NAFTA Ruling Expected to Allow U.S. Access to Mexican Trucks

By Constance Parten | February 12, 2001

A North American Free Trade Agreement arbitration panel is expected to uphold an interim ruling from November allowing Mexican trucks to operate in the United States. Many in the insurance industry say they will cautiously review the changes such a ruling would 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 would merely compound the problems of truck safety on American roads today.

The NAFTA Triumverate
The expected ruling (scheduled for Feb. 5 but delayed at press time) 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. Just what will be involved in the final ruling and whether it will be appealed is still undetermined, as even the interim ruling from November is technically confidential. That there even was an interim ruling was leaked in early December, and the industry has been anxiously awaiting the final decision ever since. One group in particular is interested in the outcome—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.

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 teleconference Jan. 9. According to David Golden, director of commercial lines for the National Association of Independent Insurers (NAII), 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, though the expected ruling could put the issue on a front burner, and the tri-lateral group’s members in the hot seat.

Some of the solutions that would allow for seamless insurance with Mexico, 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 policyholder’s 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 during those phases is the safety of Mexican trucks.

Existing U.S. safety concerns
Truck safety is already an issue of concern for the insurance industry. A recent survey conducted by Roper Starch Worldwide for the Insurance Research Council (IRC) found that 57 percent of the American public believes that a proposal to increase the number of driving hours for truck drivers from 10 to 12 is unsafe. And approximately the same percentage of people were also willing to pay up to 10 percent more for goods and shipping if it would mean limiting the total work day for truck drivers to 12 hours.

“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. Additionally, the public and truckers themselves believe that maintaining the current size and weight of commercial vehicles is also a critical safety factor.”

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 the likelihood of roll-over problems and higher numbers of deadly crashes, according to Golden.

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 (IIHS). These figures show the difficulty already surrounding the regulation of truck safety IIHS. 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 expected opening of Mexican borders to trucking, according to Adrian Lund, chief operating officer. But based on the data that has been compiled, Lund said IIHS does have some safety concerns. Specifically, large 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 U.S. 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. These trucks are typically in pitiful shape at best.

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 U.S. “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.”

Outcomes of the ruling
Montemayor expects the upcoming ruling to conclude that the U.S. has violated the NAFTA agreement 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 will come of the ruling will be based on whether the U.S. appeals the decision and what Mexico’s response will be. Mexico has made it clear, however, that a complete opening of the border, with little or no limitation, is not what the country is after. But, according to Golden, opening the border to just trucking could have a tremendous effect 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 if the border opens include fuel usage. The diesel used by Mexican trucks is, in many cases, illegal in the U.S. Trucks entering the U.S. that are burning that fuel, be they Mexican or American, 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 IIHS’ Lund. “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,” regardless of the outcome of the upcoming ruling.

“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.”

From This Issue

Insurance Journal West February 12, 2001
February 12, 2001
Insurance Journal West Magazine

Commercial Auto: The Long Road Back to Profitability

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