Topic 4.

Laws, Standards, and Regulations

Introduction

Generally, governments intervene on domestic and foreign commerce to achieve economic,

political, or social objectives, established for the benefit of the country. This applies for policies
between different nations and the flow of goods and services between them.

Reflect for a moment on the following question: in your own words, what is the objective of a
government in restricting or inspecting products coming into and going out of the country?
Obviously, there is the factor of illegal drugs and weapons, which damage society in many
ways. But why including consumption goods or raw materials in the restrictions to enter the
country? Why is it that sometimes you must pay tariffs for foreign trade?

Explanation

4.1 Foreign trade laws and treaties

There are many arguments used by governments to justify their intervention on foreign trade,
restricting free transit of products into the country. One of the most common ones is based on
the fact that, if the entrance of products were not restricted, national companies would not have
the opportunity to develop their potential, as products from other countries that have developed
better efficiencies, better technologies, or where the raw material or labor costs are cheaper,
could enter the market at a lower price, and ruin competitiveness of the national industry.

That is why governments establish restrictions for products coming into or going out of the
territory:

 Tariff regulation measures: They refer to general import and export tariffs, which
may be expressed in terms of percentages, money per unit of measurement, or a
combination of both.
 Non-tariff regulation and restriction measures: They are qualitative and applied to
exports and imports and define the flow of certain goods that the government
determines may create an imbalance in economics, industry, health, environment, or
security in the country.
 In addition to that, it sets the foundations for the
creation of foreign trade laws in countries, and influences and issues recommendations
regarding their foreign policies. The WTO is comprised by 159 members and 25 observers.

In Mexico there are three main laws setting forth the country’s foreign trade policy:

1. Law of Foreign Commerce. Enacted in 1993, it provides the bases for the country’s
foreign commerce, whose main objectives are listed as follows:

a. Regulate and promote foreign trade.

b. Increase competitiveness of the national economy.
c. Promote an efficient use of the country's productive resources.
d. Properly integrate the Mexican economy to the international economy.
e. Defend the productive sector from unfair practices of international
commerce.
f.Contribute to elevating the population's wellbeing.

(Cámara de Diputados del H. Congreso de la Unión, 2014)

2. Customs Law. Enacted in 1995, it is in charge of regulating incoming and outgoing

merchandise in the country, in the means they are transported, customs clearance and
all the events or acts derived from it, or from incoming or outgoing merchandise in
the country. The main topics covered are:

a. Customs control in merchandise processing.

b. Processes to determine value in customs and for merchandise processing.
c. Contributions, compensatory fees, and other non-tariff restrictions and
regulations to foreign trade.
d. Customs regimes.
e. Special proceedings.
f.Powers of the Federal Executive Branch of Government and the tax authorities
on international trade.
 g. Customs agents, customs brokers, and customs examiners, their functions,
rights, and duties.
h. Infractions and sanctions applicable in merchandise import and export
processes.

(Cámara de Diputados del H. Congreso de la Unión, 2014)

3. Law of General Import and Export Taxes. Based on the tariff classification of the
Harmonized Commodity Description and Coding System created by the World
Customs Organization (WCO) to create a classification and standardization of
merchandise extended to the member countries of the WTO, with the purpose of
controlling the products coming in or going out of the country's territory.

Based on Mexico's foreign trade legal framework, it

was possible to create one of the most successful commercial treaties to date. The North
America Free Trade Agreement (Now T-MEC) is a treaty in which the countries of Mexico,
United States, and Canada participate since it was enacted on January 1st, 1994 (as NAFTA).

Commercial treaties or regional integrations are formal agreements created between nations
who complement each other regionally or strategically, in which it is attempted to boost the
development of member countries and increasing competitiveness of their industries. They
include the creation of regulations and policies promoting exchange between participant
nations, directed towards a freer commerce based on special conditions, compared with those
countries that are not part of the agreement.

4.2 Regulations in the logistics industry

According to Coyle, Langley, Novack and Gibson (2018), the transportation industry is also
affected by government requirements impacting on cost structures and service capacities, that is
why they have focused on competence and price setting. However, these standards have limited
opportunities and incentives for carriers to develop unique service offerings and adapted prices.
 Economic deregulation of most modes in 1980 and of
maritime transportation in 1998 gave carriers the freedom to operate with little government
intervention, provoking a very necessary competition based on services, prices, and
performance.

In addition to this, Coyle et al. (2018) mention the communications industry, which also
underwent a transformation by dividing AT&T and Bell into several regional companies,
allowing the entrance of small companies to provide the service; thus, reducing fees. With that
carrier companies offered more than a transportation service, a logistics solution, by increasing
communication between the contracting party and them at all times. This allowed companies to
consolidate, offering all kinds of services, such as warehouse and channel of distribution
management.

It is worth mentioning that regulation grows in areas where the transportation industry has the
potential to affect the security of citizens, quality of life, and trade protection. For instance,
Coyle et al. (2018) mention the following standards and institutions in the United States:

1. Federal and state laws limit the size of the transportation equipment, combined cargo,
weight of equipment, and travel rate.

 Compliance, Safety, and Accountability (CSA) program: Seeks to reduce

accidents, harm, and deaths related to commercial motor vehicle carriers.
 Federal Motor Carriers Safety Administration (FMCSA): It measures the
safety performance of the carrier, assesses high-risk behaviors, and
intervenes with corrective actions and penalties.
 Hours of service (HOS) regulations for commercial drivers: Try to minimize
the number of fatigued truck drivers in highways. Drivers can no longer be
more than 14 consecutive hours in service, followed by 10 hours off service.

2. The laws addressed at reducing noise, air and water pollution of the transportation
sector have been the focus of federal and state lawmakers.
  National Clean Diesel Campaign and SmartWay: Voluntary programs
helping companies to create more sustainable supply chains by transporting
commodities in the most efficient way regarding fuel.

3. Safety initiatives in borders improve transit, but require more cargo inspection, more
administrative proceeding requirements, and longer lead times in customs for all
modes of transportation.

Customs Trade Partnership Against Terrorism (C-TPAT) and Free and Safe Trade
(FAST): Seek to improve the safety of transportation and promote international trade.

Evolution of federal regulations of modes of transportation in the United States is the

following:

 Motor carriers: The concept of public transportation is eliminated, but carriers are

liable for damages. On the other hand, it grants these carriers antitrust immunity by
establishing collective rates and companies must provide tariffs to issuers upon
request.
 Railroads: They are subject to the obligations of public companies to provide service
to all carriers; they cannot discriminate individuals, places, or basic products;
charging reasonable fees, and being liable for damage to commodities.
 Air transportation: The market determines prices and services; however, safety
regulations are still a fundamental guiding principle for federal controls over air
companies.
 Maritime transportation: The Maritime Transport Amendment Act of 1998
transformed the industry from a common transportation approach with the
presentation of required rates for a contract-based system in which price setting
remains confidential.
 Cargo agents and brokers: There are no federal economic controls over rates or
services rendered by these two intermediaries. A cargo agent is considered a carrier
and is responsible for damages during transportation, and a broker is not deemed a
carrier and is not liable for damages during transportation.

In Mexico, the change of these sectors came from a series of reforms that started in 1989,
where it was attempted to deregulate the motor transportation and communications sector,
when Telmex went from a state to a private company. This allowed the entrance of greater
number of independent private companies, reducing rates significantly, and increasing
efficiency, promoting not only the transportation industry, but also the rest of the industries by
having high-level logistics solutions at a lower cost.

Conclusion
In foreign trade transportation plays a fundamental role, as in essence commerce between
nations is precisely moving a product from one country to another. For this reason, there are a
series of laws and standards regulating foreign trade and with specific repercussions on
transportation.