Key Summary and Problem
The case study details how the United States and Mexico entered into an agreement that allowed trucks from both countries to transport their goods to their destinations without barriers. It was necessitated by earlier regulations that required trucks from Mexico to unload their cargo at the United States’ border for inspection. The agreement was later opposed by the Teamsters union in the United States, which argued that the Mexican trucks were not at par with the safety and environmental standards of the United States. As a result of the opposition by the union, the American government stalled the implementation of the agreement. Later, Teamsters sued the government in an attempt to stop the NAFTA trucking provisions, but lost the case. A NAFTA panel with the mandate of settling disputes did not recognize the problem with the agreement either. Mexico refused to initiate a disciplinary action against the US and gave it time to implement the agreement. The US government initiated a program to examine the compliance of Mexican trucks to US safety standards and found that they had better standards than US trucks. The Teamsters lobbied Congress to shut down the program, which led to Mexico imposing heavy tariffs on the US products.
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Application of Key Themes from the Textbook
Some of the themes applicable to this case relate to the regional economic integration chapter. The aim of regional economic integration is to eliminate both tariff and non-tariff barriers. The trucking case is an example of how non-tariff barriers are eliminated by integration. The Mexican trucks spent much time unloading and loading at the US border for inspection, which was a tiresome and costly exercise. The agreement removed the exercise by allowing trucks to travel into the United States without being subjected to the tedious inspections. The chapter on regional integration views political cooperation as one of the benefits to member countries. To promote cooperation, the Mexican government showed political goodwill when the US violated the agreement. From the regional integration concepts, it is clear that not all the members in a country embrace the benefits of integration. Some members feel threatened and pose challenges to the implementation of the trade agreements. The Teamsters represent such groups as it has impeded the operationalization of the trucking agreement. The union used the legal and political processes to ensure that the agreement, which it perceived as hostile, did not succeed.
Case Study Questions
Question One
The trucking provisions of NAFTA have numerous economic benefits to various stakeholders in both countries. The provisions save both time and money for the Mexican traders. Prior to their creation, the loading and offloading at the border caused inconveniences because the labor required increased the cost of operations. Additionally, the time wasted amounted to productive trade hours that could have been used for other economic benefits. In this case, the Mexican traders are the biggest beneficiaries because the bureaucracy at the border is eliminated.
The provisions have allowed the Mexican trucks to travel deep into American soil. As a result, there is increased transportation competition in the United States. Prior to the trucking agreement, American truckers had a monopoly of transporting cargo from the Mexican borders to the interiors. They charged transportation fees that were higher than those charged by Mexican trucking providers. Since the provisions have allowed Mexican trucks to travel to their destinations into the United States, the cost of transportation has reduced. Consequently, the Mexican traders’ profitability is likely to increase.
On the other hand, American consumers will benefit from the trucking provisions because they will access products from Mexico at reduced prices. The earlier transportation by the American trucks was likely to lead to high prices since the Mexican exporters had to factor the high transportation cost into the product prices.
The provisions have created a friendly relationship between Mexico and the United States. As a result, American manufacturers benefits from it as it leads to the elimination of tariff barriers. Consequently, America stands to gain through the increased trade volume between the two countries.
Question Two
The main motivation for Teamsters to object the NAFTA provisions on trucking was the fear of competition. The entry of the Mexican trucks into the United States meant that some of the jobs that had been assigned to Americans in the past would be taken over by the Mexicans. Since the union represents the welfare of the drivers, any adverse condition that is likely to affect them negatively must be resisted. Additionally, the loss of jobs by the drivers meant that they would not afford to pay their subscriptions to the union. Consequently, the union viewed the provisions as a threat to its existence, thus the great effort to paralyze their implementation.
The objections are not fair because they are based on the wrong assumptions. The leaders of Teamsters argued that they were against the Mexican trucks because they did not meet safety and environmental requirements. However, an investigation within the period of the pilot program by the government revealed that the Mexican trucks had a higher standard for safety than the American ones. If the Teamsters had a genuine concern for safety and environmental issues, they would have stopped lobbying the Congress once the government found that Mexican trucks had high safety standards. Their lobbying indicated that they feared the introduction of the Mexican trucks because of competition and probable loss of business.
Congress aligned itself with the union for various reasons. First, the Congress is elected by the citizens and should safeguard their interests. As such, it had the mandate to protect the jobs of American drivers that were likely to be lost. Since the drivers came from electoral regions from where the representatives in Congress hail, it was imperative to protect their jobs as a political maneuver to gain their favor. Secondly, unions form formidable voting blocks that can determine the direction of an election outcome. The Congress may have aligned itself with Teamsters for the sake of securing the votes from the drivers.
Question Three
There is no economic sense for the United States to pay the price through punitive tariffs instead of allowing the trucks to operate within the United States. The losses that traders from the United States experienced could not be compared to a few jobs the truck drivers would have lost. The best decision should have empowered the government to allow the trucks from Mexico to operate within the United States. Preventing them to operate was against the rules of competition as the American trucks could have competed effectively to protect their market share. The American trucks had an advantage because they had established themselves in the market with a large market share. It would not have been difficult to deal with competition. The reason America had to pay the price despite the lack of economic sense is politics. Politics is a part of regional integration all over the world and influences the decisions made. Although the Congress may have acknowledged the need to allow the trucks and thus avoid the punitive tariffs, they had political interests. As a consequence, sound economic decisions that would have shielded American traders from losses were not made. Although the decision to pay through the punitive tariffs was not ideal, it had to be made because of the political environment.
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