Where the Action's At: The U.S.-Mexican Border

by Todd Drennan

There is perhaps no better place to visualize the impact of NAFTA on trade than at our borders. Increasingly long lines of tractor trailers stretching for miles on both sides of the line make it clear that trade among NAFTA partners is significant--and growing.

Thanks to this trade, the U.S.-Mexican border area is actually the fastest growing economic region in North America, where many cities on both sides of the border are experiencing double-digit economic growth.

A number of factors contribute to this growth, but one plays an undeniably major role in this unprecedented prosperity: NAFTA.

The U.S.-Mexican border region, which extends about 2,100 miles, ranges from 14 to 20 miles on either side of the border. At the heart of its economic well-being is international trade.

While free-trade zones and maquiladora enterprises (factories that import raw materials duty free and then re-export a final product) were founded in Mexico years ago, NAFTA has significantly contributed to the growth of the maquila industry over the past five years. In turn, this growth has added to the economic development–not only in the creation of jobs from those maquilas created on the border, but also from the increased trade generated to service maquilas further inland.

In 1992, Laredo/Nuevo Laredo serviced approximately 190 maquila operations. By 1997, that number had grown to approximately 340 different maquilas.

In addition to the maquila industry growth, border cities make a significant portion of their revenue from businesses that service the border-crossing process; some cities charge tolls to the millions of border-crossing trucks and cars. All have a stake in making the U.S.-Mexican border crossing process more efficient and less costly.

U.S.-Mexico Border Trade

To fully appreciate the importance of facilitating trade through the border, look at the volume of trade that crosses it every year: In 1997, approximately $137 billion worth of U.S.-Mexican trade passed through U.S.-Mexican border ports. This represented about 88 percent of total U.S.-Mexican trade, according to U.S. Dept. of Commerce statistics.

It takes over 1 million trucks and hundreds of thousands of railcars to move this trade every year.

Texas has, by far, the most important border crossing points (border ports) for all U.S.-Mexico and Mexico-Canadian trade, including the majority of agricultural trade. Arizona and California ports are very important for agricultural, fish and forestry products.

In 1996, according to the most recent trade data available for agricultural products by land port, approximately 65 percent of U.S.-Mexican agricultural trade was transported over land.

On average, the United States exports approximately 55 percent of all agricultural products to Mexico over land, while Mexico exports about 85 percent of its agricultural exports that way.

Ocean freight is also an important mode of transportation for U.S. grains. The value of air freight of U.S. agricultural exports to Mexico remains relatively small when compared to total exports, but it is growing.

There are approximately 29 commercial border crossing points along the U.S./Mexico border of which nine ports handle the bulk of the trade. There are also six ports that service rail transport through the border. In terms of both value and volume, Laredo/Nuevo Laredo is the most important U.S.-Mexican border crossing port.

In 1997, "Los Dos Laredos" (the two Laredos) handled approximately 37 percent or $50.0 billion worth of all U.S.-Mexican ground-transported trade. This is more than double the next most important border crossing point. Laredo is also the busiest crossing point for agricultural, fish and forestry product trade.

Using U.S. Customs data, Texas A&M International University calculated that, in 1996, Laredo accounted for approximately half of all U.S. agricultural, fish and forestry exports to Mexico and roughly one-fourth of all U.S. imports of agricultural, fish and forestry products from Mexico.

Laredo/Nuevo Laredo’s success relative to other border crossing points can be attributed to its location. Lying strategically in the path of the Chicago-Mexico City trade corridor, Laredo can offer better transportation rates and delivery times to major U.S. and Mexican markets than can other border cities. In 1997, Laredo/Nuevo Laredo processed over 1.2 million loaded trucks and another 245,000 railcars. These numbers are expected to only increase in the future, placing additional pressures on existing infrastructure and border crossing procedures.

Laredo has already approved a fourth bridge to help absorb this increased trade and other Texas ports have recently built new bridges. Import facilities at crossings in California, Arizona and New Mexico have also been upgraded to increase the number of inspection docks to handle the growing trade.

Facilitating Border Crossings

Increased trade volume has brought about a corresponding increase in the number of complaints about border delays. It is not uncommon for shipments to be detained for several hours at the border.

Many of the problems at the root of delays for agricultural products are being addressed through NAFTA-created bilateral and trilateral committees.

Complaints include Mexico’s documentation and fumigation requirements, which are often considered excessive, and Mexican brokerage practices.

According to U.S. exporters and Mexican importers of agricultural products, the time and cost to obtain necessary documents can be at times overwhelming. For example, one needs a combination of nine USDA, Mexican Ministry of Agriculture and commercial documents to cross a shipment of U.S. grain into Mexico.

Importers and exporters argue that some of these documents contain similar if not identical information and could be combined. Furthermore, the trade contends that agricultural goods suffer in comparison to other products: A shipment of non-agricultural product needs only a commercial invoice and a bill of lading to cross into Mexico.

Many of the delays that shipments experience on the border are the result of having to correct or replace documents.

Fumigation is another procedure that adds cost and time to border crossings of agricultural products. Currently Mexico requires fumigation of all grains, cotton and other products as a precaution to protect Mexican producers from exotic pests and diseases.

While no one argues against the right and need to protect agriculture from pests and diseases, fumigation requirements and practices need to be periodically evaluated based on sound science to determine the risk of introducing a specific exotic pest or disease. Delays associated with unnecessary fumigation are very costly.

Procedural requirements and practices are other concerns when bringing agricultural products into Mexico.

Unfortunately, progress in expediting truck movements through the border has been slow, for several reasons.

Under Mexican law, U.S. exports to Mexico transported by truck must be cleared by a Mexican customs broker on the U.S. side of the border. This is unique to truck shipments entering Mexico. Air and ocean freight are cleared after arriving in country and rail freight is pre-cleared prior to entering Mexico.

Needless to say, the clearance system for trucks creates delays. Once a truck shipment has been delivered to the warehouse of a freight forwarder (owned by a Mexican brokerage firm) on the U.S. side of the border, the Mexican broker electronically prepares and registers the necessary import documents with Mexican customs authorities.

The broker also arranges for an inspection required by the Mexican Ministry of Agriculture (SAGAR), which is conducted on the U.S. side of the border.

Once the documents are in order and any fees and duties are paid, the shipment can enter Mexico. However, because this process is time-consuming, long-haul shippers are reluctant to wait out the process.

Instead, a transfer system–or drayage operation–evolved. Here’s how it works: A trailer is dropped off at a Mexican forwarding company on the U.S. side of the border. After all documents are cleared, a drayage company picks up the trailer and simply transfers it to a drop lot on the Mexican side of the border. A long-haul Mexican trucking company then picks up the trailer to take it to its final destination. Depending on the shipment and the long-haul trucking companies, the crossing process can involve four to seven tractor and trailer movements for one southbound shipment.

In addition to its added cost, drayage also means a significant number of tractors without cargo must make a border crossing.

While critics of the system see it as wasteful, brokers and drayage companies say transfers will never disappear because there is not a one-to-one northbound-southbound cargo relationship at the border. In fact, the delay in opening the U.S. border to Mexican long-haul trucking is cited as a factor that contributes to the lack of back-haul shipments and the need for drayage services.

There’s a history to this policy that agricultural shippers should be aware of. Under NAFTA, the United States agreed to open its borders to allow Mexican trucks to carry cargo into the United States beyond the border region, a practice granted to Canadian trucks.

However, in 1995, the United States announced that it would not allow Mexican trucks beyond the border region because of concerns that Mexican trucks do not meet U.S. safety standards.

Thus, Mexican trucks are currently limited to the 14- to 20-mile border region of the United States. In return, Mexico prohibits U.S. trucks beyond the Mexican border region.

Less Delay by Rail

While trucks continue to experience delays, procedures for crossing rail shipments have been significantly streamlined. Approximately half of all U.S. grain exports to Mexico are expected to move by rail in 1998.

Rail shipments move virtually unimpeded because of changes in procedures and policies to facilitate trade. Under a pre-clearance program for railcars, called despacho previo, U.S. freight forwarders and Mexican customs brokers must pre-clear import documents and pay fees and duties prior to a shipment’s arrival at the border. Thus, once a shipment of grain or other bulk agricultural commodity arrives at the border, it crosses almost immediately.

To further facilitate this trade, SAGAR agreed to conduct its inspections on the Mexican side of the border. In addition, as a result of the NAFTA-created Binational Commission process, SAGAR now conducts inspections for U.S. grain shipments 24 hours a day.

Similarly, the U.S. Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) agreed not to detain and require cleaning of grain hoppers returning to the United States within 20 days.

These changes, which have significantly reduced border crossing delays and costs, emphasize how NAFTA is helping to facilitate agricultural trade through the border.

This does not mean there are no delays or congestion problems at rail crossing ports. However, delays tend to be caused by limited infrastructure or operational problems and are not due to faulty procedures.

Automated Clearing Programs

One provision of NAFTA that seemed to promise greater efficiencies at border crossings was the development of North American Trade Automation Prototype (NATAP), an automated clearance program to standardize procedures for all three countries.

The purpose of NATAP was to demonstrate and assess the potential benefits of harmonized trade processes and common data, codes and syntax. The idea was to create a chain of information about any given shipment entering and exiting a NAFTA country.

Theoretically, the system would allow importers to pre-clear their shipments before they arrived at the border, preventing delays.

The results, thus far, have been disappointing. From April 1997 to March 1998, there were only 541 total trilateral crossings. None of the NATAP shipments contained agricultural products.

Reasons for the slow development of NATAP, especially on the U.S.-Mexican border, include continued lack of standardization in customs procedures, data and duty collections and a lack of full understanding of the program by the trade. In addition, there is a lack of infrastructure such as dedicated lanes on the export side of the border, and Mexican customs brokers have shown resistance.

To its credit, NATAP has encouraged all three NAFTA partners to focus on automating trade procedures. It has also eliminated variations in how traders defined information and provided data to customs.

As part of the development of the Automated Customs Environment (ACE), the U.S. Customs Service implemented an automated prototype system for northbound traffic called the National Customs Automation Program (NCAP) in early 1998. Five Mexican-based companies are participating in the first phase of the program to test and evaluate it.

While it is too early to make any assessment of NATAP and NCAP, it is very clear that automated document pre-clearance systems are the wave of the future. They will not eliminate the need for border inspections, but will greatly reduce the paper-document trail and help facilitate trade.

Will a fully operational automated pre-clearance system ever be developed and implemented? The answer appears to hinge on the availability of funding as much as on its acceptance by the trade.

There’s no doubt that trade between NAFTA partners will continue to grow, and that increased trade will in turn continue to benefit U.S./Mexican border communities.

However, it’s now essential to develop increasingly more efficient procedures to facilitate this trade through the border. More bridges, better highways and improved processing facilities will certainly help, but the challenge for all three NAFTA partners will be in changing policy and regulations to further open the borders.

It’s going to take fundamental change in procedures and regulations to attain the ideal seamless border that exporters on both sides hope someday to see. While these changes may take some time, the forum to do so has already been developed through NAFTA.

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The author is the U.S. Agricultural Officer in Nuevo Laredo, Mexico. Tel.: (52) (87) 19-16-03; Fax: (52) (87) 19-16-05; E-mail: E-mail:agrnl@nld.bravo.net

Last modified: Thursday, October 14, 2004 PM