Retaliatory Measures on U.S. imports

A Hot Tip about Regulatory Bodies in Mexico

Posted on: 6 Apr 2010

Describes retaliatory measures taken by Mexico due to U.S. failure to comply with NAFTA trucking commitments

* MEXICO ? U.S. TRADE Retaliatory measures on U.S. imports due to failure by the U.S. to comply with NAFTA trucking commitments th On March 18 , the Mexican Ministry of Economy announced the elimination of preferential tariff treatment on certain U.S. imports. The measures are adopted in retaliation for the U.S.?s non- compliance with its transportation obligations under the North American Free Trade Agreement. Under NAFTA, Mexico and the United States agreed to fully and unconditionally open its borders to cross-border transportation services as of January 2000. Prior to full opening, in December 1995, or two years after NAFTA came into effect, Mexico and the United States opened cross- border transportation services on a limited scale (i.e., bordering states in both countries). When the time came for full compliance, Mexico acted immediately while the U.S. did not under the guise of security concerns. Since then, the governments of both countries unsuccessfully conducted meetings and negotiations with a view to achieving cross-border transportation services. Accordingly, Mexico ?? resorted to a Chapter XX Panel under NAFTA , where it obtained a favorable resolution since February 2001. The Panel recommended that the U.S. carry out the measures that are necessary to comply with its NAFTA commitments. Although México had obtained a ruling against the United States, and was immediately thereafter legally entitled to apply the necessary measures, it continued to press on with negotiations. Thus, on April 27, 2007, both governments agreed to implement a pilot project providing access to Mexican trucks screened by U.S. personnel. The program originally had a one year term, but was later extended until 2010. As it turns out, Mexican trucks compiled a safety record comparable to U.S. rigs. However, as a consequence of the recent approval of the U.S. Budget for 2009, the U.S. Congress, with the approval of President Obama, prohibited the Department of Transportation from utilizing funds for maintenance of the so-called pilot project, thereby killing it. Thus, in retaliation for such unilateral suspension the Mexican Ministry of Economy published a decree that contains measures against certain U.S. products. The measures consist of a tariff increase on the importation of 89 U.S. products, with ad-valorem rates that go from 10% to 45%, which are equal to those maintained with countries Mexico has no trade agreement (i.e., those that benefit from Most Favored Nation status, or MFN). * The Business News Report of Vázquez Tercero y Asociados, S.C. is a free, periodic publication distributed to our clients and friends. No specific legal or economic advice is provided nor intended. Should you have any questions or comments in connection with this document, or if you seek particular advice on any matter, kindly contact Adrián Vázquez (adrian@vazqueztercero.com) or Horacio A. López-Portillo (horacio@vazqueztercero.com). ?? NAFTA Article 2019 provides that when an arbitral panel resolves a controversy stating that certain measures adopted by a Party are incompatible with its Treaty obligations, and a mutually satisfactory resolution has not been reached with the other party, the Claimant Party (i.e., Mexico) may suspend the application of benefits with an equivalent effect on the Defendant Party (i.e., the U.S.). According to the Mexican government, trade in the affected goods is valued at around two billion dollars, although it failed to support this statement. The goods were selected in a manner that covers a majority of the states of the United States, without actually adversely affecting inflation nor the economy of Mexican populace. The rates shall be in force until such date when Mexico and the U.S. agree on a solution to the trucking controversy. Salient products included are: Certain fruits (i.e., pears, grapes, cherries and strawberries); certain foods and food preparations (i.e., French fries, skinned peanuts, juices, soy sauce, soups); wines and spirits (including red and sparkling wines); hair, beauty and hygiene products (i.e., shampoos, hair sprays, tooth paste, deodorants); paper, carton and press products; certain textiles; sunglasses; metal furniture; vending machines, etc. We are truly puzzled by these retaliatory measures given that, in our opinion, they are ?too little, too late?. On the one hand, the measures have taken over eight years to come into fruition. On the other, the list of goods retaliated against purposely excludes sensitive goods (i.e., corn and high-fructose syrup, beef, pork, apples, oranges, soy meal, etc.). Countries that adopt this sort of measures usually select goods that ?hurt? certain domestic industries. In case, Mexico decided to substitute strategic and sensitive goods with a broad list of products that, taken individually, have little relevance as regards U.S.-Mexico trade. In many of the 89 cases, the United States is not even Mexico?s main supplier. In others, there are alternatives for importation of the goods covered by the measure at lower tariffs or even exempted. This is may not be the best strategy for Mexico. If we have retaliated, we should do so against products that are sensitive for the U.S. We would do so in order to mobilize the producers of those goods to serve as counterweight to the interests of U.S. truckers, thereby bringing the U.S. position into balance by observing its NAFTA commitments to open up land transportation to Mexican truckers. For instance, Mexico could have chosen beef or apples, currently covered by antidumping duties in different levels; or other sensitive products, such as pork legs and all sorts of wines; but we chose to keep our neighbor relatively happy.? 2
Posted: 06 April 2010

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