Besides the AIG retention bonus fiasco in the news this week is the start of a trade war between Mexico and the U.S. In the $410B omnibus spending bill that President Obama signed recently was a provision to halt an 18-month pilot program that allowed a few Mexican trucks beyond a border buffer zone.

We will hear a lot of accusations from those on the free trade side against the narrow self-interest of the Teamsters, the Owner-Operator Independent Drivers Association’s (OOIDA) , labor unions in general, and claims that “Congress and President Barack Obama are catering to the Teamsters union.”

From those on the labor, jobs and safety side we will hear this: “the true purpose of the program was to allow American trucking companies access to the Mexican drivers, who often are paid less than half of prevailing U.S. wages, and allow them access to trucks maintained to much more lax safety standards than those in the U.S., further reducing costs for American trucking companies hiring Mexican trucks and their drivers.”

What is this accusation and concern based on? “From 1992-2002 some 1,300 Mexican-domiciled companies — all of which were majority U.S.-owned — received ‘certificates of registration’ to deliver ‘exempt commodities’ from Mexico to the U.S.” Source . In short, U.S. truck companies set up shop in Mexico. Did they use cheaper labor? Probably.

From a Feb. 23, 2007 press release from the U.S. Dept of Transportation (USDOT): “U.S. trucks will get to make deliveries into Mexico while a select group of Mexican trucking companies will be allowed to make deliveries beyond the 20-25 mile commercial zones currently in place along the Southwest border.”

“[U.S. Transportation] Secretary Peters said the new demonstration program was designed to simplify a process that currently requires Mexican truckers to stop and wait for U.S. trucks to arrive and transfer cargo. She said this process wastes money, drives up the cost of goods, and leaves trucks loaded with cargo idling inside U.S. borders. The Secretary added that under current rules, U.S. trucks are not allowed into Mexico because the United States refused to implement provisions of the North American Free Trade Agreement that would have permitted safe cross-border trucking.”

How slow do the wheels of our government move? After 9/11, glacially slow. “In 2001, Congress authorized the cross border inspection program and listed 22 safety requirements that had to be in place before other steps were implemented.” These included improvements in U.S. border stations, inspection and documentation procedures.

So what conditions did Mexican truck drivers have to meet? “The regulations require all Mexican truck drivers to hold a valid commercial drivers license, carry proof they are medically fit, comply with all U.S. hours-of-service rules and be able to understand questions and directions in English.”

How do shipments not under the program cross the border from Mexico to the U.S.? The W.P. Carey School of Business at Arizona State U. reports “First, a Mexican vehicle drops off its shipment near the U.S. border. The goods are then picked up by drayage companies that specialize in the time-consuming hop across the border and through U.S. Customs. Once in the United States, the shipment is loaded onto an American truck en route to the final destination, or held in a warehouse until it can be picked up.”

The unpredictability of the delay in shipment makes it difficult for those U.S. companies in the supply chain, waiting for the goods. “The inspections can delay shipments for hours or even days. As it stands, the process generates pollution, raises costs for shipping companies and exasperates producers and retailers. For produce, delays mean lost freshness and quality.”

Here’s a Feb. 9th, 2009 report from USDOT:

“This final report presents the status of our review of the Department’s ongoing North American Free Trade Agreement (NAFTA) cross-border trucking demonstration project, at the conclusion of the first year of the project. The Department initiated the demonstration project on September 6, 2007, for 1 year, and extended the project for 2 additional years on August 6, 2008.” The project was due to end on August 6, 2010 but the omnibus bill effectively ended the project early by stopping any spending for the project.

A summary of the report’s finding:
“Demonstration Project Lacks An Adequate Number of Carriers and Participants Are Not Representative In Some Respects of Mexican Carriers Likely to Conduct Long-Haul Operations in the United States. Based on our analysis, at the end of the first year of the demonstration project, participants had lower out-of-service rates than all U.S. carriers, but FMCSA [Federal Motor Carrier Safety Administration] had not defined or enrolled an adequate number of Mexico-domiciled carriers to provide statistically reliable results, as required by Congress.”

“Only 29 of 100 projected Mexican carriers were admitted to the project and 2 of those carriers have since withdrawn. This level of participation is not adequate to yield statistically valid findings. Only 118 of a projected 540 trucks have participated.”

The findings were by an independent panel in August 2008. The FMCSA decided to continue the project for another 2 years. For those on the free trade side, we have heard the better safety record portion of this report. We have not heard about the inadequate participation rate.

Sounds simple. Inadequate participation. Project cancelled. But there’s more:

“Trinity [a Mexican trucking company with a better safety record than many U.S. trucking companies] officials informed FMCSA that requirements to check every truck during every border crossing were proving costly to its operations. Our analysis showed that when Trinity was participating in the demonstration project, it received an average of 16 inspections each day. When not participating, the inspection rate dropped to less than one inspection per day.”

Trinity dropped out of the program. Trucks fully participating in the study carried GPS trackers. No doubt, they received extra attention from the “approximately 1,700 law enforcement personnel from 16 states … and the International Association of Chiefs of Police (IACP).” The line between diligence and harrassment is a matter of viewpoint.

“The Owner-Operator Independent Drivers Association’s (OOIDA) claim that Trinity had received over 112 violations per truck during the year prior to the demonstration project was substantiated”. Violations! Poor safety by Mexican truckers!

But OOIDA was trying to pull a fast one. The report continues “but OOIDA’s claim did not indicate that Trinity’s out-of-service violations numbered only 74, or an average of 7.4 out-of-service violations per motorized vehicle over the 1-year period. Trinity’s out-of-service rates were lower than similar rates for United States carriers during this same period.”

Competition. Protect jobs. Free market. Safety. Tough economy so buy local. More competition means better prices. The rhetoric on both sides of the debate will contain many half-facts because half-facts are simpler than full-facts. There is a witticism “If you think you know [blank], then you haven’t studied [blank] enough.”