What is NAFTA?

The North American Free Trade Agreement, also known as NAFTA, began on January 1, 1994, and effectively removed most of the barriers to trade and investment between the North American countries of the United States, Canada, and Mexico. Since its inception, NAFTA has been breaking down trade tariffs across the continent, including on agricultural products like dairy.

Dairy Groups Support Program to Comply with NAFTA Trucking Agreement

In October 2011, NMPF and the U.S. Dairy Export Council (USDEC) hailed the full and complete lifting of retaliatory tariffs by Mexico to resolve a lingering cross-border trucking dispute. This action came after the U.S. Department of Transportation (DOT) implemented a pilot program to allow a selected number of Mexican carriers to operate on the U.S. side of the border under strict safety standards.

These actions meant that dairy products on Mexico’s retaliation list were free of the 20-25% tariffs that were restricting U.S. access to the strongest foreign market. Mexico’s retaliation against a total of $2.4 billion in U.S. exports had come after successfully challenging the U.S. ban on Mexican trucks that has remained in place, despite a 1994 U.S. commitment under NAFTA to lift it.

The DOT pilot program announced in April provided for a 30-day comment period and another period of approximately 30 days to assess the comments received. Subsequently, DOT published a final Federal Register Notice, which outlined the implementation process for the project. Based on this notice, a final agreement was signed by the U.S. and Mexico, and Mexico immediately reduced its retaliatory tariffs on all products by 50%. Removal of the remaining tariffs only awaited today’s Mexico Federal Register announcing the Mexican President’s action of accepting that the first Mexican carrier as eligible to operate across the border.

Mexico Trucking Agreement Reached, Implementation Delayed

The United States and Mexico signed a Memorandum of Understanding (MOU) on July 6, 2011 formally outlining a pilot program to allow Mexico-domiciled motor carriers to operate throughout the United States.

Despite concern raised in a recent report by the Inspector General of the U.S. Transportation Department, the Federal Motor Carrier Safety Administration (FMCSA) was ready for implementation of the U.S. – Mexico cross border trucking program. Some areas of concern in the Transportation Department IG’s report were at the border, implementation plans for electronic on board recorders for pilot program trucks, and training for inspection personnel for the pilot program.

In addition, the Department of Transportation stated that approximately 46 Mexican carrier companies would need to participate in the pilot cross-border trucking program before it terminated in three years. A Federal Register notice stated that this “statistically valid sample” must be achieved by the pilot program before a longer-term cross-border trucking program can be implemented. However, analysts suggested that, absent a longer-term cross-border trucking program, Mexico was entitled under NAFTA to re-impose “retaliatory tariffs” on US goods previously lifted.

Dairy Groups Welcome U.S. Government’s First Step Towards Resolution on NAFTA Trucking Dispute

The Obama Administration released an initial proposal on January 6, 2011 aimed at taking the first step in fostering discussions with Mexico to resolve the NAFTA trucking dispute, the fall-out of which has impacted the U.S. dairy industry by subjecting many U.S. cheese exports to Mexico to retaliatory tariffs. NMPF and the U.S. Dairy Export Council (USDEC) issued a joint press release praising the development.

Given the size of this market, this issue caused great concern for NMPF. The organization was pleased to see this step towards progress and hoped that the negotiations with Mexico would be concluded within the next two to three months, as the Administration outlined is its intent. It was important to note, however, that the 20 – 25% retaliatory tariffs on U.S. cheese exports remained in place at this point. NMPF was working to urge both the U.S. and Mexican governments to lift these tariffs in a good faith gesture as soon as possible and at least by the time negotiations with Mexico conclude.

House Dairy Champions Defend U.S. Dairy Market

On September 30, 2010, the four Co-Chairs of the House of Representative's Dairy Farmer Caucus wrote to President Obama about the retaliatory tariffs by Mexico that threatened the largest export market for the U.S. Mexico accounted for one out of every five dollars of returns that dairy producers received as a result of U.S. dairy exports, making it very important as an outlet for significant quantities of U.S. milk in the form of cheese, whey, lactose, skim milk powder, and other products. In August, Mexico imposed tariffs of 20–25% on most U.S. cheese exports in retaliation for lack of U.S. compliance with its NAFTA transportation obligations. Mexico indicated that it remains willing and able to expand the retaliation list to include other products as well in the future.

In addition to the efforts by the Dairy Farmer Caucus Co-Chairs, Rep. Bill Owens (NY), a strong defender of New York's dairy farmers, led several members from the upstate NY delegation in sending a letter to President Obama similarly urging swift action by the President to resolve this situation that was negatively impacting New York's dairy industry and threatening exports from that state to Mexico. NMPF applauded the willingness of these members to stand up and urge action by the White House to address a situation of great concern to the dairy industry.

Lack of U.S. Action Results in Retaliatory Tariffs on U.S. Cheese Exports

NMPF and the U.S. Dairy Export Council (USDEC) expressed great disappointment at the August 18, 2010 announcement by the Mexican government that it would impose tariffs of 20% to 25% on several major categories of U.S. exports to Mexico, including many cheeses. This action targeted shipments to the largest U.S. export market for dairy products and included products such as cheddar, mozzarella, gouda, provolone, colby, Monterey Jack, cream cheese, and many others.

This retaliation had been authorized by a NAFTA Dispute Settlement Panel due to lack of U.S. compliance with its NAFTA transportation obligations. With respect to the newly published retaliation list, Mexico noted that it had “yet to receive a formal proposal for the resolution of this dispute and an unequivocal signal that the U.S. government is working to eliminate the barriers that Mexican long-haul carriers face to access the U.S. market. As a result, the Government of Mexico has renewed the list of U.S. goods subject to increased tariffs.”

Dairy Groups Convey Concern to President Regarding Dairy Exports to Mexico

In a July 20, 2010 letter to President Obama, NMPF and the U.S. Dairy Export Council (USDEC) expressed concern about the potential risk to U.S. exports to Mexico that existed due to ongoing lack of action by the Administration to comply with U.S. NAFTA trucking access obligations. Mexico was applying retaliatory tariffs on many non-dairy U.S. exports due to the inability of Mexican trucks to deliver goods across the border to U.S. destinations. These tariffs were justified since the U.S. was found many years ago to not be complying with its NAFTA commitments on this issue.

Concern exists that these retaliatory tariffs could soon be applied to a greater range of products, conceivably even hitting U.S. dairy exports to Mexico. U.S. dairy exports to Mexico in 2008 totaled $935 million in 2008 and were an impressive $639 million even in 2009, making it by far the largest export market of the U.S. NMPF praised the President for his recent announcement to move ahead with resolving issues in the U.S.-South Korea FTA so that it can be considered by Congress for approval, but pointed out that even the sizable benefits we would stand to gain under that FTA pale in comparison to the size of the market we have established in Mexico and which could be put at risk if the U.S. did not act soon to resolve the trucking dispute with Mexico.

U.S. Agricultural, Manufacturing, and Services Companies and Associations Urge Obama to Resolve Mexican Retaliatory Tariff Dispute

On April 7, 2009, NMPF joined 140 other agricultural, manufacturing, and services companies and associations in sending a letter to President Obama that urged him to work with Congress and quickly resolve an international trucking issue that led to retaliatory tariffs on $2.4 billion worth of U.S. manufactured and agricultural exports. Due to the termination of the U.S. Department of Transportation's Cross Border Trucking Pilot Program with Mexico, the U.S. was in violation of its bilateral trade obligations with Mexico on international trucking. On March 19, the Mexican government instituted retaliatory tariffs.

Coalition of U.S. Food and Agricultural Organizations Oppose Managed Trade with Mexico

In a letter sent to the full House and Senate on February 6, 2008, NMPF and other U.S. food and agricultural organizations asked Congress to not include managed trade with Mexico in the 2008 Farm Bill or any other legislation. House and Senate Farm Bill conferees had been considering a proposal to manage trade in sugar with Mexico. However, adopting managed trade with Mexico would have effectively amended the free trade provisions of NAFTA by instituting export and import restraints. The proposal also contained other international trade violations that would have subjected the U.S. to challenges and unraveled the free trade opportunities that the U.S. agricultural sector worked so hard to achieve.