McALLEN, Texas – Multiple visits to China in 2019 by McAllen leaders is finally set to pay off with Chinese companies investing in the McAllen-Reynosa area.
That is the prediction of Jorge Torres, president and founder of InterLink Trade Services, a customs brokerage company with offices in McAllen, Pharr and Brownsville.
Torres participated in the trips to China two years ago. They were organized by the McAllen Economic Development Corporation and featured then-McAllen Mayor Jim Darling.
“For our region, there is a lot of potential for growth. Because of USMCA and Covid, we have a very good opportunity for growth in our region because companies will be interested in setting up operations, both on the U.S. side of the border and on the Mexican side as well,” Torres said, in an exclusive interview with the Rio Grande Guardian International News Service.
The interview was arranged as a follow-up to a recent webinar Torres hosted in collaboration with McAllen EDC about USMCA. USMCA stands for the United States-Mexico-Canada Agreement and is the successor to the North American Free Trade Agreement.
Torres pointed out that provisions in USMCA that were not present in NAFTA require more raw materials to be sourced in North America for manufactured products coming into the United States if manufacturers wish to avoid paying import duties. For an automobile or a light duty truck, the original value content, as of 2023, is going to be 75 percent.
“The USMCA rules of origin, particularly in the automotive industry, are making (supply) companies think about setting up operations in North America. In particular cross-border operations. That is going to allow them to meet the rules of origin for their customers and therefore comply with USMCA requirements,” Torres said.
“That is pretty much a given, especially for the automotive industry. Companies like General Motors and Ford and other companies that assemble cars in our region are going to start demanding that their components are originating here so they count in the 75 percent. That is forcing companies to locate operations in North America if they want to keep supplying North America. If they want to supply manufacturing companies they need to make the product in North America in order to company with the rules of origin for USMCA purposes.”
Before USMCA, Torres said, there were certain components in manufactured goods that were not counted as not originating in North America.
“That gave a lot of opportunities for foreign companies, especially Asian companies, to make components in those regions and not worry about rules of origin. But USMCA eliminated the trace list so that is forcing companies to make sure their components are USMCA originated.”
It is not just the automotive industry that is impacted by USMCA, Torres said.
“There were some updates on the rules of origin for some other industries, in the plastics, in the chemical, in the pharmaceutical industries, a little bit more relaxed to some degree, which incentivized companies to move to the area so they can make a USMCA product.”
In addition to the USMCA rules of origin provision, another thing helping the border region, Torres said, is the disruptions Covid-19 has caused to supply chains.
“Obviously, the supply chain disruptions caused by Covid and labor issues, that is going to have an impact because we want to have a shorter, more close-knit supply chain, rather than a global one. It is more regional now. It is because of all the contingencies we have seen, that is making companies look into the region to set up operations.”
Couple the supply chain disruptions and USMCA provisions with Section 301 sanctions currently imposed on China, and the U.S.-Mexico region begins to look very attractive to Chinese manufacturing companies looking to sell in the North American market, Torres said.
“As for the timing, it is happening already. As you know, in 2019 we visited China a couple of times. Well, finally, those trips, we are reaping the benefits of those trips and there are some companies that have already come down to visit. We have met with them and they are at the stage of looking at sites and things like that.”
It was put to Torres that the McAllen leadership could not have envisaged the bonus of supply chain disruptions when they visited China.
“When we visited China and made our presentations the focus was the USMCA rules of origin and and the tariffs. That was a big incentive for companies to look at our region. But then we had Covid and things kind of cooled down a little bit. But now, looking into the supply chain disruptions, that kind of accelerated things a little bit.”
Torres said some of the manufacturing companies are moving fast. “They are saying, we need to start working on our projects now because, as you know, setting up an operation, particularly in the automotive industry, is not a matter of months. It takes at least a couple of years. So, companies are working very aggressively now to finalize their decisions on setting up operations in our area.”
E-Commerce is going to ‘explode’
Most of the enquires McAllen is getting from Asia are from manufacturing companies, Torres said. However, he said e-commerce is going to be huge.
“Most of the enquiries we are getting are from the manufacturing industry but we are also having inquiries related to e-commerce because that is another area of growth that Covid brought about,” Torres said.
“Covid greatly influenced the way we consumers are buying products. We are buying more from Amazons and e-commerce companies. We just order and they deliver to our door. So, yes, there are some e-commerce Chinese companies that are looking to establish in our area because, without getting too technical, there are some provisions in the customs regulations that affect them.”
Torres said a shipment that is $800 or less is not subject to tariffs or duties, or even the Section 301 tariffs.
“Most of the e-commerce orders are below $800. So, in those cases they can bring product from China without having to pay any taxes or duties, even under Section 301,” Torres explained.
“So, yes, on the customs side we know there are no duties and taxes. But on the fulfillment side, that is how we (the border region) are going to do it (achieve success). Companies are looking mainly at Mexico to set up fulfillment centers and from there, ship to the U.S. under Section 321 and take advantage of the USMCA de minimis of $800. So, there is a lot of interest in that, as well.”
Asked to explain a fulfillment center, Torres said: “It is a big warehouse where they stock all the gadgets. They are delivered in bulk on containers. The order arrives, they process it, they package the product and they deliver it. It (e-commerce) is going to explode. It could be anywhere in Mexico but being on the border can be an advantage because of the lead time. They can fill up a truck with a lot of packages, send it across, clear customs, and then from here ship that as domestic, via the U.S. Post Office, UPS, FedEx, etc.”
Asked why the border region stands to benefit, rather than interior regions of Mexico or the United States, Torres said: “We have two countries, just a river in the middle and we can have customs clearances, quick and efficient, and the movement of materials back and forth between the two countries done quickly. Also, the USMCA rules and certain operations might be more beneficial if there are dual operations in the U.S. and in Mexico.”
Torres said he did not want to get into technicalities on rules of origin but…
“Mixing production in Mexico and the U.S. might be of benefit so that it can meet certain rules under USMCA. Being at the border allows that flexibility of shortening the times, the transit times and cost. Obviously our labor cost in the region is less than in other states. So that is one of the things we are promoting, the McAllen Economic Development Corporation, myself and other entities, we are promoting the cross border aspect, two countries being very close together with proper infrastructure will allow them to meet what is required for USMCA purposes.”
Torres added: “I do not want to say that some of the provisions (in USMCA) were written specifically for us but based on how we are interpreting them and how we are applying them, we have figured out, hey, this might work if we do it at the border.”
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