Preserving and expanding our important NAFTA trading relationships in light of September 11. (Focus on Mexico).(Brief Article)

While we are reminded, almost on a daily basis, about the importance of international trade to our economic well being, the events surrounding 9/11 made it imperative that we, and our NAFTA partners, tighten border security to protect our citizens and infrastructure. This paper examines the effect 9/11 has had on our NAFTA trading relationships and the steps NAFTA partners have taken to preserve and expand trade. Also, the article will identify agreements with non-NAFTA countries, which have agreed to security arrangements similar to the ones with NAFTA countries.

At the outset, it must be stressed that, in time, all of the protective measures outlined in this paper to secure NAFTA partners' borders will, in some form, be initiated by our other major trading partners to which U.S. exporters will make delivery. Therefore, it is vital that both exporters and importers carefully review the border initiatives set forth in this article, no matter whether they affect in-bound or out-bound trade, as they most probably will serve as models for other nations.

9/11's EFFECT ON NAFTA TRADE

If one were only to rely on the press, we would surely conclude that 9/11 had a disastrous effect on cross-border trade among the NAFTA countries. Just think back to all of the articles you read about and pictures you saw of trucks waiting endlessly to cross critical bridges and checkpoints along our borders. Just think back to reading about the highest unemployment figures in nearly a decade. It would have been nearly impossible for any reasonable person to come to any different conclusion. Surprisingly, we will see that this conclusion was not even close to the truth.

More specifically, the OECD report laid much of the blame for dismal economic activity, including slowing trade volumes, on the economic slowdown, which started in 2000. A related issue is the more immediate question as to whether and to what extent the security measures put in place soon after 9/11 imposed significant burdens on trade. The OECD recently concluded that there is little indication to suggest that the new security environment as it currently exists (as of early '02) represents a major, sustained and across-theborder increase in the cost of doing business across borders. Though one would think that such a conclusion was counterintuitive, the OECD pointed out that the cost of moving goods across borders after September 11 was just about the same as it was before that date. Importers' reported costs of shipping goods were virtually the same after the attacks as they were before. While one might assume that increased dangers would be reflected in a higher risk premium and in new delays, which in turn would cause freight rates to rise, and thus dampen trade volumes, the direction of causation is just the reverse. The slowdown-induced trade decline had pushed down shipping costs in the spot market and may have had a slightly depressing effect on other freight rates. Insurance costs have risen rapidly, especially war-risk insurance, and the numbers appear large when they are stated in absolute terms (e.g., so many extra hundreds of dollars per container). When expressed as a percentage of the goods carried, an increase of perhaps 0.025 percent appears more like a rounding error than a major price hike.

While the U.S. Chamber of Commerce, based upon interviews with business leaders throughout the Southwest border region, was highlighting the gridlock at U.S. border checkpoints and concluding that such congestion had translated into lost manufacturing and retail business, the OECD was reviewing the empirical data and concluding that the actual impact of the attacks and countermeasures was smaller than might have been anticipated. According to the OECD Report, "If one adjusts the data for seasonality and the price volatility of oil, the decline in U.S. imports from August '01 to September '01 was just 3.1 percent. Imports soon rebounded, with non-oil imports reaching a six-month high. The pattern for U.S. exports is similar." Though the U.S. Chamber's interviews might not have accurately assessed the impact of 9/11, the Chamber's noble purpose was well served: to encourage the Administration to relieve the bottleneck at the border through technological improvements which would require Congressional funding.

NAFTA TRADE--FACTS AND FIGURES