While the United States-Mexico-Canada Agreement, the replacement for the North American Free Trade Agreement, waits for ratification by all three countries involved, indications are that the new trade deal will be good for the South Texas economy, and all along the U.S.-Mexico border.
“What was happening under NAFTA, and this was a problem with NAFTA, it opened up plants being able to move to Mexico without any type of restriction on their movement and still having access to the U.S. market,” said Keith Patridge, president and chief executive officer of the McAllen Economic Development Corporation.
Big companies that moved to Mexico under NAFTA in turn have put pressure on suppliers to also make the move to be geographically closer and to take full advantage of NAFTA provisions. Those smaller companies, in many cases, are the lifeblood of communities in manufacturing states like Ohio and Pennsylvania. And some of those towns have been hit hard when they have lost those companies.
“Fair trade is critical,” Patridge said during a workshop hosted by the Rio Grande Valley Hispanic Chamber of Commerce. “But when you talk about fair trade, it is not free trade. Free trade doesn’t necessarily mean fair.”
Patridge said the new trade agreement preserves many of the benefits of NAFTA and will likely boost the already robust international trade that exists along the border. “When you look at the NAFTA provisions, most of NAFTA remains the same. In other words, NAFTA was just transferred to the USMCA, with the exception of four areas that are different.”
For example, automobiles assembled in Mexico under NAFTA had to have 62.5 percent North American produced components. “That means 62.5 percent of the value of that car had to come from products or components that were produced in the U.S., Mexico or Canada,” Patridge said. Under the USMCA, that changes to 75 percent of the value of that car, which in turn means more components will be manufactured by companies within the boundaries of the agreement.
Another change requires that 40 percent of the value of the car and its components have to come from a plant that pays at least $16 an hour plus benefits, which removes some of the economic advantage for suppliers to move to Mexico. “So what it did, it just removed that pressure on those plants to move to Mexico. And what it will do immediately is raise the manufacturing wages on the U.S. side in the automotive sector to 16 bucks an hour plus benefits,” Patridge said.
“I hope you can see that the USMCA actually is very good for the border,” he said. “It really is good for us. It’s also good for the U.S. producers but it is particularly good for us because of the flexibility that we have here on the border being able to qualify for both free trade agreements.”
The reference to multiple trade agreements reflects the fact that the United States has some 14 trade agreements that involve 26 countries, and Mexico has 10 such agreements involving 45 countries, all with different provisions. That means companies can make decisions on plant and supplier locations depending on which trade agreement would offer the greatest advantage in the global marketplace.
Patridge also stressed that the maquiladora program remains a major economic driver of the border region. In Reynosa alone, there are 215 plants employing about 148,000 people, Patridge said, with facilities and more workers on the U.S. side. Throughout Mexico, some 3,000 plants with more than a million employees are part of the maquiladora program.
“We have really focused on developing that cross-border relationship, bringing the two economies together, depending on the strengths of Mexico and the strengths of the U.S. to grow our economy. It has worked very well and we continue to do that.”
The maquiladora jobs have developed into highly skilled areas that have raised the quality of life for Mexican workers employed by what are some of the largest companies in the world.
“These are jobs that are very high-tech now,” Patridge said. “They have grown from simple assembly to now we are making computer chips over there, we are making TVs. If any of you have an LG TV, it was built in Reynosa. If you like to bowl, your bowling balls were most likely produced in Reynosa.”