McALLEN — Manufacturing plants here and across the border are scrambling to comply with the new rules of the U.S.-Mexico-Canada Agreement, which will go into effect this week after two years of negotiations and ratifications by all three governments.
Companies along both sides of the Rio Grande are still trying to understand the exact terms of the new agreement, which will replace the 1994 North American Free Trade Agreement (NAFTA) on Wednesday.
“A new agreement was negotiated because NAFTA was outdated,” Jorge Torres, president and CEO of Interlink Trade Services in McAllen, said Thursday. “Obviously we have had many changes, mainly in technology and the way we do business, and other issues, like labor, environmental, things like that. So I think it was due. It was time to upgrade or renegotiate an agreement like NAFTA.”
McAllen Economic Development Corporation President and CEO Keith Patridge considers Torres a leader when it comes to USMCA and its local implementation. Last week, Torres held a two-hour webinar for local companies to discuss the recently released rules.
“It really wasn’t until about a month ago that we started seeing the rules of USMCA,” Patridge said Thursday. “We knew the content; we knew the regional value content; we knew the labor content, but we didn’t know the specific rules. And so Jorge, who I consider to be the local expert on this, really studied those rules.”
According to Torres, about 90% of policies under NAFTA will remain the same under USMCA, but there are key changes that will affect the automotive and textile industries in particular.
The new agreement requires automotive companies to produce vehicles with 75% of their contents made in North America, as opposed to NAFTA’s 62.5%. It also imposes rules on wages, steel and aluminum.
Those new requirements impact a large portion of the more than 200 plants and maquilas on both sides of the Valley’s border, Patridge said.
“When you look at the maquiladoras and the plants on the U.S. side, over a third of our companies are suppliers in one way or another to the automotive industry,” he said. “So you’re looking at about 30% to 38% of our companies are automotive suppliers. And so, as a result, that becomes very important for us.”
All of these changes come during a particularly difficult time, as companies try to mitigate the spread of COVID-19 via their employees, which totaled approximately 140,000 before COVID-19 hit.
“Unfortunately we have the COVID-19 situation and what happened was, a lot of companies obviously shut down, reduced staffing or focused their efforts and the resources to comply and mitigate the COVID-19 risks,” Torres said. “So they kind of left the USMCA on the sidelines.”
A majority of plants thought the new agreement would be delayed as a result of the pandemic, but that’s not the case, Torres said.
“The president and the federal government wanted to put it in place by July 1st, so that didn’t leave much time,” he said. “And that’s been one of the challenges.”
Some companies might experience difficulties in meeting requirements for aluminum and steel, as well as paying their employees higher wages to meet new labor requirements that mandate qualifying vehicles have 40% to 45% of their content come from plants that pay $16 an hour or more on average, Torres said.
“Some companies are going to be challenged to comply with those requirements,” he added.
Still, the new agreement is designed to spur economic growth in North America and puts border areas in a position to reap the benefits, both Torres and Patridge said.
“The whole intent of the USMCA is to attract and to bring more industry to our region. So that’s going to force suppliers and producers of auto parts, in particular, to locate in the North America region to be able to comply with those requirements,” Torres said. “So at the end of the day, we’re probably going to see a positive impact.”
Partridge said many companies began expressing interest right after the agreement was signed nearly a year ago, prompting MEDC to send staff to China to meet with key industry leaders.
“We started seeing companies that said, ‘Hey, now that we have this 75% North American content requirement across the USMCA, we really need to start looking at having a facility there because there’s no way that we can produce something in Europe, ship it over here and have 75% content. So we have to be in North America,” Patridge said. “Then if you’re in the automotive sector, there’s even more of a reason for them to look at this area.”
The border offers a unique opportunity for Asian and European companies to work with several trade agreements.
“There are another 30 or 40 free trade agreements that Mexico has with other countries around the world that require products to be produced in Mexico. So the border gives them the opportunity to produce on the Mexico side, to comply with Mexico, EU or Mexico-Japan free trade agreements, and they can produce on the U.S. side to comply with USMCA,” Partridge said. “So they have the ability — only on the border — to really utilize both with the same people and much of the same infrastructure in the plant.”
Patridge said it’s still too early to tell how much of an impact USMCA will have on the region because the uniform regulations were just published about a month ago and discussions with interested companies lacked some of those key details.
“We really didn’t know what to tell them other than we knew we were going to have a USMCA,” Patridge said. “Now we have more details of how it’s going to be implemented,” Torres added.
And because of the short notice, U.S. Customs and Border Protection will be less aggressive in its enforcement during the first six months of the agreement’s implementation, ending Dec. 31.
“They understand that it’s real fast, everything is coming very quickly. So they realize that companies might not be a hundred percent ready,” Torres said. “But that doesn’t mean that companies don’t have to comply. That means that they just have a little bit of flexibility.”