The North American Free Trade Agreement: Implications for Transportation

By Godwin, Stephen R. | Government Finance Review, June 1993 | Go to article overview

The North American Free Trade Agreement: Implications for Transportation


Godwin, Stephen R., Government Finance Review


With or without NAFTA, the North American economies will continue to become increasingly interdependent, spurring competition among U.S., Canadian and Mexican firms for cross-border freight and raising a host of transportation policy issues.

The North American Free Trade Agreement (NAFTA) promises to increase trade among the United States, Canada and Mexico and could considerably liberalize freight carriage across border. Signed at the White House in December 1992, NAFTA could ensure that U.S. trucks and trains have competitive access to the market of more than $50 billion in U.S. Mexican trade that moves by land. The U.S. Congress now must approve or reject the agreement; similar approvals will be required in Canada and Mexico. If NAFTA is approved more or less as drafted, one of the first steps for liberalizing trucking will occur three years after the signing of the agreement, at which time U.S. and Mexican truck operators will be allowed to transport international cargo to the border states of the other country.

The executive director of the Texas Department of Transportation (TxDOT) has expressed the state's clear economic interest in further linking the economies of Texas and Mexico, as well as his own anxieties about the transportation problems caused by increased trade: where to provide new capacity and how to pay for it? how much increased trade will there be? how much will move by truck as opposed to rail? and where will the trucks go?

Mexican exports currently account for only 6 percent of total U.S. imports, but many analysts predict that Mexico will one day become a major market and trading partner and no longer be just a manufacturing locale. In the long run, the benefits of access to a market that today has 80 million people and is growing rapidly are considered to be great. Texas may benefit more than any other state from expanded trade with Mexico, but infrastructure improvements will be crucial to realizing these benefits.(1)

In addition to infrastructure bottlenecks at border crossings, other institutional and regulatory barriers have inhibited cross-border transportation. There are shortages of customs inspectors and capacity (including lack of automation for paperwork and inconsistent procedures across borders) and inconsistent regulations governing motor carrier sizes and weights. These problems have been compounded by Mexican policies prohibiting U.S. or Canadian ownership of highway and railroad companies operating in Mexico and operation of foreign carriers in Mexico.

The NAFTA provisions governing transportation services would sweep away the latter restrictions. In addition to opening trucking service in international cargo to the border states three years after the agreement is signed, NAFTA would allow service to all points in all three countries in the sixth year after it takes effect. In the seventh year, Mexico would begin allowing up to 51 percent ownership by U.S. and Canadian companies of Mexican truck and bus companies that provide international cargo service and in 10 years would allow 100 percent ownership. Railroads would be able to market their own services in Mexico, use their own locomotives to carry run-through trains, build and own their own terminals and spur lines, and finance rail infrastructure.

The three nations will continue consultations to make compatible their domestic highway and rail safety standards, but regardless of progress made on this front, drivers operating in the United States must meet U.S. driver qualifications, and vehicles must meet U.S. safety standards. (Aside from liberalizing investment opportunities in Mexican port facilities, freight transportation by water and air is not addressed in NAFTA and, though potentially significant, is not addressed in this article.)

Freight Transportation Issues

Many barriers to trade were lowered in the 1989 bilateral agreement between the United States and Canada, and substantial progress has been made between the United States and Mexico independent of NAFTA. …

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