Editor’s Note: This is the first of an exclusive two-part series on the North American Free Trade Agreement (NAFTA). It will examine efforts to clear up inconsistencies in the law regarding freight moving from Mexico into the United States. Part two will appear in the March print issue of Supply & Demand Chain Executive as well as online. It will delve further into the cross-border issue and discuss the positive and negative implications for both U.S. and Mexican carriers.
One of the main tenets of NAFTA was to eliminate barriers to trade, and facilitate the movement of goods among Mexico, Canada and the United States. It’s clearly spelled out in Chapter I, Article 102:
Objectives: “… as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to:
- Eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;
- Promote conditions of fair competition in the free trade area ...”
However, to the contrary, U.S. NAFTA negotiators allowed Mexico to reserve the right to use Mexican citizens exclusively to forward freight into or out of the United States, supporting the monopoly that one Texas Customs Brokers association attempted to prevent by asking the Department of Justice (DOJ) to change the wording prior to NAFTA's implementation.
The federal government refused not only to take action against this Mexican Customs brokers' monopoly, but also allowed Mexico to institutionalize it through the NAFTA treaty. I directly asked a U.S. Department of Transportation (USDOT) leading NAFTA negotiator how they could agree to a monopoly by Mexican citizens for controlling cross-border commercial movements. Her response: “I didn't know it was in there, Jim.”
Here is what the U.S. negotiators didn’t know was negotiated: A shipper's export declaration must be processed by a Mexican national licensed as a customs broker (agente aduanal), or by a representative (apoderado aduana) employed by the exporter and authorized by the Secretaría de Hacienda y Crédito Público for this purpose.
The Root of the Problem
The Mexican customs broker is the primary reason for border-crossing costs. In effect, he impacts all costs by controlling when goods are released into the United States. He does this with the issuance of a form called a Pedimento de Exportacion, which is a Mexican Customs Exportation Entry submitted to Mexican Customs Administration for approval and release. The Mexican customs broker, when possible, always ensures that the exported cargo has a destination on the Mexican side of the border. He does this for two distinct reasons: It stops the goods so he may use his own or cooperating drayage or transfer firm to pick up the goods waiting at the unsecured Mexican drop lots or Mexican truck terminal to take to the United States. He simply makes money on this unnecessary step.
Second, when exported products from Mexican points of origin have a destination still within Mexico, an Impuesto al Valor Agregado (IVA), known in the United States as a value-added tax (VAT), is added to shipment costs. Established as 15 percent in 1990, the tax today is 16 percent of the shipment’s value, a significant amount of revenue. However, if the destination is in the United States, which certain Incoterms compel it to be, the consignee saves at least the 16 percent IVA. Thus, if a shipment originated in Mexico with a destination outside of Mexico like Laredo, Texas, instead of Nuevo Laredo, Mexico, the IVA would be zero. The Mexican Bill of Lading/freight bill combination, also known as a Talon, aka Guia, shows the local or international destination.