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Expert Insight: Guest Contribution

By James Giermanski,

President

Powers International, LLC

Dr. David Neipert
Visiting Professor
Texas A&M University Kingsville

Date: Nov. 21, 2011

Global Logistics Comment: Government Acquiescence and Inaction on Our Southern Border: The Commercial Border-Crossing Threat

Federal and State Goverment Closing Eyes their Eyes to Signficant Threats to Security; Politics, Economics, Trumping Security Objectives?

"Governments must step up cooperation to thwart dangerous shipments that terrorists could use to paralyse global trade."

Statement by Secretary Napolitano on January 6, 2011 *

Were Secretary Napolitano's words for political effect or genuinely reflective of what the U.S. government is doing to thwart dangerous shipments from entering the United States, especially through our Southern border? Those words certainly cannot and do not apply to the U.S./Mexican border. For transportation companies, shippers, consignees, forwarders, and Customs brokers, the Southern border has been a serious problem for many years culminating in a grave vulnerability recognized by all these stakeholders, but apparently not by our government.

Since 1992 there has been overt action by the private sector to address cross-border business practices which limit U.S. involvement allowing trade barriers, easy movement of counterfeit products, and drugs, and now culminating in the potential movement of weapons of mass destruction into the United States. The deterioration of border security with respect to commercial commerce and traffic has been steadily and blatantly ignored by the Federal government regardless of which political party has been in office.


* US urges tighter cooperation on cargo security, 

http://www.google.com/hostednews/afp/article/ALeqM5ielm1PjS2RFZ2KQ1TnCnvzYfdQ0A?docId=
CNG.e83fdace708a2d6c4a7b95b21e5ed3a6.211


The Root of the Problem


Essentially, all crossings into and out of Mexico are in the hands of Mexican Customs Brokers, a cartel of business enterprises that influences costs, speed of movement, integrity of the cargo and ultimately the security of our border as it relates to commercial crossings. At the present time, in order to export goods from the U.S. into Mexico, Mexican regulations requires that the Mexican inward manifest (Relacion de Entrada) be submitted at the time of entry and have the relevant commercial invoice attached thereto. This Relacion de Entrada and another entry summary document (Pedimento de Importacion ) must be prepared and processed by a licensed Mexican Customs Broker (Agente AduanaJ). This process involves a series of functions including appraisement, classification, inspection, inventory, and others. These take place on the United States side of the border.


Mexico allows only Mexican citizens who were born in Mexico to be licensed customs brokers. U.S. customs brokers and freight forwarders who are citizens of the United States are therefore not allowed to perform these services although they must be performed in the USA. They may not forward freight to Mexico in their own names, even though the work is performed within the national territory of the USA. U.S. citizens are also not allowed to forward freight from Mexico to the United States. The exact reason for the requirement that a Mexican customs broker is required to arrange to forward exports to Mexico is unclear. There seems to be something of a conspiracy of silence from the parties benefiting from the present scheme. Only Mexican citizens can facilitate cargo crossing into Mexico by land. (Air and Vessel carriage are not controlled in the same fashion.)


This control of northbound commercial traffic is dangerous and expensive because it necessitates the use of drayage or transfer firms (carriers that merely cross cargo from one side of the border to the other) and drop lots where Mexican long-haul truckers leave and store trailers and containers to wait for the drayage or transfer carrier to pick them up for movement into the United States. Again, all is controlled by the Mexican Customs brokers. No U.S. citizen can effect or complete the forwarding process. These Customs practices that are reserved exclusively for Mexican citizens have continued because the United States has avoided taking action. The following examples illustrate 20 years of inaction in addressing this situation.


The U.S. Department of Justice (DOJ)


The DOJ became aware of the problem officially in the early 1990s before the North American Free Trade Agreement (NAFTA) was signed. An association of U.S. Customs Brokers in Texas hired a small consulting firm that focused on commercial trucking as it relates to border issues. That firm, called Group Geocentrics, used its attorney to prepare a legal brief to be sent to the U.S. Department of Justice describing how the Mexican Customs brokers control violated U.S. law and asking that the DOJ step in to provide some form of remedy for U.S. Customs Brokers and Freight Forwarders.


Although, there are as many interpretations of the law as there are lawyers and judges, and while it is impossible to predict exactly how a court will view the facts and law of any particular case, the legal brief concluded the following based on the statutes and case law examined:


• The present practices in the freight forwarding business to Mexico are in restraint of trade with foreign nations and a violation of the first section of the Sherman Act;
• The present practices in the freight forwarding business to Mexico are an attempt to create a monopoly in violation of the second section of the Sherman Act;
• The present practices in the freight forwarding business to Mexico are unfair
competition in violation of the Fair Trade Commission Act;
• Proper jurisdiction lies in the Federal District Courts of the United States;
• Criminal liability may exist on the part of defendants which could be prosecuted by
the Justice Department of the United States with State Department approval; and
• Civil liability for damages may be pursued by private parties who have been actually damaged economically by the present practice. [1]


It was found and reported to DOJ that this Mexican monopoly, in one way or the another, violates aspects of the Sherman Antitrust Act, the Clayton Act, the Federal Trade Commission Act and the Wilson Tariff Act. The Department of Justice responded to the U.S. Customs Brokers and stated in effect, that because NAFTA was about to be signed by the President, this was not the proper time to address this issue. Consequently, DOJ did nothing to address this monopoly of exclusively Mexican citizens controlling international commerce on our Southern border that affects our security. [2]

The North American Free Trade Agreement [3]


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. This is stated in Chapter I, Objectives.
Article 102: Objectives


1. The objectives of this Agreement, as elaborated more specifically through its principles and rules, including national treatment, most-favored-nation treatment and transparency, are to:


a) eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the territories of the Parties;


b) promote conditions of fair competition in the free trade area....


However, to the contrary, U.S. negotiators of NAFTA 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 of Texas Customs Brokers associations attempted to prevent by asking DOJ to change the wording prior to NAFTA's implementation. Our 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. U.S. Department of Transportation's (USDOT) leading NAFTA negotiator was asked how USDOT's NAFTA negotiating representatives could agree to a monopoly by Mexican citizens for controlling cross-border commercial movements. She responded "I didn't know it was in there." Here is what the U.S. negotiators didn't know was negotiated:


Cross-Border Services


A shipper's export declaration must be processed by a Mexican national licensed as a customs broker ("agente aduanal") or by a representative ("apoderado aduanal") employed by the exporter and authorized by the Secretaría de Hacienda y Crédito Público for this purpose.
 
Phase-Out:


None. Subject to discussion by the Parties five years after the date of entry into force of this Agreement. [4]


In effect, the United States negotiated an agreement giving Mexican nationals exclusive rights to an area of international commerce that directly impacts our security and largely takes place on U.S. soil.

Texas Paired City Agreements [5]

 

About the same time as the legal brief was submitted to DOJ and the negotiation of NAFTA, the State of Texas, on its own, entered into "pair-city agreements" which provided reciprocal cross-border access of vehicles to those Mexican cities contiguous to the Texas border. Texas did this in the name of cooperation with, preparation for, and enhancement of, the NAFTA treaty. These commonly called paired-city, sister-city, or twin-city agreements between Texas and the Mexican border states of Chihuahua, Coahila, and Tamaulipas were a result of Mexican drayage or transfer carriers demanding reciprocity and ease of access to the United States. These agreements were officially revised in December 1990 as a "Bilateral Understanding" between Texas and the three Mexican border states.

The bilateral understanding covers commercial motor vehicles, their weight, registration, approved routes of travel, allowable distances of travel, and intrastate operational limitations. The one-page agreement involves not just equipment and operational issues. It also involves interstate commerce issues such as specific routes which, of course, would favor business establishments along those specific routes. To this day, less-than-truck-load (LTL) shipments of good are being carried across the border in all forms of motor carriage including Mexican pick-up trucks.


Reciprocity really resulted in special treatment of both U.S. and Mexican drayage carriers along the Texas-Mexico border. There are legal questions, however, about the legal standing of these agreements since first, the State, without the consent of Congress (Article 1, Sec. 10, Clause 3) has no power to enter into these agreements; second, the State has no power to regulate interstate commerce (Article I, Sec.8, Clause 3). Texas was aware that it could not do what it did. A search of the Texas archives uncovered a letter dated November 10, 1955 from the Texas Highway Commissioner E. H. Thorton Jr. to D.C. Greer, Texas State highway engineer, stating the following:


Because of the prohibition in the Federal Constitution against the States entering into agreements, treaties, etc. with foreign countries, it is my opinion from a strictly legal viewpoint, the Texas Statutes cannot confer upon the Highway Department the authority to enter into any type of reciprocity agreement with foreign states....

NAFTA ultimately superseded these agreements. What the agreements did accomplish, however, is to solidify the concept of drayage as a needed and indispensible service of the Mexican Customs brokers given their monopoly on commercial cross-border carriage.

Consequently, Texas officially supported drayage, a product of the monopoly of the Mexican Brokers, by virtue of this special treatment. Today almost all of the drayage services on the Texas-Mexican border are carried out and dominated by Mexican drayage firms. The United States government knows little or nothing about them. The resulting reliance on drayage has elevated the need for Mexican border drop lots where Mexican long-haul motor carriers drop their trailers and containers, as they cannot enter the United States without the action of the Mexican Customs broker, creating an increased threat to U.S. security.


Testimony to the U.S. Congress

 

Written testimony was given to the Surface Transportation Sub-Committee, U.S. House of Representatives on August 2, 1996 by the co-author Dr. Giermanski.

Of the testimony's four topics, two related directly to the Mexican Customs brokers' monopoly and drayage. It was clearly pointed out to Congress that there were Sherman Antitrust Act implications, and the existence of prior U.S. Supreme Court decisions excluding U.S. citizens from legal activity within the territory of the United States and the illegal demand by Mexico that goods must be cleared in the United States prior to entry into Mexico is not defensible and specifically addressed this issue with Mexico in the sisal case of 1927.

Department of Homeland Security (DHS)

 

Finally, there seems to be total denial by DHS of any illegal monopoly of commercial border crossings by Mexican citizens. Coupled with the state of unsecured Mexican drop lots, the current in-bond [6] problem along the border, and the involvement of the drug cartels in the cross-border transportation sector, the Southern border has become a serious threat to the United States. [7]

Specifically, DHS's primary border agency, Customs and Border Protection (CBP) while knowing of the issue, has made no attempt to address the monopoly issue and the real control by Mexican citizens of what crosses into the United States. CBP has been content with dealing with U.S. Customs brokers on the U.S. side of the border whose job it is to represent U.S. importers in documenting the products coming in to the United States and insuring the collection of duties, if any.

However, CBP knows that the U.S. Customs Broker has no knowledge of the cargo in sealed containers and trailers that they clear.[8] CBP also knows that freight forwarded from the United States actually cannot enter Mexico without the Mexican Brokers' authorization even if a registered U.S. freight forwarder handed the outbound shipment. It is also true that "exclusive forwarding agents" of the Mexican Customs Broker operating in the United States are not registered with the USDOT as required of U.S. freight forwarders. [9]

One of the purposes of registration is to ensure proper business practices and includes the need to have ...bond, insurance policy, or other type of security approved by the Secretary... [10] which the "exclusive forwarding agents" of the Mexican Customs Broker can avoid. Except for random or targeted inspections of outbound shipments from the United States, CBP has no knowledge of what is carried in sealed trailers and containers. This raises the question of whether the weapons involved in the Bureau of Alcohol, Tobacco, and Firearms (ATF) Fast and Furious debacle crossed in trailers forwarded by these "exclusive forwarding agents?"

However, denial and/or avoidance is not simply restricted to the Mexican Brokers' monopoly of the present cross-border commercial carriage operations, but also to Mexico's predominant place in narcotics traffic with the United States. For example, U.S. narcotic interdiction seems limited to random inspections and reactive measures, often a result of State and local agency activity which may or may not result in arrests. Perhaps the official DHS 2010 Counternarcotics Doctrine confirms this.

An examination of the current DHS 2010 Counternarcotics Doctrine reveals that the word Mexico is absent from its text. Yet the doctrine mentions Bahamian, Colombian, and Irish drug threats to the United States. Even, the word “cartel” and “drug cartel” are not present. The words “Southern Border” also are not contained in the Counternarcotics Doctrine, but “Central” and “South America” are. When examining the totality of what DHS has failed to do about commercial crossings on our Southern border, drug cartel influences in cross border transportation, and the exclusive Mexican citizen control of cross-border commercial carriage affecting our security, it is clear DHS has failed to do its job.


If there were any doubts about DHS absence in addressing the Southern border commercial crossing system and its resultant vulnerability, one merely needs to examine Secretary Napolitano's testimony to the United States Senate Committee on the Judiciary, released on October 19, 2011. [12]

Her testimony covers the Department's six mission areas:


• Preventing terrorism and enhancing security;
• Securing and managing our borders;
• Enforcing and administering our immigration laws;
• Safeguarding and securing cyberspace;
• Ensuring resilience to disasters; and
• Providing essential support to national and economic security.


Because the border security falls within the mission of DHS, Secretary Napolitano discussed it. However, there was no mention of the commercial cross-border trucking practices or the influence of cartels on commercial trucking practices, or the any mention of the control Mexican citizens have over these practices. In fact, the following words never appeared in her October 2011testimonies: truck, trucking, cargo, container, trailer, clearance, broker, or forwarder. Instead, the border focus of her testimony was on immigration matters and cartel violence in Mexico.

Conclusion

 

Whether the United States government is either afraid of the political consequences of addressing these security issues connected to U.S./Mexican commercial cross-border traffic, or simply unwilling to do so, it has placed politics over this nation's security. The U.S. Department of Justice, the U.S. Department of Transportation, The U.S. State Department with respect to Texas, and The Department of Homeland Security and its agency Customs and Border Protection have had opportunities to improve the border situation but have refused to recognize or address these issues. Even Congress while being made aware of this monopoly in official testimony has done nothing to address it.

All have not done their job. While this commercial crossing situation is easier to avoid than to address, it will not be easier to address the resulting catastrophic event and loss of life that could take place at one or more of our border ports given the vulnerability posed by these practices. Is that what it will take for our government to do its job? It seems so.


Footnotes

1 David Neipert, Esq., Mexican Customs Brokers and the Antitrust Laws of the United States, as contained in Testimony of James R. Giermanski before the Surface Transportation Sub-Committee of the U.S. House of Representatives, August 2, 1996 in Laredo, Texas.

 

2 For expanded treatment of the security threat see: James Giermanski, The Southern Border and its Commercial Traffic - A Fundamental Weakness in U.S. Security, Supply Chain Digest, October 7, 2010, Part I and Part II on October 28, 2010. Also see: James Giermanski, Mexico: a Major Security Risk, HSToday.us, March 1, 2011.


3 For a treatment of cross-border labor issues of NAFTA, see: James R. Giermanski and Jane LeMaster, Labor Mobility and the Transportation Industry Under NAFTA, Journal of Transportation Law, Logistics and Policy, Fall 1996, Volume 64, Number 1, pp. 23-34.

 

4 NAFTA, Annex I, Reservations for Existing Measures and Liberalization Commitments, http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/texte/anx1b-mex.aspx?lang=en&view=d

5 Transportation Minute Order 102428, Texas Transportation Commission, June 29, 1993, and Transportation Minute Order 106436, Texas Transportation Commission, November 30, 1995.

6 For an expanded treatment of these in-bond problems, see: Jim Giermanski, In-Bonds Shipments: A Security Vulnerability Waiting to be Exploited, HSToday.us, July 20, 2011, http://www.hstoday.us/blogs/guest-commentaries/blog/in-bonds-shipments-a-security-vulnerability-waiting-to-be-exploited/d32f141106821f2d7e36081bcb1d67be.html


7 Jim Giermanski, and Jim Neilson (pseudonym), The Trans-carriage Threat to the U.S., HSToday.us, October 25, 2011, http://www.hstoday.us/blogs/guest-commentaries/blog/the-trans-carriage-threat-to-the-us/98fcdb753be6a8f6b05faf725944ad15.html


8 Dr. Jim Giermanski, Out of Touch? or Worse?, Maritime Executive Newsletter, September 26, 2011, http://www.maritime-executive.com/article/op-ed-out-of-touch-or-worse

9 Section 13903, Registration of Freight Forwarders, ICC Termination Act of 1995, Public Law 104-88-DEC. 29, 1995

10 Section 13906, Security of Motor Carriers, Brokers, and freight Forwarders, ICC Termination Act of 1995, Public Law 104-88 DEC. 29, 1995

11 Dr. Jim Giermanski, DHS and Its Counternarcotics Doctrine, HSToday.us, July 7, 2011, Guest Commentaries http://www.hstoday.us/blogs/guest-commentaries/blog/dhs-and-its-counternarcotics-doctrine/2e375cb49baf75e763a87d444220f247.html

12 Secretary Janet Napolitano, Testimony before the United States Senate on the Judiciary, released October 19, 2011. http://www.dhs.gov/ynews/testimony/20111019-napolitano-mission-areas.shtm and her Testimony before the United States Senate on the Judiciary on October 26, 2011, http://www.dhs.gov/ynews/testimony/20111026-napolitano-house-judiciary.shtm


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About the Authors

Dr. James Giermanski is the Chairman of Powers Global Holdings, Inc. and President of Powers International, LLC, an international transportation security company.  He served as Regents Professor at Texas A&M International University, and as an adjunct graduate faculty member at the University of North Carolina at Charlotte.  He was Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University.

He has authored over 150 articles, books, and monographs with most focusing on container and supply chain security, international transportation and trade issues.


Dr. David Neipert is a Visiting Assistant Professor at Texas A&M University-Kingsville.

Giermanski and
Neipert Say:


Whether the United States government is either afraid of the political consequences of addressing these security issues connected to U.S./Mexican commercial cross-border traffic, or simply unwilling to do so, it has placed politics over this nation's security. 


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