LAREDO, Texas – The Texas-Mexico border region will continue to grow economically under NAFTA 2.0, says a top Mexican diplomat.
Guillermo Malpica Soto is head of the Trade & NAFTA Office in Mexico’s Ministry of Economy. He is based in the Embassy of Mexico in Washington, D.C.
He was keynote speaker at this week’s Pathways For Trade logistics and manufacturing symposium at Texas A&M International University in Laredo.
Interviewed after his speech about the impact NAFTA 2.0 will have on the border region, Malpica told the Rio Grande Guardian:
“What we are trying to achieve in these negotiations is to continue with the pace of growth and trade within the region. We do not want to put in danger the integration processes within North America.
“I think we were successful through these rules of origin (for the manufacture of automobiles). We expect to continue having these increased flows, this increased growth.”
Malpica noted the growth of trade since the North American Free Trade Agreement was implemented 24 years ago.
“You can see during NAFTA we have grown trilaterally probably four times. Trade between Mexico and the U.S. has grown seven times. Trade between Mexico and Canada has grown nine times. We expect to continue with these patterns of growth. Eighty percent of what we trade with the U.S. goes by land.”
In his speech, Malpica explained in depth NAFTA 2.0 as it relates to the rules of origin for parts assembled in the manufacture of automobiles. He reiterated the new rules in his interview with the Rio Grande Guardian.
“The rule of origin for the original NAFTA had a regional value content of 62.5 percent. That means 62.5 percent of the input to the car will be produced in the NAFTA region, which is Mexico, the U.S., and Canada. In this negotiation there were two original positions from the U.S. One was to increase the original value content up to 85 percent and of that 85 percent, 50 percent should be in the U.S. only. That was a very difficult position to agree by Mexico and Canada.
“At the end of the day, what we agreed on, and this is the understanding of Mexico and the U.S., is to increase the original value content up to 75 percent and that 40 percent of the car inputs should be produced in a region that pays an average of $16 an hour. Basically, what you are saying is, 40 percent should be produced in Canada and the U.S. and that the remaining 60 percent can be produced in Mexico.”
Perhaps surprising to some, this position is not a sticking point for Mexico. Malpica explained why.
“For Mexico, in the current situation, that is not a problem because today, Mexico contributes less than 60 percent. So, we still have a margin to grow. There are still many issues to settle regarding the $16 per hour. Is that going to be the salary of the person on the production line? Is that going to be the salary of the average of the whole company, including the manager” There are still a number of questions to answer there.”
Malpica said Mexican trade negotiators have consulted with auto manufacturers in Mexico.
“In summary, Mexico is comfortable with the result because we can comply. After consultation with the car makers in Mexico, they told us that basically 70 percent already comply with the new rule and ten percent is going to comply in one and a half years. We are already preparing to have these supply chains in order to compete. The remaining 20 percent is where we will have to have some sort of adjustment in the original business plan.”
Asked about the timeline for NAFTA 2.0, Malpica said:
“The U.S. has already sent the letter to the U.S. Congress to say we have the intention to sign. That was sent on Aug. 27. That means that 90 days after, we can sign. That is by the end of November, that goes in line with the intention of Mexico to sign the agreement under this (Peña Nieto) administration, which ends on Nov. 30. In the best case scenario the U.S., Mexico and Canada will be able to sign. If not, Mexico and the U.S. will sign and we will wait for Canada to begin the process until they are able to sign.”
Malpica added that by the end of September, the text of NAFTA 2.0 will be publicly available.
In his keynote address, Malpica spoke about the incredible growth in trade between Mexico, Canada and the U.S. since the advent of NAFTA.
He noted that the total population of the three countries is approaching 500 million and that trilateral trade has reached $1.2 trillion. He said the trade agreement has led to a huge amount of investment and increasingly more shared production. He noted that Mexico is the first or second export markets for 21 states in the U.S.
Malpica noted, however, that there is a move towards more protectionism around the world. He said Mexico opposes this. “I think it is more important to stand for free trade and to be clear that trade benefits all. The facts are there,” he said. He said the hope is that the current steel and aluminum tariffs imposed by the U.S. and the retaliatory actions imposed by Mexico and Canada will be removed before signing of new NAFTA.
“Mexico has ten free trade agreements in 46 countries. That means 1,000 million consumers,” Malpica said.
The diplomat also noted that Mexico did not ask for NAFTA to be renegotiated.
“It was our idea that the renegotiation of NAFTA would be achieved through TPP (Trans Pacific Partnership Agreement). That proved not to be the case, due to the decision of the United State to pull out of TPP. We took advantage of that exercise to have a set of provisions for many of the different chapters (in NAFTA). We have been using these as a point of reference for the NAFTA 2.0 negotiations.”
Malpica said Mexico new sees the NAFTA renegotiations as an opportunity to modernize the agreement. “Not just to reopen the agreement but to fix things we don’t like. This is a process of negotiations. We have more than 30 groups at the technical level.”
Mexico has four objectives with the renegotiation of NAFTA, Malpica said: to increase regional competitiveness, to modernize the agreement, to make the agreement more inclusive and progressive, and to provide legal certainty.
“We want to have a NAFTA 2.0 that includes the three countries of the region,” Malpica said.
“I think we have achieved something that is reasonable,” he said, referring to the auto manufacturing sector. “It keeps the objective of continuing having North America as an important player in the automotive sector. It continues to keep Mexico as an important player in the global supply chain.”
Malpica said Mexico is also okay with the “evergreen” clause, which keeps NAFTA 2.0 in place for a minimum of 16 years. “The Agreement will be in place for 16 years, with review in the sixth year. If there is no agreement in the sixth year, we will review it every year. If we do not agree after ten years it will discontinue.”
Such a provision, Malpica said, provides legal certainty, which is especially important fo long term investments, such as those made in the energy sector.
Malpica added: “The following weeks and months are going to be fundamental. We are making good progress.”
Guillermo Malpica Soto has a long and distinguished career in Mexico’s Ministry of Economy. In October he was designated to represent the Ministry at the Embassy of Mexico in Washington, D.C.
Mr. Malpica has served as Mexico’s Director General for International Trade in Services and Investment in Mexico’s Ministry of Economy since 2008. Since then he has been instrumental in formulating Mexico’s position in these areas in multilateral, regional and bilateral fora, including the Doha Round in the World Trade Organization, the OECD, ALADI, APEC, TISA, the Pacific Alliance, and the Trans Pacific Partnership Agreement (TPP).
He also led the negotiation of bilateral investment agreements (Agreement for the Promotion and Reciprocal Protection of Investments) with Singapore, Kuwait, the United Arab Emirates, Turkey. Haiti, Saudi Arabia, Qatar and Ukraine. Mr. Malpica served as Counsellor in Mexico’s Permanent Mission to the World Trade Organization in Geneva in 2007, and as Economic Affairs Advisor in the NAFTA Office of the Ministry of the Economy in Ottawa, Canada in 2006.
As Mexico’s lead negotiator in services and investment, he has spoken in various conferences and seminars in the United States, Europe and the Americas. He has authored articles on trades in services and investment in Mexico and the United States, and collaborated with a chapter of a book on negotiations in Switzerland.
Mr. Malpica holds a degree in Economics from the University of the Americas-Puebla, and Master’s Degree in International Studies at Tecnológico de Monterrey-Mexico City Campus.