fact, the rate of Mexican trucking companies placed “out of service” in the pilot was lower than the U.S. average, said John Frittelli, a specialist in transportation policy.
Border ports of entry, clogged for years amid the growing northbound traffic, will remain congested even if Congress expands the pilot to allow all Mexican drivers to drive past the border region and into U.S. markets. Canadian and U.S. trucking companies, for example, have been able to cross their shared border for years, but trucks can still pile up for miles on either side.
“The land ports of entry are bottlenecks,” Juan Carlos Villa, regional manager of Latin America at the Texas A&M Transportation Institute, said at NAFTANEXT. “There are two ways to improve them: Build more infrastructure and change the processes.”
Signs are emerging that Congress realizes it needs to invest not only in policing the borders for immigrants but also for speeding up trade. A House-Senate spending deal reached this year will allow Customs to hire 2,000 more agents and spend $128 million on modernizing the port of entry between Otay Mesa, California, and Tijuana, Mexico.
But those are just trickles compared with the $6 billion Customs needs to modernize its ports of entry on the borders with Canada and Mexico. Tight budgets in all three countries prevent the NAFTA partners from just spending their way out of the problem.
That’s why cross-border trade advocates increasingly are looking to technology to improve the tracking of cross-border transportation so customs and other agencies involved in cargo clearance use their agents and lanes more effectively. The other benefit technology can bring to the industry is tracking shipments from the factory or warehouse to the border crossing. By showing customs agents that the shipment has been secure from the time it was loaded onto a truck or train, the government agencies can focus on other loads that don’t face the same type of security.
Secure Origins, an El Paso, Texas-based technology provider, is using that model at the El Paso-Juarez, Mexico, port of entry. Trucks that are tracked from Mexican factories to their U.S. destinations via GPS units are cleared at the border three times as fast as trucks that aren’t in the public-private partnership between the city of El Paso and U.S. Customs.
“We didn’t add another lane. We didn’t add more people,” said Nelson Balido, vice president of public affairs at Secure Origins. “This is a process issue, not a manpower or infrastructure issue.”
The other way to speed up trade is through pre-inspecting goods before they hit the border. U.S. has two pilot projects for the U.S.-Mexico trade — one for agricultural goods moving from Otay Mesa and another for air cargo out of Laredo, Texas. A third pilot involving the pre-inspection of goods produced at a Foxconn plant in San Jeronimo, Mexico, has stalled, however, because the union representing U.S. Customs agents won’t let its members operate just a few hundred feet across the border without their guns, according to sources familiar with the situation. The Union for Federal Employees didn’t respond to a request for comment.
U.S. Customs has announced — but hasn’t launched — another pilot program allowing shippers to pay for additional staffing during busy times or for extended hours.
It will take years of monitoring before Congress can decide whether to expand the pilots, but U.S. and Mexican shippers and transportation providers could see faster cargo processing at the border as soon as the end of the year. Mexico wants to give members of its trusted trader program, the New Certified Companies Scheme, or NEEC, and those in the U.S. Customs-Trade Partnership Against Terrorism program special privileges, such as getting their trucks to the front of the line at border crossings, Alejandro Chacon Dominguez, Mexican Customs’ administrator general, said at the agency’s East Coast Trade Symposium in Washington, D.C., in March.
Mutual recognition between the two trusted trader programs — which aim to expedite cargo processing for users who can show customs agencies that their supply chains are secure — would be implemented in early 2015 at the latest, he said.
But for a real impact, the C-TPAT program needs to deliver more benefits to members. Many C-TPAT members question whether the extra costs and paperwork equate to fewer inspections, and a lack of new members in recent years suggests they might be right.
Those concerns appear to have connected in Congress. Sen. Orrin Hatch, R-Utah, is pushing legislation that would force U.S. Customs to provide measurable benefits to members of trusted trader programs. The Trade Facilitation and Trade Enforcement Reauthorization Act also would require other federal agencies to speed cargo clearance at ports of entry.
Many of the delays at the U.S. border don’t result from Customs, but from the other 47 agencies, including the Food and Drug Administration and the U.S. Department of Agriculture, that must approve clearance of some goods. Not only is cargo processing not these agencies’ primary focus, but they also often only deploy inspectors for one shift, meaning trucks hauling pertinent goods must wait an additional day to get the final go-ahead, said James Phillips, president and CEO of the Canadian/American Border Trade Alliance.
Creating a single window in which U.S. importers and exporters submit all necessary information for Customs and the other agencies in one form will help, though, he said. The U.S. is expected to roll out the International Trade Data System in 2016, joining Mexico and Canada in having a one-stop spot for data necessary for cargo clearance. Ultimately, the goal is for all NAFTA partners to have a shared window, creating “one face at the border.”
On the Canadian border, U.S. Customs has taken its pre-inspection pilot to the next phase by giving some trucks crossing the Peace Bridge to Buffalo, New York, faster clearance by taking care of their initial paperwork in nearby Fort Erie. The pilot, which currently allows 90 percent of southbound truck traffic to be cleared in about five seconds, comes after a five-month pilot at the crossing in Blaine, Washington, adjacent to Surrey, British Columbia. Phillips believes the two countries will roll out a more ambitious effort later this year that will make the pre-inspection process permanent and set up lanes for trucks in the trusted trader program and those that aren’t.
“Right now, we have a Monte Carlo approach to the border here — that is, whoever gets there first, he’s in line first,” Phillips said. “The key is to stream all trusted trader (trucks) together.”
When possible, shippers also increasingly are relying on intermodal rail services to get their goods across the borders. Through its pre-inspection work, Kansas City Southern Railway can move 200 containers across the border in 30 minutes. Canadian National Railway traffic from the Port of Prince Rupert, British Columbia, is pre-inspected before it hits the U.S. border via a pilot run by U.S. and Canadian customs agencies. The rail pre-inspection process, however, still needs some tweaking to reduce congestion at border ports of entry, Phillips said. Containers that need to be inspected should be pulled from the train at the railyard of origin or destination, not at the border.
Another way to increase trade between NAFTA partners is through the harmonization of the de minimis values, the level at which shipments entering the three countries are free from tariffs, taxes and formal customs procedures. But Canada, Mexico and the U.S. have made little headway in creating a uniform de minimis level, Amgad Shehata, vice president of public affairs at UPS, said at NAFTANEXT. The U.S. de minimis level is $200, while Canada’s is $20 and Mexico’s is $50.
Part of the reason efforts haven’t succeeded is “because of the security focus, and some it is because people view it as a threat to their livelihood,” FedEx founder, CEO and Chairman Frederick W. Smith told the JOC in March.
Hatch, the ranking member on the Senate Finance Committee, hopes to change that, at least on the U.S. side. He wants to pass legislation by the end of the year that would raise the de minimis level to $800.
Like efforts to speed up cross-border cargo processing, the proposed de minimis change isn’t likely to spur Congress to action or grab national media attention. But the dullness of taking NAFTA to the next level is only matched by its potential to boost North American manufacturing on the global stage.