To move goods between the United States and Mexico, shippers must typically deal with three trucking firms. Goods are shipped to a storage facility in a border town. The trailer is then detached from the tractor and picked up by a drayage company that moves it across the border, where a truck in that country picks it up to haul it to its final destination. The process is inefficient, and the border delays are a trucker’s nightmare.

This handing off of cargo is necessary because the United States has prohibited Mexican trucks from carrying goods through to their U.S. destination for safety reasons. According to U.S. government studies, as many as 40 percent of the five million Mexican trucks that entered the United States in 1999 failed to meet U.S. safety requirements. Mexico does not have the same rigorous standards for driver regulation and truck inspections as does the United States, nor does it register or track safety statistics on its carriers. U.S. trucks must undergo periodic safety inspections by qualified personnel employed by the trucking company. Canadian regulations are similar to those in the United States, and Canadian drivers have been permitted on U.S. highways for decades. The United States maintains that because it can inspect less than 1 percent of the Mexican trucks arriving in the United States, it cannot open its border to Mexican trucking companies until Mexico also adopts comprehensive regulatory standards as tough as those in the United States and Canada. Mexico acknowledges that when its trucks operate in the United States they must comply with U.S. standards, but that the United States cannot dictate Mexican regulatory standards.

The United States also restricts Mexican investment in U.S. trucking firms. Mexico argues that the United States does not treat Mexican trucks as favorably as it does trucks from the United States and Canada and that the United States has violated NAFTA open investment rules by prohibiting Mexican ownership of U.S. trucking firms. The United States counters that under NAFTA Mexican trucks must be treated the same as U.S. and Canadian trucks only where there are “like circumstances” and that Mexican regulations are so unlike those in the United States and Canada that more restrictive treatment of Mexican trucks is warranted. An arbitral panel was convened to hear the dispute in 2000.

FINAL REPORT OF THE PANEL

Mexico asserts that no NAFTA provision entitles a party to impose its own laws and regulations on the other. This would be an unacceptable interference in the sovereignty of another state, and certainly not something to which any party to NAFTA has committed. Therefore, Mexico [argues that it] is under no obligation under NAFTA to enforce U.S. standards, despite cooperation between the United States and Mexico to make the regulatory systems compatible [since 1995]. However, according to Mexico, the United States has made adoption of an identical system of motor carrier regulation a condition of NAFTA implementation, even though NAFTA contemplates that harmonization would not be a condition.

According to the United States … Mexico cannot identify its carriers and drivers so that unsafe conduct can be properly assigned and reviewed. Without such carrier safety performance history, the United States cannot conduct a meaningful safety fitness review of Mexican carriers at the application stage. The United States also contends that it would be futile to try to perform inspections of Mexican carriers in Mexico because “Mexican carriers are not required to keep the types of records that are typically reviewed in these inspections.” In contrast to Mexico’s system, the United States notes that “Canada’s truck safety rules and regulations are highly compatible with those of the United States.” Thus, “when Canadian-based commercial trucks cross into the United States, federal and state transportation authorities can have a high level of confidence that those trucks comply with U.S. standards and requirements at least to the same degree as U.S.-based trucks. That confidence level is bolstered by a fully functioning, computerized bilateral data exchange program.” Given all of these considerations, the “United States has … concluded that the ’circumstances’ relevant to the treatment of Mexican-based trucking firms for safety purposes are not like those applicable to the treatment of Canadian and U.S. carriers.” Accordingly, “the United States maintains that it may apply more favorable treatment to U.S. and Canadian trucking firms than to their Mexican counterparts without running afoul of Chapter 12’s national treatment or most-favored-nation rules.”

Article 1202 [national treatment] provides: Each Party shall accord to service providers of another Party treatment no less favorable than it accords, in like circumstances, to its own service providers. Similarly, Article 1203 [NTR] states: Each Party shall accord to service providers of another Party treatment no less favorable than it accords, in like circumstances, to service providers of any other Party or of a non- Party. In its most succinct terms, the disagreement between the United States on the one hand, and Mexico and Canada on the other, is over whether the “in like circumstances” language permits the United States to deny access to all Mexican trucking firms on a blanket basis, regardless of the individual qualifications of particular members of the Mexican industry, unless and until Mexico’s own domestic regulatory system meets U.S. approval.

[T]he Panel is of the view that the proper interpretation of Article 1202 [and 1203] requires that differential treatment should be no greater than necessary for legitimate regulatory reasons such as safety…. Similarly, the Panel is mindful that a broad interpretation of the “in like circumstances” language could render Articles 1202 and 1203 meaningless. If, for example, the regulatory systems in two NAFTA countries must be substantially identical before national treatment is granted, relatively few service industry providers could ultimately qualify. Accordingly, the Panel concludes that the U.S. position that the “in like circumstances” language permits continuation of the moratorium on accepting applications for operating authority in the United States from Mexican owned and domiciled carriers is an overly broad reading of that clause.

The United States claims that Mexico does not even allege that there is any interest on behalf of Mexican nationals to invest in U.S. trucking firms …. [T]he prohibition on allowing Mexican investors to acquire U.S. companies that already have operating authority, on its face, violates … NAFTA Articles 1102 and 1103 … even if Mexico cannot identify a particular Mexican national or nationals that have been rejected.

Decision. The panel unanimously held that the U.S. restrictions on the Mexican trucking industry violated NAFTA. The inadequacies of the Mexican safety regulations were not sufficient reason for the United States to refuse applications from Mexican-owned trucking companies to operate on U.S. highways. The ruling preserved the right of the United States to hold Mexican trucks to the same regulations, safety standards, and inspections as any other vehicle on U.S. roads. Mexican drivers can be required to meet the same licensing and performance standards as U.S. drivers and observe all “rules of the road.” Under special situations, the United States may establish different procedures to ensure that Mexican trucks and drivers comply with U.S. law, so long as the procedures are in good faith and not more restrictive to trade than necessary. The U.S. restrictions on investment are not valid because investment does not raise a safety issue.

1. What were the panel’s holdings with respect to the various restrictions on the free operation of the Mexican trucking industry in the United States? 

2. Was the opposition to the operation of Mexican trucking companies in the United States based primarily on safety or economic considerations? 

3. Does the example of the trucking dispute prove that despite NAFTA’s free trade provisions, there are some areas where trade will never be free or without restrictions