It's not a done deal after all. Although the Bush administration had agreed to comply with a NAFTA arbitration panel's ruling permitting Mexican motor carriers to carry cross-border cargo anywhere in the United States by Jan. 1, 2002, the U.S. House of Representatives had other ideas.

By a vote of 285-143, the House in late June approved a surprise amendment to the FY2002 Transportation Appropriations bill (H.R. 2299). That amendment prohibits the use of federal funds to process applications by Mexican motor carriers to operate in the United States beyond the existing border commercial zone. By withholding funds, the amendment in effect bars the U.S. Department of Transportation from granting operating authority to Mexican carriers.

President Bush has pledged to reverse the House vote. He faces an uphill battle, though: 82 Republicans joined the Democrats in supporting the amendment. There could be similar defections when the Senate considers its version of the appropriations bill, which passed the House by a vote of 426-1.

Under the terms of the North American Free Trade Agreement (NAFTA), U.S., Canadian, and Mexican motor carriers were supposed to be able to operate in all three NAFTA countries by 1996. Canadian truckers have free rein in the United States, but the Clinton administration postponed entry by Mexican carriers because of concerns over safety. Many industry observers, however, believe that Clinton's move actually resulted from pressure by the Teamsters union.

The Mexican government protested the U.S. decision, and a NAFTA arbitration panel earlier this year found the United States to be in violation of its obligations under the treaty. Opposition to the administration's decision to abide by the panel's ruling had been building ever since.

In May, Rep. James Oberstar (D-Minn.) and 31 cosponsors introduced a resolution asking President Bush to delay implementation until necessary regulations, staffing, infrastructure, and information systems were in place to assure safe operations by Mexican carriers.

Last month, 10 U.S. senators sent a letter to President Bush proposing that required safety inspections be concluded at the Mexican carrier's home terminal before operating authority would be granted. They also urged that the United States take advantage of the NAFTA panel's ruling that different compliance review procedures from those used for U.S. and Canadian carriers could be applied to Mexican carriers to ensure their compliance with U.S. law.

Long before the House vote, the Department of Transportation's Federal Motor Carrier Safety Administration (FMCSA) issued proposed rules that would govern Mexican motor carriers' access to the U.S. market. That proposal would:

• Establish an application form and a process for approving Mexican carriers' requests for operating authority within border commercial zones in California, Arizona, New Mexico, and Texas;
• Establish an application form and a process for approving Mexican carriers' requests for operating authority beyond those commercial zones; and
• Establish a safety monitoring and enforcement regime for Mexican carriers operating in the United States.

The proposed rules would require all Mexican carriers—even those already operating in commercial zones—to certify that they are in compliance with U.S. motor carrier safety regulations. They also would have to certify that they would comply with U.S. labor and tax laws, register an official agent in the United States to receive DOT filings and notices, and comply with state transportation regulations. Registration would be conditional on completion of a satisfactory safety audit within 18 months of receiving U.S operating authority—a provision many in Congress opposed.

There are other problems with DOT's proposed rules, say longtime observers. William Augello, adjunct professor of transportation law at the University of Arizona and a Logistics columnist, points out that the rule could allow Mexican carriers to operate in the United States without cargo insurance. The application for operating authority for Mexican carriers is expected to duplicate what is required for U.S. and Canadian carriers. The problem, he says, is that DOT has not yet eliminated the distinction between common and contract carriers and established a single set of rules for all motor carriers, as required under the Interstate Commerce Commission Termination Act of 1996 (ICCTA). As a result, DOT is still issuing common carrier and contract carrier operating permits.

Contract carriers are not required to file evidence of cargo insurance; instead, they may negotiate insurance provisions in their contracts with shippers. But many shippers fail to negotiate adequate coverage, Augello says. The same could happen if Mexican carriers are allowed to register as contract carriers, he says. The obvious remedy is for DOT to eliminate the distinction between common and contract carriers and mandate uniform insurance requirements for all motor carriers.

The proposed rules also are unclear about requirements that Mexican carriers comply with U.S. labor laws, says NAFTA expert Dr. James Giermanski, professor of international business at Belmont Abbey College and a Logistics columnist. "Does it mean that on this side of the border they have to pay minimum wage and comply with OSHA regulations?" he asks. "We don't know the answer to that." There also is potential for DOT's proposed regulation to conflict with NAFTA's provisions regarding remuneration for work performed by nationals of one country in the territory of another. Tax law also is fuzzy when it comes to cross-border business, he says. DOT's proposed requirements in these two areas may apply to a Mexican motor carrier that establishes a physical presence, such as a sales office or terminal, and hires employees in the United States, says Giermanski, but may not apply to purely international operations.

Whether these rules go ahead or not is contingent on the final outcome of the House and Senate votes. Given the high level of interest by the general public and the likelihood of a diplomatic row erupting between Mexico and the United States if the provision should become law, it looks as though lawmakers will be in the hot seat this summer.