Inside U.S. Trade: Mexican Truckers File NAFTA Investor Claim; DOT Gives Proposal To NSC
originally published in Inside U.S. Trade, April 10, 2009
A group of Mexican trucking companies late last week filed for investor-state arbitration under the North American Free Trade Agreement (NAFTA), seeking billions of dollars in damages from the United States for the U.S. failure to open its market to Mexican trucks.
The Cámara Nacional del Autotransporte de Carga (CANACAR) in an April 2 Notice of Arbitration as one of two claims states the U.S. is “refusing entry” for Mexican firms to provide cross-border trucking services, which it charges amounts to a prohibition on investment.
A lawyer familiar with the case argued that the NAFTA definition of investor is “pretty broad.” He said Mexican firms seeking to provide trucking services from Mexico to the United States are investing by virtue of having to get operating licenses from the Department of Transportation (DOT).
But another lawyer familiar with NAFTA investor-state provisions questioned that broad investor definition. “I don’t see how they can argue that [driving goods across the border] constitutes an investment,” he said.
The Mexican firms would have to show that in addition to making international deliveries, they have assets in the U.S., a hurdle that could be met by showing that they have built warehouses in the U.S., for example. But they would also need to show that the U.S. violated its NAFTA obligations with respect to these investments, such as the warehouses sitting idle because Mexican trucks are banned from U.S. roads, this lawyer said.
The arbitration notice also charges that the U.S. is “prohibiting the Claimants from making investments in United States enterprises to provide such services,” as well as violating the NAFTA minimum standard of treatment through its “calculated refusal to comply” with the 2001 NAFTA government-to-government panel finding against the U.S. for its failure to open its trucking market.
CANACAR alleged U.S. violations of NAFTA Articles 1102, 1103 and 1105. Articles 1102 and 1103 obligate the U.S. to provide national treatment and most-favored nation treatment, respectively, to Mexican carriers for international freight deliveries throughout the United States.
Under Article 1105, the U.S. agreed to provide Mexican investors, inter alia, “treatment in accordance with international law, including fair and equitable treatment and full protection and security.”
The group seeks U.S. government payment of damages for lost investment opportunities, damages resulting from a delay in this arbitration brought about by U.S. assurances it would open its market and recovery of arbitration costs. The losses total “billions of dollars,” according to the Notice of Arbitration.
A lawyer familiar with the case explained that while the Mexican government has found the lost commercial opportunities to exceed $2 billion per year (Inside U.S. Trade, March 20), CANACAR members are entitled to three years’ worth of reimbursement equivalent to this amount, due to NAFTA’s three-year statute of limitations.
He argued this three-year period ended on April 2, 2008, the date CANACAR filed its Notice of Intent to arbitrate.
In addition, because the U.S. lost in 2001 a NAFTA panel brought by the Mexican government, the lawyer said CANACAR might argue the U.S. government owes damages due to lost income from years before the three-year statute of limitations. This is because the U.S. was notified by the government-to-government panel that it was in violation of the NAFTA, yet failed to come into compliance, the lawyer said.
Finally, he said the U.S. could have prevented the need for this investor-state suit by simply implementing the 2001 panel finding. As a result, he argued the U.S. government should be made to reimburse CANACAR for the costs of arbitration.
While the total level of damages sought is yet to be determined, CANACAR has retained Jeff Leitzinger, senior economist at Econ One in Los Angeles, to calculate this figure, according to last week’s notice.
Under the NAFTA, the U.S. was obligated to fully open its market to Mexican trucks on Jan. 1, 2000, six years after the NAFTA went into effect.
In a notice posted on its website, the State Department vowed to fight CANACAR’s claim “vigorously.”
In a related development, the Department of Transportation this week submitted to the National Security Council core principles on how to resolve the cross-border trucking dispute with Mexico, according to a DOT spokeswoman.
Acting Deputy Secretary of Transportation Thomas Barrett on April 8 delivered the principles to the White House and met with NSC officials, the spokeswoman said. “They have them in their hands for review,” she said, declining to say when it would be concluded or what the principles were.
As the leader in the interagency process to craft the principles, Transportation Secretary Ray LaHood met with 23 members of Congress, key business and carrier industry stakeholders, safety advocacy groups and unions in an effort to bridge differences, the spokeswoman said.
On April 7, more than 140 agriculture and business groups wrote to President Barack Obama calling on him to “work expeditiously” to comply with NAFTA. “[W]e strongly urge you to work with Congress and quickly resolve the Mexican trucking issue to end retaliatory tariffs,” the groups said in their letter. They argued that Mexico’s retaliation on $2.4 billion worth of U.S. goods jeopardizes 12,000 agricultural jobs and 14,000 manufacturing jobs.
The groups carbon copied the letter to LaHood and U.S. Trade Representative Ron Kirk. Among the signatories were the National Pork Producers Council, U.S. Chamber of Commerce, American Farm Bureau Federation, National Association of Manufacturers, Grocery Manufacturers Association, National Cattlemen’s Beef Association, National Foreign Trade Council, Emergency Committee for American Trade, and other commodity and manufacturing groups and companies. -- Luke Engan