MCALLEN, RGV – McAllen Economic Development Corporation is urging the South Texas congressional delegation to push for ratification of USMCA, the new free trade agreement for the United States, Mexico and Canada.
MEDC President Keith Patridge gave a detailed analysis of foreign investment opportunities for the South Texas-Tamaulipas border region at last Thursday’s monthly board meeting.
Patridge said that because of certain content-requirement provisions in USMCA, and the fact that Mexico has increased the number of free trade agreements it has with countries around the world, the border region could become very attractive to companies from Asia and Europe.
In his remarks, Patridge said that when the presidents/prime ministers of Canada, Mexico and the United States were signing USMCA, MEDC was getting phone calls from overseas companies interested in investing. The agreement still has to be ratified by Congress and because that has not happened, Patridge said, the number of calls from potential investors has declined a little.
Patridge said Ralph Garcia, MEDC’s vice president for international business recruitment, is working with an overseas company that needs to make its product in the United States.
“They are looking at McAllen because they have to meet that (North American content) requirement for their customer. So, we really need to have as a legislative agenda at the federal level support for USMCA. Right now it is caught up in the Wall/Trump/Russia/Immigration debates and it is not on the radar screen,” Patridge said.
“Because it is not even being considered, companies are not saying anything about it anymore. We are still operating under NAFTA. This is something we as an organization need to encourage our legislators to really push for, to get USMCA approved.”
Thursday’s board meeting was MEDC’s first in 2019. Patridge took the opportunity to explain to board members where much of the group’s work will be centered in the coming months.
“International recruitment, that looks like what we will focus on, depending on what happens with the USMCA,” Patridge said.
“It was interesting because just after the USMCA was signed and the terms started coming out, we were getting a number of inquiries from companies, particularly Asian and European companies. Particularly in the automotive sector where there is a 75 percent regional value content requirement.”
Patridge predicted this regional value content requirement will “force a lot of those supplier companies in Europe or Asia to really have an operation somewhere in North America.”
Add to that, he said, the additional requirement that 40 percent of the value of the vehicle has to come from a plant that pays $16 an hour, plus benefits.
“That actually steers people away from Mexico into the U.S. or Canada, because that is where the plants are that pay that. Mexico is not going to raise its pay to $16 an hour, or the companies aren’t, at least,” Patridge said.
“So, as a result, companies started looking at why they needed to be in the U.S. or Canada in order to meet the salary requirements of the USMCA for our customers.”
So, where do such companies locate in North America? Patridge made the case for the U.S.-Mexico border region.
“It just so happens that the border becomes very attractive then because you can set up a plant in the U.S. and comply with the $16 an hour requirement of USMCA. But, and this is where it really becomes important, Mexico has free trade agreements with 46 other countries around the world. In order to comply with those free trade agreements, the product has to be made in Mexico,” Patridge explained.
“And so, the company has to have an operation in Mexico in order to deliver to their customers a ‘Made in Mexico’ product that would help their customer comply with the free trade agreements that Mexico has with Europe or with Asia and other locations.”
Patridge said companies have “begun to figure out” that if they locate on the border and have a plant on the U.S. side and a plant on the Mexican side, they have the ability to meet the needs of their customers on two fronts.
“If they need a ‘Made in Mexico’ for certain free trade agreements they produce it in the Reynosa plant. If you have a requirement for North America, you produce it in a U.S. plant,” Patridge said.
An important component in seeking investment from Europe, Patridge said, is MEDC’s membership of the Trans Atlantic Business Investment Council, which used to be called the European American Investment Council.
“If you are in Ohio now, there is no incentive to move to Mexico. So, what we want to focus on is the international companies, the Asian and the European,” Patridge said.
He pointed out that individually, and as part of the Rio South Texas Economic Council, McAllen has been certified by site selector professionals commissioned by EAIC/TABIC as ready for investment by European firms.
“They came in and evaluated our city and then they certified us as a suitable location for European investment. We were one of the first five cities in the United States to be certified. The region is also certified. Brownsville was certified and we were certified in that first five,” Patridge said.
“From that, we have already had several site selectors in Europe that work with companies to help them find locations that they will only consider cities that are certified under this certification program. We have three or four companies that we are working with. It looks like it is going to be good. So, Europe and Asia is going to continue to be a focus.”
Patridge also briefly spoke about Mexico President Andrés Manuel López Obrador’s new border economic zone plan, which includes a reduction in VAT for residents along the northern border.
“You tie those things together and there are some attractive things for companies to look at in operating out of the borders. So, we hope all those come together so that will create more activities for us here,” Patridge said.
Index Reynosa perspective
Enrique Castro, president of Index Reynosa, the maquiladora trade association, also spoke at the MEDC board meeting. He said he agreed with Patridge’s analysis.
“As Keith mentioned, we are going to become a very attractive area, not just because of the USMCA but also because a lot of other treaties start coming into play.”
Castro said 2019 “is expected to be a very complicated year but one with a lot of opportunities.”
Many things came out of López Obrador’s recent visit to Reynosa, Castro said. He said that on returning from a national Index meeting in Mexico City, Castro had recommended investors look at McAllen. “Look at McAllen, it is a good opportunity to put your pesos in dollars. A good opportunity to start growing,” he said.
Castro said Index handed López Obrador a document which urged investment in infrastructure,, economic development, and social responsibility. He defined social responsibility as quality of life, housing, education, and culture. “That is the way to go,” Castro said.
The other key component is safety for maquiladora companies, their employees and suppliers.
“Security, we cannot bring businesses to the area if we do not have proper security,” Castro said. “Right now, in Congress, they are discussing the formation of a national guard in Mexico. The military in Tamaulipas, particularly the Navy, have been very helpful, in keeping the bad guys semi-honest.”
Castro noted he has some concerns with López Obrador’s economic policies.
“The way the government is looking, they want to help people rather than help industry. It is a more leftist government. They are looking to give money rather than generate money. That is very dangerous. Yesterday we were looking at it from the economic side, which is one of the most important things. Mexican growth was projected to be 2.1, now it is back to one percent. That means cashflow problems.”
Editor’s Note: The main image accompanying the above news story shows McAllen EDC President Keith Patridge and Index Reynosa President Enrique Castro in a file photo from 2018.