MCALLEN, RGV – McAllen Economic Development Corporation believes the new USMCA free trade agreement provides a great opportunity for McAllen and Reynosa to attract new manufacturing companies.
MEDC has created a new advertisement that says as much. The optimism is based on new “rules of origin” provisions agreed by the United States, Mexico and Canada for manufactured goods.
In the advertisement is in the form of a Q&A, with McAllen EDC answering questions about the future of trade in North America.
One question asked is: What immediate impact will it (USMCA) have on us?
“We don’t know for sure but preliminary indications are that it will result in more investment in both McAllen and Reynosa,” MEDC replies.
“For example, there are two provisions of the USMCA specific rules of origin for automotive goods that we think will encourage companies to locate manufacturing operations in McAllen and Reynosa.”
The two provisions are:
- A new 75 percent Regional Value Content requirement for the new agreement. This means that at least 75 percent of the net cost of a passenger vehicle or light truck or 85 percent of the transactional value of an auto part must originate in either the United States, Canada or Mexico.
- At least 40 percent of the value of the passenger vehicle or light truck to be produced by workers making at least $16 per hour.
MEDC anticipates these two provisions will:
- Encourage foreign auto suppliers to locate in North America
- Locate on the border in McAllen to provide their auto company customers with the $16 per hour content requirement and at the same time provide the same auto companies with the same parts made in Reynosa to meet the requirements of other Mexico trade agreements.
“Both Reynosa and McAllen plants could be managed by the same management team,” MEDC states.
Another question asked is: What opportunities will it create for us in the future?
“We anticipate continued manufacturing job growth resulting in a substantial increase in tax base, skills and educational attainment and increased income and quality of life for the residents of McAllen and the Rio Grande Valley,” MEDC responds.
The advertisement starts by asking what USMCA is. The answer: “The USMCA (United States, Mexico, Canada Agreement) is the replacement for the North American Free Trade Agreement (NAFTA).”
The advertisement asks how USMCA is different from NAFTA. The answer:
“Many of the provisions of the USMCA are very similar to those included in NAFTA. However, many new provisions have been added and many of the existing provisions were strengthened, resulting in freer markets and greater regional growth.”
The advertisement asks when USMCA will start. The answer:
“Officially, each country will notify the other countries they have completed the internal requirements necessary for the agreement to enter into force. The agreement will take effect on the first day of the month of the third month following the last notification. We are estimating this will be around January 1, 2020.”
Uptick in interest
MEDC President Keith Patridge spoke about the new free trade agreement at a recent MEDC board meeting.
“We are seeing a definite uptick in the interest level from perspective companies,” Patridge said. “Some of it is because of the new trade agreement that has been negotiated and the terms of it look like it could have some real benefit for the border areas.”
Another reason for optimism, Patridge said, is a new border economic zone that the incoming president of Mexico, Andrés Manuel López Obrador, is proposing.
Patridge reported on a recent trade mission MEDC leaders participated in to Korea and Japan. In Korea the delegation participated in a seminar attended by 19 Asian manufacturing companies, most of whom were suppliers to the automotive industry.
“They were extremely interested in the presentation. They came up afterwards and said this was extremely helpful. All came up and started talking to us about the area, and particularly the McAllen side,” Patridge said.
The reason, Patridge said, is a $16 an hour for 40 percent of the value of a vehicle provision in USMCA. He said the production has to be done in a plant with an average wage of $16 an hour, not including benefits.
“They were talking about being on the U.S. side so they could provide the value that will help their (automobile manufacturer) customer get to the $16 an hour requirement. They are looking at the border because it makes sense,” Patridge said.
The auto suppliers are also looking at producing on the Mexican side, Patridge said, because Mexico has many free trade agreements with the rest of the world.
“The border gives them the flexibility and the opportunity to serve all their customers,” Patridge said, painting a scenario where auto parts manufactured for vehicles sold in the U.S. and Canadian markets would be manufactured in McAllen and auto parts manufactured for vehicles sold in other countries Mexico has trade agreements with being manufactured in Reynosa.
“From that meeting we have two of the Korean companies (taking a look at McAllen),” Patridge said.
“In one case, we are probably a year out, but he has said this is where they want to come. The other is looking at land and sites right now. We feel really good about that.”