BROWNSVILLE, Texas – The deputy director of the Wilson Center’s Mexico Institute says the U.S.-Mexico border region stands to benefit from USMCA by attracting major manufacturing plants.
Chris Wilson spoke at a Virtual Site Selector Tour of Brownsville hosted last week by the Greater Brownsville Incentives Corporation and Select USA.
“The old model of border manufacturing was build it in Mexico because of cheap labor and then on the U.S. side you will get the jobs because of the facilitation, the trucking, the logistics, all of that stuff. And that still happens, of course,” Wilson said.
“But, I think the huge untapped opportunity and we see examples of it starting to bubble up is for real binational manufacturing inside the border region because in a small geographic area you can combine the comparative advantages of low-cost labor in Mexico, or really mid-cost, high skilled labor in Mexico, with lower costs of capital in the United States, lower costs of energy in the United States and higher skilled workers in the United States.”
USMCA stands for the United States-Mexico-Canada Agreement, a successor trade pact to NAFTA. Wilson said the border region is already benefitting from USMCA because of the certainty it brings to investors and the trade community.
Wilson said there is a huge amount of uncertainty in the trade world today, with the World Trade Organization currently unable to fulfill some of its objectives and “huge trade tensions” between the United States and China.
“Generally around the world, we are seeing a more nationalistic and inward-looking situation than in previous decades and that is creating uncertainty,” Wilson said.
“It is kind of amazing we have landed here because we started off with a lot of uncertainty surrounding the Trump presidency’s policies. But, USMCA has turned that around. By having the USMCA we have created this island of certainty amidst a sea of uncertainty.”
Wilson praised the governments of the U.S., Mexico and Canada for this.
“We have a recommitment from the three governments of North America to have a have a framework of free trade across the region, a rules based system. Amazingly, despite what some people say, I actually think we have more certainty now than we did previously because of the bipartisan nature of support for the USMCA.”
Wilson noted that USMCA was passed 89-10 in the U.S. Senate and 385-41 in the U.S. House. “Those numbers are unlike any trade agreement the United States has ever passed,” Wilson said. By way of comparison he cited the congressional vote totals for USMCA’s predecessor, the North American Free Trade Agreement. The Senate passed the agreement 61-38, while the House totals were 234 for and 200 against.
“Now we have a huge bipartisan majority supporting the USMCA. That is a huge gain. Really, that is the most important thing that happened with USMCA.”
Additionally, Wilson cited “some good additional measures” that could be positive for the border region.
“There is a chapter on trade facilitation that should make the movement of goods across the border a little smoother. There should be more certainty, clarity, transparency with regard to customs rules going forward and we have better rules on digital trade.”
Because of tensions between the U.S. and China, Mexico has an opportunity to attract more electronics companies. He noted that the country was already strong in the automobile sector.
Mario Lozoya is executive director of the Greater Brownsville Incentives Corporation. Lozoya asked Wilson about how changes to the Rules of Origin chapter of USMCA when it comes to the auto manufacturing sector could help the border region.
“The changes to the rules of origin under the USMCA; a big area where we saw changes was in the auto sector. Basically what happened is under NAFTA a car needed to be 62.5 percent made in North America in order to get the free trade benefit that NAFTA offered. Now that is up to 75 percent made in North America,” Wilson pointed out.
“Well, that means that more of your parts, more of your suppliers need to be located in the region to ensure that you are going to develop here. It seems that most auto producers will go ahead and try to find ways to meet those new standards.”
Wilson said many auto manufacturers already in Mexico. “Some will have to move a little bit more of their supply chain into the region. That, obviously, provides opportunities for the border region to be capturing some of that,” Wilson said.
Wilson then explained another change to the Rules of Origin provisions in USMCA.
“The other change was to have 40 to 45 percent for cars and trucks made in factories that pay their line workers $16 an hour or higher. That is kind of a shorthand way of saying in the United States or Canada because just about every factory in Mexico does not meet those wage standards,” Wilson said.
“One or two could, but those are the exception. They will instead think about having a larger proportion of their supply chain in the United States, particularly if they can do so in a cost competitive way. And so that is an opportunity again for the border region.”
Wilson said the new Rules of Origin provisions in USMCA will most likely lead to an increase in the price of automobiles. However, he said, “from a manufacturing investment perspective it certainly will drive more investment into the region.”
Wilson added that the Mexico Institute is hosting webinars that take a deep dive into the changes USMCA has brought about. He said the webinars were looking at the trade agreement “chapter by chapter.” He said this analysis can help stakeholders understand the potential ways USMCA can impact the border region.
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