NAFTA Panel: U.S. in Violation of Treaty

On Feb. 6, a North American Free Trade Agreement arbitration panel upheld an interim ruling opening the United States border to Mexican trucks. Many in the insurance industry say they will cautiously review the changes the ruling will bring, while others are already adamantly opposed to such a move, voicing safety as their number one concern. It’s an issue, they say, that will merely compound the problems of truck safety on American roads today.

The NAFTA Insurance Triumvirate
The ruling stems from a complaint filed last fall by Mexico, claiming its rights under NAFTA were being denied by the United States’ resistance to open the border to Mexican trucks. The panel found that the U.S. was in violation of the treaty by its blanket refusal to consider any Mexican-owned carrier applications for travel within the U.S. Whether the ruling will be appealed is still undetermined but those in the know say the recent election of George W. Bush and Vicente Fox to the presidency of their respective countries will likely mean the moratorium will come to an end.

One group with immense interest in the outcome is a combination of government officials and industry representatives known as the Tri-national Insurance Working Group, who have been taking part in tri-lateral discussions and negotiations between Canada, Mexico and the United States to come up with a seamless insurance mechanism. Now that opening the border is an almost certainty, this group has gained particular notoriety.

The group is semi-official, working under the auspices of the three NAFTA governments in an effort to streamline insurance transactions across the borders. Its last meeting was held via tele-conference Jan. 9. According to David Golden, director of commercial lines for the National Association of Independent Insurers, the group’s ultimate goal is to facilitate a system by which truckers would be insured to work in all three countries. While safety concerns are part of the discussions, there are other even larger obstacles blocking the way to a wide-open border.

“The problem comes down to the fact that Mexico’s legal tradition is civil law and we have, along with Canada, a common law tradition,” Golden said. “Practical differences then arise [with Mexico], like how an auto accident is treated in each country. Here, it’s a civil matter unless the law was somehow broken. But in Mexico…it’s a criminal matter.”

With the U.S. and Canada, a reciprocity agreement is in place under which both countries agree to play by the other’s rules should an accident or other matter resulting in a claim arise. Coming up with a similar agreement with Mexico has not been easy, and the Feb. 6 ruling has put the issue on a front burner with the tri-lateral group’s members in the hot seat. The group had scheduled another meeting for Feb. 15 and 16, the time this story was going to press. But Golden said that interest in the issue had already mounted, and those involved in the planned meeting had grown from roughly 10 people to more than 30.

At issue is a mechanism that would allow for seamless insurance with Mexico. Some of the options under consideration, according to Golden, are:

1. A variation of the mutual recognition that exists between the U.S. and Canada and their insurance companies.

2. A variation of the European “Green Card System” by which claims are handled by bureaus in each country that are given authority by the insurer to adjust and settle claims accordingly. They are then reimbursed by the policyholders insurer.

3. A revamped system of what is in place now, requiring different insurance policies for each country in which the trucker does business. It is an option that Golden said is unattractive to most everyone involved.

What will most likely occur is a phased-in approach to either variation one or two, Golden said. Whether that will be a two-, three- or even four-step phase-in Golden is unsure, but one thing that will have to be addressed is the safety of Mexican trucks.

Existing U.S. safety concerns
Already in the United States, truck safety has been an issue of concern for the insurance industry. A recent survey conducted by Roper Starch Worldwide for the Insurance Research Council found that 57 percent of the American public believe that a proposal to increase the number of driving hours for truck drivers from 10 to twelve is unsafe.

“Limiting the number of hours truck drivers work will help prevent a rise in serious injury and deadly crashes involving large commercial vehicles,” Golden said. “In fact, reducing the number of truck-related fatalities by 50 percent is the well-publicized goal of the Federal Motor Carrier Safety Administration.” The IRC survey also polled consumers regarding their support for increasing truck size. A whopping 82 percent of those surveyed were opposed to permitting larger commercial vehicles on our highways. The current weight limit for commercial vehicles is 80,000 pounds and trailer length is limited to 53 feet. Proponents of an increase cite greater efficiency and productivity if larger and heavier trucks are allowed.

“A 2000 Federal Highway Administration study documented that safety concerns will increase proportionately with increased weight and length of trucks. If larger trucks are permitted, the difficulty of stabilizing and controlling the vehicle on the highway increases dramatically. In addition, statistics have shown that the larger the commercial vehicle the greater likelihood of ‘roll-over’ problems and with that increase comes higher numbers of deadly crashes,” Golden said.

In 1996, 29 percent of all U.S. trucks were ordered off the road because of serious vehicle defects, more than half of which were brake defects. As of 1997, antilock brakes are required on new tractors and in 1998, new trailers were also added. Still, large trucks accounted for 23 percent of passenger vehicle occupant deaths in multiple-vehicle crashes in 1999, according to the Insurance Institute for Highway Safety. These figures show the difficulty already surrounding the regulation of truck safety. Adding Mexican trucks to U.S. highways will only make that more difficult and more time consuming.

Enter Mexico
The IIHS has no official stance on the opening of Mexican borders to trucking, according to Adrian Lund, IIHS chief operating officer. But based on the data that has been compiled, Lund said IIHS does have some safety concerns. Specifically, high numbers of Mexican trucks crossing the border have been put out of service for failing safety inspections. In 1999, 45 percent of trucks crossing into Arizona were put out of service. In New Mexico, 46 percent were taken off the road. And in Texas, 44 percent were removed for safety concerns. California, however, had an out-of-service rate of 20 percent, actually beating the U.S. safety averages.

“California has a reputation for aggressively going after this,” Lund said, explaining that the state installed brand new inspection facilities that drastically reduced the percentage of trucks being taken off the road. It is important to note that California has only one truck crossing from Mexico. Implementing the same type of facilities at, for example, Texas’ 18 crossings would not be as easy, nor as inexpensive. But, according to Lund, it will be a necessity if Mexican trucks are going to travel the United States. Regulation is going to have to be first and foremost, he said.

“The state would be in charge of it, but I think the federal government would have to fund it in order for it to work,” he said. “At least until we get the safety issues under control.”

According to David Snyder, assistant general counsel for the American Insurance Association, and one of the industry representatives involved in the tri-lateral discussions, much more needs to be done before Mexican trucks are allowed on U.S. highways.

“Progress has been made, but there is no evidence that adequate levels of safety can be assured,” Snyder said. “Until we see more progress, the potential for loss of life, injury and severe property loss appears to be too high to allow operation of Mexican motor carriers beyond the commercial zones.”

Snyder’s figures, which are similar to those offered by Lund, do not reflect that the trucks currently crossing into the United States are not a part of Mexico’s long-haul fleet. Rather, these trucks are drayage trucks, used to haul trailers from one side of the border to the other. As the statistics show, they are often not up to U.S. safety standards.

According to Jose Montemayor, Texas insurance commissioner and a member of the tri-lateral discussion group, Mexico’s long-haul fleet could likely be as good as that in the United States. “When NAFTA was enacted, many truckers bought brand new fleets in order to make the long trips necessary into the United States,” Montemayor said. “They certainly have fleets that are as capable as ours.” And those truckers who are not as financially capable of purchasing or maintaining such fleets would likely not be interested in hauling in the United States anyway, he said. “And others won’t be interested based on differences in customs, language barriers, unfamiliar roadways.”

Montemayor is also a member of the tri-lateral discussion group, representing not only Texas—where a full 80 percent of cross-border shipping between Mexico and the United States takes place—but the National Association of Insurance Commissioners. And Texas has been named the Commerce Department’s technical advisor.

Montemayor anticipated that the Feb. 6 ruling would conclude that the United States has violated the NAFTA by disallowing Mexican truckers access to U.S. highways. “I think they’ll find us in violation, but I don’t think the results of that [ruling] are really apparent yet,” he said. The treaty, he said, provides for remedies, including a phased-in approach like the one discussed by NAII’s Golden.

What the ruling has made clear, however, is that the U.S. must now consider each trucking application on a case-by-case basis and that the ultimate responsibility for the safety of all commercial vehicles traveling on U.S. highways, whether owned by Canada, Mexico or the U.S., remains with the United States. Mexico has already made it clear, however, that a complete opening of the border, with little or no limitation, is not what the country is after. According to Golden, opening the border to just trucking could have a tremendous affect on the economies of both countries—good and bad.

“What will happen to [trucking] jobs is really an open question,” he said. Other issues that will have to be addressed before the border opens include fuel useage. The diesel used by Mexican trucks is, in many cases, illegal in the United States. Trucks entering the U.S. that are burning that fuel will be in violation of U.S. clean-air standards. Also in question is driver licensure. How to make that information available to law enforcement in all three countries could be a sticking point. And still another important matter is ensuring that Mexican drivers are not driving too many hours.

“There are already U.S. truckers that are keeping two sets of logs for their driving hours,” said Adrian Lund of IIHS. “We have to come up with some sort of way to enforce the number of hours truckers are allowed to drive.”

These will all be topics of discussion for the tri-lateral group’s next scheduled meeting on Feb. 15 and 16, which Texas Commissioner Montemayor refers to as a “readiness review.”

“We’re going to listen to views from agents [and] brokers who will explain what the state of the state is,” he said. “I expect [the meeting] to kick the tires and wiggle the flaps to make sure we are fly-ready.”