Wednesday, November 28, 2012

A Tale of Two Borders

The North America Free Trade Agreement, signed 20 years ago, is an agreement to eliminate barriers to trade and investment between the US, Canada and Mexico. How successful has it been? Based on September 2012 data (Check out Ti's Dashboard service for monthly NAFTA data), the value of US surface transportation trade with Canada and Mexico has increased almost 70% compared to September 2002 with imports up 57.4% and exports up almost 86%. As such, as trade continues to increase among the three countries, border-crossings continue to be cumbersome with congestion being the common complaint. Attempts to ease not only congestion but also increase security and standardize customs processes have been ongoing throughout the life of the agreement.

There have been plenty of bumps in the agreement through the years. Perhaps the bumpiest is the issue to allow Mexican truck carriers to enter the US. Although Canadian truck drivers have been allowed the right to enter the US market since the signing of the agreement, Mexican carriers have not. Mexico responded by placing high tariffs on various US imports. As such, after one unsuccessful pilot program, a second one began in 2011. However, after completing its first year, it is hardly a success, as only a total of nine Mexican carriers have been given clearance and have made a total of only 221 crossings into the US. According to the September 13th Ti brief, “Cross-Border Pilot Program in Jeopardy” the lengthy qualification process and union officials appear to be holding the program back.

However, in a possible move to demonstrate its good intentions to make the program a success, the Mexican Ambassador reportedly stated that an announcement would be forthcoming regarding the allowance of cargo on some Mexican trucks headed to the US be inspected by American officials before the trucks reach the US-Mexican border – thus allowing these carriers to not have to wait at the congested port of entries along the border. Whether this pilot program will succeed remains questionable.

Meanwhile, the US-Canada border presents a different set of issues. The Beyond the Border initiative agreement (See Dec. 8 2011 Ti brief, “Canada and the US announce new measures to improve security and trade") was signed in 2011 and is to strengthen trade while reducing border costs. Goals to achieve this include the harmonization of border pre-screening and inspection programs; harmonization of regulations to speed customs clearance of goods in transit; and improving border-crossing infrastructure to support the flow of commercial traffic. In fact, implementation of this goal is set to begin for 2014.

However, according to the Canadian International Freight Forwarders Association, this harmonization will demand a good bit of negotiation between governments, associations and industry to get those standardized practices implemented.  In fact, not only will it be difficult to get either side willing to amend systems and processes, but the expertise required to manage cross-border requirements will likely increase costs for those involved in the transfer of goods.

As NAFTA trade increases, NAFTA members continue to look for ways to simplify trade between the three countries. Although the two initiatives that are discussed in this brief may have been developed to simplify trade, the supply chain costs of each should be studied to determine the true benefits of each.