What the United-States-Mexico-Canada Agreement means for trucking

After long, intense negotiations, the United States, Mexico and Canada have finally reached a deal that will replace the North American Free Trade Agreement. Now called the United States-Mexico-Canada Agreement, or USMCA, the updated trade agreement addresses some trucking-related issues, including cross-border trucking and cabotage.

On Sunday, Sept. 30, Canada joined an updated NAFTA deal that the U.S. and Mexico had bilaterally agreed on a few weeks before. Among the hot topics of rules of origin, labor and dairy tariffs were a few notable provisions for the trucking industry.

Cross-border trucking

One provision in USMCA reads “the United States reserves the right to adopt or maintain limitations on grants of authority for persons of Mexico to provide cross-border long-haul truck services in the territory of the United States outside the border commercial zones if the United States determines that limitations are required to address material harm or the threat of material harm to U.S. suppliers, operators, or drivers.”

“Material harm” means a significant loss in the share of the U.S. market for long-haul truck services held by persons of the United States caused by or attributable to persons of Mexico. Essentially, this restricts Mexican carriers to the border commercial zones.

The Owner-Operator Independent Drivers Association has been active during the negotiation process in support of including this provision. OOIDA President Todd Spencer provided testimony to the U.S. Trade Representative in June 2017. During negotiations, OOIDA’s Washington, D.C., staff met with lawmakers to educate them on the problems with the current cross-border trucking program. OOIDA Board Member Johanne Couture attended formal negotiations.

“OOIDA is supportive of the annex language which establishes a regulatory process for restricting Mexican trucks to the commercial border zones,” said Jay Grimes, OOIDA director of federal affairs. “We believe the provision will help end the current program that allows Mexican carriers and drivers who are not held to the same, rigorous U.S. safety, security or environmental regulations to operate on American roadways. OOIDA will continue working with the Administration and Congress to ensure that this language remains in any ultimately approved agreement.”

Cabotage

Cabotage, or the transportation of goods/passengers between two places in the same country by an operator from another country, is also addressed in USMCA: “Only persons of the United States, using U.S.-registered and either U.S.-built or duty-paid trucks or buses, may provide truck or bus services between points in the territory of the United States.”

In regard to cross-border trucking, this allows Mexican carriers to make deliveries from Point A in Mexico to Point B in the United States and vice versa. Mexican carriers will not be allowed to both pick up and deliver within the U.S.

Operating authority from the U.S. Department of Transportation for carriers that adhere to U.S. regulations is required. Grants of authority for the provision of truck services by persons of Mexico between points in the United States for the transportation of goods other than international cargo are subject to reciprocity.

Other provisions

As anticipated, 75 percent of a vehicle’s components must be manufactured in the U.S., Mexico or Canada to avoid any tariffs. NAFTA required only 62.5 percent of components be manufactured in North America. However, this only applies to cars and light trucks.

USMCA will require 60 percent of principal parts of heavy trucks to be manufactured in North America from the onset. Over a seven-year phase-in period, that rate will increase to 70 percent. Complementary parts for heavy trucks will need to be 54 percent North American from the day USMCA is in effect to 60 percent over seven years.

By 2023, 40-45 percent of automobile parts must be made by workers who earn no less than $16 per hour. Mexican workers also will have the right to union representation. This provision ideally could move manufacturing to the United States while helping workers across the borders. On the other hand, increased labor costs could potentially trickle down to a higher sticker price for consumers.

The U.S. will also have more access to the Canadian dairy market. Currently, Canada has strict tariffs and pricing on U.S. dairy products to keep Canadian dairy farmers in business. Within six months of the new deal going into effect, Canada must eliminate milk class 6 and milk class 7, including associated prices. Essentially, the U.S. can export more milk protein concentrates, skim milk powder and infant formula to Canada.

Not over yet
Although a trilateral agreement has been reached, the deal has not been finalized. From here, the agreement has to go through Congress before going into effect. This process will likely not happen until next year.

Those involved with the negotiations will work on refining the text of the agreement to prepare a full, finalized version of the deal. Governments in each of the three countries will need to go through their respective procedures and approved of the agreement.