Mexico moves to protect consumer in U.S. trade spat

MEXICO CITY/WASHINGTON Tue Mar 17, 2009 6:35pm EDT

MEXICO CITY/WASHINGTON (Reuters) - Mexico pledged on Tuesday that tariffs slapped on U.S. goods would exclude staple foods and would not hurt consumers, but the first major trade flap of the Obama administration prompted concerns about growing worldwide barriers to trade.

Mexico, angered by Washington's move to block Mexican trucks from using U.S. highways, said on Monday it would raise tariffs on 90 American agricultural and manufactured products, about $2.4 billion worth of exports from 40 U.S. states.

Mexico's economy ministry said the tariff scheme would exclude basic staples not covered by local production, like rice, corn, wheat and beans other than soy. This should avoid raising prices for local consumers.

"The tariffs are designed, first to not affect the basket of basic of basic goods in Mexico so there are no inflationary repercussions," Economy Minister Gerardo Ruiz said in a radio interview.

A source from the Mexican Agriculture Ministry said the tariff hikes also will exclude U.S. meat exports.

Mexico on Wednesday will publish a list of U.S. goods that will be hit with the duties.

Last week, the U.S. Congress canceled funding for a test program begun by the Bush administration that allowed Mexican long-haul trucks into the United States.

Ruiz said the truck ban, which Mexico has been battling since 2001, hurts competitiveness and violates the North American Free Trade Agreement.

The growing bilateral spat has sparked concerns about the U.S. commitment to free trade at a time when global economic woes are tempting many countries to put up trade barriers.

"The United States is putting at risk economic and diplomatic relations with one of our largest trading partners and a key ally in the region," said Bill Reinsch, president of the National Foreign Trade Council.

U.S. exports have fallen sharply in recent months amid the global economic downturn. A number of countries have begun raising trade barriers.

The Obama administration has promised to work with Mexico and Congress on a new program that addresses concerns about the safety of Mexican trucks in the United States.

Sen. Byron Dorgan, a North Dakota Democrat behind the congressional action to cancel the pilot program, promised to work in good faith with the White House on the issue but blasted Mexico's threat to hike tariffs.

"Congress shut down the pilot Mexican trucking program over serious safety concerns, and no trade agreement should obligate us to compromise our highway safety," Dorgan said.

The U.S. Transportation Department's office of Inspector General found Mexico "does not have equivalent standards to the U.S. with respect to highway safety," said Dorgan. He also criticized the U.S. government's test for determining whether Mexican truck drivers are fluent in English.

The U.S. Teamsters union has fought for years to keep the U.S. market closed to Mexican trucks.

A NAFTA dispute settlement panel ruled in 2001 that a blanket restriction against Mexican trucks entering the United States violated U.S. obligations under NAFTA. The panel gave Mexico the right to retaliate, but it refrained when the Bush administration pledged compliance.

The dispute will be an early test for President Barack Obama's choice to be U.S. trade representative, former Dallas Mayor Ron Kirk. He has promised to make sure other countries abide by trade deals they make.

Mexico is a top export market for U.S. beef, pork, chicken, turkey, soybeans, and cotton, among other products.

Daniel Price, a trade advisor in the Bush administration, said the issue could signal Obama's stance toward NAFTA and pending trade deals with Colombia and South Korea.

"The Administration is walking a difficult line," Price said.

(Additional reporting by Roberta Rampton in Washington and Adriana Barrera in Mexico City; Editing by Russell Blinch)

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