MCALLEN, RGV – The U.S.-Mexico border region will see a huge boost in foreign investment once the USMCA trade agreement is ratified.
This is the view of Keith Patridge, president and CEO of McAllen Economic Development Corporation. MEDC has been working to get foreign companies to open maquiladoras for the past 30-plus years.
“Last year turned out to be a good year. This year we are seeing even more activity,” Patridge said.
“We are currently working about 30 companies. About five of them are in Mexico and 25 are in the U.S. This is not the typical ratio we have been seeing. Usually there is more interest in Mexico. It involves about 1.7 million square feet of space, almost $200 million of capital investment and 3,000 to 4,000 new jobs, potentially, on the U.S. side.”
Patridge puts the increased level of interest among companies mostly down to USMCA. The successor trade agreement to NAFTA has yet to be ratified by Congress. Once it is ratified, he expects the interest level to ratchet up even further.
“The interest in the U.S. side of the border has really picked up substantially over the last several months. We are beginning to see some of those companies pulling the trigger on the projects,” Patridge said.
Every year, MEDC looks at both the number of jobs new companies are bringing to the McAllen-Reynosa area and any new jobs created by existing companies. Patridge said the figures for 2018 are incredible.
“For the first time in as long as I can remember, McAllen came in with more net new jobs than we had in Reynosa. That does not mean Reynosa is going downhill. We still have over 131,000 jobs over there, but what it does mean is there is a shift taking place. We are seeing more activity on the U.S. side.”
Patridge and his colleagues have been analyzing the reason for the shift.
“One of the things that immediately comes to the forefront are the provisions in the new USMCA, particularly in the automotive sector. USMCA requires 40 percent of the value of the vehicle to be produced in a plant that pays at least $16 an hour plus benefits,” Patridge said.
“USMCA is also changing the regional value content, which means that in order for a vehicle to be considered North American, 75 percent of the content must be made in North American. Under NAFTA it was 62.5 percent.”
In an exclusive interview with the Rio Grande Guardian and RGV Public Radio 88 FM, Patridge explained in depth the implications of the new trade agreement.
“One, we are seeing foreign companies that are really looking at the area. They are saying, in order for us to continue maintaining our customer base, the automotive manufacturing companies, in order for us to do that we have to be there, the 75 percent requirement now says we must be in the USMCA region,” Patridge said.
“Two, they are saying, we have to have at least 40 percent of that content at $16 an hour or more. Our customers in Mexico do not want us to pay $16 an hour in Mexico because that means their wages will go up. So, what they are saying is, well we need to be in the U.S.”
However, Patridge noted that some MEDC clients may also be interested in serving customers outside of USMCA.
“We have to look at our customers who are not North American, our customers from Europe, our customers from Asia, our customers from South America, Central America. Mexico has free trade agreements with those countries. They might say, if we want you, Mr. Supplier, to produce for those markets, we do not want you to produce parts in the U.S., we want you to produce in Mexico because that will allow me to comply with the requirements of the non-USMCA trade agreements with Mexico.
“And so what is happening when they look at that, they are saying we need U.S. but we also need Mexico content. Where do you do that? On the border.”
Patridge said MEDC noticed a flurry of activity late last year when USMCA was being signed by the presidents of the United States and Mexico and the prime minister of Canada.
“Almost immediately we had a huge number of inquiries, which was very interesting because it was all from foreign companies, Asian and European companies. Then it kind of died down as the USMCA discussions went away. We are now beginning to see USMCA discussions come up again and guess what, we are seeing foreign companies coming in.”
Patridge said he does not expect to see many U.S. companies flock to the border region.
“Most of the companies we are seeing right now are not U.S. companies because they do not have an incentive to move under the new USMCA. But the foreign companies have to move, they have to be in our market. So what we are seeing is, they are now saying, we are coming and we really think the best place for us would be on the border. So, we are very optimistic with what we are seeing.”
Asked what might happen were USMCA to be ratified by the U.S., Mexico and Canada, Patridge said:
“If it is ratified by the legislatures of the three countries, I actually think this will cause another boom along the border. It won’t just be here, it will be on the border, just because the rules of USMCA will encourage it. I think it will be more foreign-based companies. I do not see a lot of U.S. companies moving from Ohio or Indiana because, quite frankly, that is what President Trump wanted, he wanted to stop those companies from moving to Mexico. And, I think he will accomplish that with USMCA. I also think it will drive the foreign companies to be here. I think there is a really good opportunity for us.”
Workforce and Infrastructure Challenges
If, indeed, more companies from overseas start investing in the border region, new challenges will emerge, Patridge predicted.
“Our challenge will be, are we going to have the infrastructure, the skill sets that can support those investments that are going to be coming in. These are going to be higher quality jobs because, as we see with manufacturing, everything is moving towards integration, robotics, artificial intelligence. The quality of the jobs, even from the operators now, they are running computerized equipment, they are not just welding. They are running robotics. It is going to be an exciting future and we are in a prime opportunity to take advantage of what we see in the future.”
Patridge said MEDC has been working with McAllen Mayor Jim Darling and the McAllen City Commission on a new approach to economic development.
“Our unemployment is about 3.5 percent, who would have ever thought of 3.5 percent in McAllen, Texas? Because of this we are saying, what is the best strategy for us to start looking at increasing the quality of the jobs? So, we are shifting from what traditionally has been quantity of jobs to quality of jobs. It means we are going to be focused more on jobs skills training.”
Patridge acknowledged that every city in the world wants to have high-paying, high-quality jobs.
“If we want to play in that market, it is going to cost us money because everybody pays for those types of jobs. We are looking at an incentives strategy. How do we do that? The second thing is, how do you provide a skilled workforce unless you have the jobs, and how do you bring the jobs in if you don’t have the skilled workforce? It is the old chicken and egg thing and it is something we really, as a community, have to start focusing on, along with our educational institutions,” Patridge said.
“We have some ideas but it is going to take the education institutions, both Pre-K thru 12 as well as higher education, community colleges and universities really becoming economic developers. We have to work hand-in-hand, saying this is the type of job we are going to go after, this is what we need your training on. But also we need for you to help bring those companies in.”
Patridge said it makes no sense to train workers for skilled jobs that do not exist in the Valley. “If we do that, all we are doing is training people for somewhere else and they are going to leave. And then we are in a zero-sum game and we don’t have the skills sets. Likewise, if we try to bring the companies in without having the skills or enough skills that they feel comfortable they can do business here, then they are not going to come. They are going to find some place where they can find those skills and be comfortable they can locate there.”
So, partnerships are going to be needed, Patridge said.
“It is going to take us as economic developers, the community leadership, and the education institutions all sitting at the table with these companies saying, we can deliver what you need. And prove it. Because they are going to require us to prove it. That is a challenge. But, we have been dealing with challengers for 32 years at MEDC and we will step up to this one as well.”
Editor’s Note: The main image accompanying the above news story shows McAllen Economic Development Corporation President & CEO Keith Patridge being interviewed by Rio Grande Guardian editor Steve Taylor at the Instituto Internacional de Estudios Superiores university in Reynosa, Tamaulipas.