The International Trade Corridor and the Need

for "Twin-Hub" Distribution Centers

Copyright 1997

By

David W. Eaton, Esq.

In today's global economy, goods travel on what has been termed by Dr Boris Kozolchyk of the National Law Center for Inter-American Free Trade as a "continuous legal highway." Goods shipped between two points travel on a constant highway of legal documents such as insurance policies, letters of credit, and bills of lading. The continuous legal highway allows shippers, carriers, consignees, insurance companies and banks to allocate risks during the transportation of the merchandise and respond to the needs of the market. The U.S. system for transporting goods has developed over generations within the parameters of the American legal, social and business culture. Through time, different systems to accomplish similar objectives have been developed in almost every country in the world, including Mexico. The Mexican legal system reflects the country's traditional closed economy, level of industrialization, political system and roots in the civil law tradition. The uniqueness of the Mexican experience has led to the creation of a "legal highway" for transporting goods that is incompatible with the U.S. legal system, thus forming one of the principal barriers to cross-border trucking.

Historically, the use of specialized customs brokers has been indispensable in moving goods between the incompatible legal systems of the United States and Mexico. Brokers are among the most important actors in the current cross-border movement of goods because they provide the valuable service of navigating complicated customs procedures. For generations, customs brokers have facilitated the movement of goods between the United States and Mexico from strategically located border offices. At important border crossings, goods do not only move from one country to another but also from one legal system to another. The development of bustling border crossing points such as Laredo, El Paso, and Otay Mesa is due to the bifurcated nature of the two countries' economic and legal systems. Currently, goods amass in warehouses in border cities for their eventual shipment to the other side of the border. Distribution and transit centers have developed on the border not because they are the most efficient locations for cross-border shipments, but because they mark the furthest point a trucking company can legally travel. Also, the border is the jurisdictional limit for legal documents such as bills of lading and insurance policies, as well as the transition point though which customs procedures are completed. However, the current bifurcated and inefficient system can be changed.

NAFTA’s trucking provisions will lead to opportunities for the creation of new regional distribution centers which will prove more efficient for the cross-border movement of goods. The unnecessary and costly practice of amassing goods at the border may be avoided. Under NAFTA, trucks will eventually have the right to transport goods between interior locations such as Hermosillo-Phoenix and Monterrey-Dallas, thereby avoiding lengthy delays associated with changing trucking companies at the border. NAFTA set in motion a phased approach to the creation of a North American regional transportation network. The various provisions outlined in the agreement are to go into effect over several years, with the most important changes occurring in four different stages.

Stage 1: The cross-border movement of international cargo via trucks in contiguous border states was programmed to begin in December 1995. This provision was delayed by the U.S. government and has yet to go into effect.

Stage 2: January 1997 marked the deadline for the three NAFTA countries to harmonize existing standards for tires, brakes, weights, dimensions, engine emissions and road signs. Much work remains to be done in this area.

Stage 3: Starting in January 2000, movement of international cargo via trucks will be permitted throughout the three member countries.

Stage 4: Finally, January 2004 will witness the elimination of foreign investment restrictions in NAFTA country motor carriers. Thus, 100 percent foreign ownership of Mexican trucking companies by U.S. carriers will be permitted as well as 100 percent ownership of U.S. carriers by Mexicans.

Currently, the vast majority of goods shipped between the United States and Mexico change transportation companies and legal systems in strategically located border transit points. More goods pass through the twin cites of Nuevo Laredo, Tamaulipas and Laredo, Texas, than at any other point along the border. The area's strategic location on the border and the bifurcated nature of the two countries' legal systems have combined to create entrenched business traditions of shipping goods through Laredo. However, assuming full implementation of NAFTA's trucking provisions, Laredo is not the most efficient location for an international distribution center. Alternative staging and distribution centers located in cities such as Dallas and Monterrey should be developed. These cities are attractive distribution centers because they are thoroughly integrated in each country's internal transportation networks. The key to the proposed "twin-hub" system is the creation of a seamless link between the two cities.

NAFTA allows for the cross-border provision of transportation, insurance and financial services, creating opportunities for regional distribution centers which are strategically located in the interior of each country. For example, a "twin-hub" transportation and distribution system linking the non-border cites of Dallas, Texas and Monterrey, Nuevo León should be developed. The two cites could serve as twin distribution centers, which would lower transportation costs and provide for the expeditious cross-border movement of goods. Both Dallas and Monterrey offer geographically sensible locations for the shipment of goods into and out of Mexico. Dallas, which would form the northern "hub" of the proposed regional system, is an attractive distribution center because it has rapid access to the U.S. highway system, ample warehouse capacity, well-developed financial services and a strong industrial base.

Monterrey would form the southern "hub" and provide an attractive alternative to amassing goods in Nuevo Laredo because it is located closer to major industrial centers and national highways. Supporting Monterrey's utility as an international distribution center is its expanding industrial base, leading insurance companies and banking sector. In the absence of long waits at the border, goods can be trucked between Dallas and Monterrey in one day, allowing for the establishment of regular overland service between the two points. The proposed system involves the amassing of goods in each hub city for their eventual cross-border shipment to the other hub city. Once the goods have crossed the border and have been deposited in the other hub, they can quickly enter established trucking routes. Under the proposed system, goods will move more efficiently between the United States and Mexico, facilitating the growth of cross-border trade.

The current bifurcated transportation system between the United States and Mexico is inefficient. American trucks hauling goods south to Laredo often return empty or are forced to loan their trailers to Mexican truckers who do not have sufficient equipment. Goods moving north from Mexican industrial centers such as Monterrey, Mexico City and Guadalajara can be delayed due to a lack of trailers, poorly maintained highways, time-consuming paperwork and border congestion.

The success of the proposed "twin hub" system is dependent upon full implementation of NAFTA's trucking provisions. However, it is not sufficient to simply allow truckers to offer their services on the other side of the border. The development of transportation documents which transcend the international border is also a necessity. The National Law Center for Inter-American Free Trade in Tucson, Arizona, has developed a uniform bill of lading for all NAFTA countries. The new bill of lading is critical because it would permit the use of a single transportation document for cross-border shipments and eliminate one of the most important obstacles to the development of the twin-hub system. However, much work remains to be done. The development of new cross-border insurance policies, hazardous waste/materials manifests and secured lending documents must be developed in order to fully realize the potential of the new twin-hub system.

The Proposed "Twin-hub" System would Expedite Cross-Border Movement of Goods by Offering the Following Benefits:

• lower transportation costs,

• more integrated transportation service,

• the development of new transportation, financial and warehousing industries in Dallas and Monterrey, and

• greater protection against robbery of goods during transport.

The Success of the New "Twin-hub" System is Dependent on:

• the legal harmonization of vital transportation documents such as bills of lading and insurance policies,

• full implementation of NAFTA's cross-border transportation provisions,

• obtaining approval for customs' clearance in non-border cites,

• efficient use of bridges over the Rio Grande river,

• close cooperation between Dallas and Monterrey, and the establishment of regular transportation routes between Dallas and Monterrey.

E-mail