PHARR, RGV – Licensed customs broker Adrian Gonzalez has warned the United States to be careful what it wishes for in its renegotiation of the North American Free Trade Agreement.
Gonzalez is McAllen and Brownsville branch manager for Daniel B. Hastings, Inc., a Laredo-based licensed customs brokerage with over 75 years of experience in customs brokerage, warehousing and distribution.
He gave a two-hour presentation at a Bridge Connect trade session hosted by the Pharr Bridge Board. Interviewed by the Rio Grande Guardian afterwards about possible changes to the rules of origin for automobiles made in the United States, Mexico and Canada, Gonzalez said:
“The automotive industry is in the minds of everybody. Right now, the rule is 62.5 percent for regional value content. That is the least amount of regional content a vehicle needs to have. The Trump Administration has said it wants to increase that, to get more regional content, to take the rules of origin up to 80 or 85 percent, and have U.S. content of at least 50 percent,” Gonzalez said.
“Now, I have read that is going to change, that they are dropping the 50 percent requirement. We do not yet know about the 80 percent. Making the rules of origin stricter can have bad repercussions so we need to be careful about that. Now, if there is a question of paying a tariff of 2.5 percent or going by the rule of origin of 85 percent, companies might say, you know what, I am better off paying the 2.5 percent in duty rather than change the whole supply chain. The United States needs to achieve a balance, so it works in favor of the United States, not against the United States.”
Gonzalez laid out the position of the Trump Administration and the auto manufacturers.
“It appears that they (NAFTA negotiators for the U.S.) are going back to where they were, that the rules of origin are strict as they are, that they should be left as it is or that they have minor tweaking. That is the argument of the automotive industry. The argument of Mr. Trump is, we need to protect jobs, we need to promote employment in the United States, and they do not want Asian products trampolining into the United States from Mexico. So, we have both sides of the argument. It is important to get the balance right. There will have to be compromise.”
In his presentation at the Bridge Connect session, Gonzalez said the fact that Mexico has lower wages than the U.S. is not a major factor in the growth of trade between the U.S. and Mexico.
“The U.S. is saying Mexican wages should go up, but that is not a big factor in the trade we do. Germany is a big trading partner and they have higher wages than the United States. Salaries are not the main driver of exports, it is competitiveness generally, innovation, productivity,” Gonzalez told the Rio Grande Guardian.
Asked what the important factors are as the renegotiation of NAFTA takes place, Gonzalez said:
“I would say enforcement, making sure rules of origin, meaning the amount of regional content and product, is actually validated and correct, that we don’t have Chinese products over the limit that is stated in the rules of origin.
“There are rules that need to be updated because products have changed, products are not the same as they were 23 years ago. The rules need to be updated to take into account the current situation, to strengthen the trade and commerce of the United States, Mexico and Canada. That is the reason behind NAFTA, not trade with China.
“I am not saying trade with China is a bad thing, but we need to know NAFTA is about these three countries. We need to make sure NAFTA is not a trampoline to get products from China into the United States. That is not what NAFTA is for.”
With the 8th round of negotiations on NAFTA about to start, Gonzalez said it is important observers view the international trade agreement for what it does for North America as a whole, not just one country.
“As the 8th round of negotiations starts we should look at NAFTA negotiations in a positive way. The agreement is 23 years old and it needs an update. Having said that we need to keep in mind what has been achieved for the three countries. If we speak about us, as a (three-country) region, we are better off than if we speak about I, as a single country. We are better off working as a team, as partners.
“Texas is a big exporter to Mexico and so is the United States. International trade is a big part of the business we do here, so we need to promote that, increase it, making sure it is better for everybody. Overall, in the future, we need to be working together, looking for compromise and not looking at just what is best for one party, but what is best for everybody, for the United States, Mexico and Canada.”
Gonzalez said South Texas, which has benefited so much from NAFTA, will soon get to know what happens with the rules of origin for automobiles.
“We have heard about the automotive rules, but that is just rumors, it is not confirmed. It will be confirmed in the eighth round. The rules of origin will be a big part of Round Eight. Rules of Origin is a big argument point of the negotiations so let us hope it gets agreed upon soon.”
Rep. Cuellar’s viewpoint
U.S. Rep. Henry Cuellar has been keeping as close a watch on the NAFTA negotiations as any federal lawmaker. Interviewed by telephone, Cuellar said he likes what he is hearing about the rules of origin discussions for the auto industry.
“We are seeing indications from the administration that they are dropping some of those tough positions, which would have been tough for Mexico and Canada. With the auto industry, they have dropped part of their demands and they are still negotiating,” Cuellar said.
“Secretary Guajardo was going to come over but may have been delayed by the weather. And Secretary Ross has said we have got to get this thing done quickly because of the elections in Mexico. They are facing the reality, if we do not get this thing done, there will be some issues in the presidential election.”
Ildefonso Guajardo Villarreal is a Mexican economist and politician from the Institutional Revolutionary Party who is the incumbent Secretary of Economy of Mexico. Wilbur Louis Ross, Jr., is an American investor and the current United States Secretary of Commerce.
“I think the Trump administration is finally dropping some of the issues that were a problem for Canada and Mexico. It is got to be a win-win situation for everybody. But, we do not know yet what is going to happen. The 50 percent was a big sticking point,” Cuellar said.
“The (Trump) Administration is now being more accommodating. The fact they left Mexico and Canada out of the steel and aluminum tariff imposition is also good news. They did not want to upset the (NAFTA) negotiations. There are a lot of indicators that show the Administration is finally moving in the right direction.”
Editor’s Note: Reporter Patricia Gonzalez contributed to this story from Pharr, Texas.