Mexico Retaliates in the Name of NAFTA
By Stratfor
Mexico imposed tariffs on 90 U.S. products from 40 different states on Monday, retaliating against a decision by the U.S. Congress to bar Mexican trucks from accessing U.S. freeways. The decision comes at a time when Mexico and the U.S. are feeling out the possibilities of collaboration in the drug war that has destabilized much of their shared border. It also comes on the heels of a meeting between U.S. President Barack Obama and Brazilian President Luiz Inacio “Lula” da Silva that was cordial but failed to make progress toward key goals. All in all, the Obama administration does not appear to be ready to make many changes in policy toward its hemispheric neighbors.
The dispute with Mexico centers on a provision in the North American Free Trade Agreement (NAFTA) that provides shippers with mutual access to transportation networks. Pressure from the U.S. truckers unions — the Teamsters especially — has prompted Washington to block access to all U.S. roads beyond a 20-mile buffer zone along the border, ostensibly out of concern for safety. In order for goods to enter the United States, they must be trucked to transfer points along the border, unloaded from Mexican trucks and reloaded on U.S. trucks. Mexico claims the restrictions directly violate NAFTA, and it is urging Washington to make changes.
The dispute has been going on for years now; the most recent chapter opened when the U.S. Congress slipped a measure into an omnibus bill passed several days ago, terminating a pilot program promoted by then-President George W. Bush that gave Mexican truckers access to U.S. roads.
Though Mexico could wait until Wednesday to release the details of the tariff hikes, the move sends a clear message to the Obama administration that Mexico intends to use the tools it has to make sure the United States toes the line on NAFTA. The dispute at this point is relatively low-level, but by targeting goods from 40 states, Mexico is clearly signaling Congress that restrictions on free trade will be met with retaliatory measures designed to strike close to home. Congress members who support blocking Mexican truckers will have to justify to their business constituencies the decline in access for one of the United States’ largest trading partners.
These tensions with Mexico follow Obama’s meeting with da Silva which, though friendly, failed to make any progress on one of Brazil’s key issues: ethanol. The U.S. tariff on ethanol imports, currently set at 54 percent, is designed to protect U.S. ethanol producers who rely on corn to produce the fuel. Brazil’s highly efficient ethanol industry relies on the cultivation of sugar cane, which (with current technology) is a much cheaper way to make fuel.
Brazil and Mexico are the two most important states in Latin America. Together, they account for well over 50 percent of the region’s gross domestic product and populations. Brazil is the region’s rising power — with major new oil finds, a booming population and a fiscally responsible government that has made peace with the economic demons of its past. Mexico and the United States share an enormous, lightly defended border — and a serious problem with drug trafficking — not to mention a very close collaborative relationship and enormously intertwined economies.
For the Obama administration to find itself in a trade dispute with Mexico this early on, and with no concrete overtures to make toward Brazil, it is clear that the administration is putting domestic politics ahead of relations with Latin America. Despite the transfer of power in Washington, Latin American policy remains on the far back burner.
