‘Confidence in Mexico’: U.S. and Mexican top brass to talk business, border

USA Mexico Trade

MERIDA, Mexico (Reuters) - A meeting of U.S. and Mexican government and business leaders on Thursday aims to shore up investor confidence in Mexico and defuse U.S. President Donald Trump's threats to close their shared border if illegal immigration is not halted

Part of regular business forum the U.S.-Mexico CEO Dialogue, the talks in Mexico coincide with renewed tensions over trade and the border after two years of uncertainty sparked by Trump's push to rework the North American Free Trade Agreement (NAFTA).

They also give Mexico an opportunity to address investor concerns about how President Andres Manuel Lopez Obrador has run Latin America's No. 2 economy since taking office in December.

"We want the American investors that visit our country to go back home feeling confident about their investments here," said Moises Kalach, a top executive in the CCE business lobby, which represented Mexico's private sector at the NAFTA talks.

Lopez Obrador and officials including his foreign minister and energy minister, plus U.S. Commerce Secretary Wilbur Ross and U.S. Chamber of Commerce President Tom Donohue, are scheduled to attend the two-day meeting in the city of Merida.

Among investors due to attend is Larry Fink, chief executive of the world's largest asset manager BlackRock Inc.

The leftist Lopez Obrador took power vowing to fight entrenched corruption, crime, inequality and poverty, scourges that cost Mexico billions of dollars every year.

He has said he wants to boost both private and public investment, but some of his early decisions, such as canceling a partially-built $13 billion Mexico City airport and steps to rein in the autonomy of regulatory bodies, have spooked investors.

Questions remain over the future of trade in the region because the deal agreed to replace NAFTA, the United States-Mexico-Canada Agreement (USMCA), has yet to be ratified.

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Border wait times swell amid customs officer shuffle to handle migrant crisis

border slowdown

NUEVO LAREDO, Mexico - U.S. President Donald Trump hasn't followed through on his threat to shut the border with Mexico, but one crossing here that connects this Mexican city with Laredo, Texas provided a glimpse of the chaos and economic disruptions that it would likely ensue.

Lines of 18-wheeled semi-trucks carrying auto parts, produce and other goods for U.S. consumers and businesses stretched more than six miles into Mexico Wednesday after the Trump administration shifted Customs and Border Protection agents from Laredo and other Texas border crossings to El Paso and the Rio Grande Valley to deal with the flood of asylum seekers from Central America. Waits to cross the World Trade Bridge, which normally run 30 minutes, reached more than three hours.

The impact of the delays was being felt on both sides of the Rio Grande, with those who depend on U.S.-Mexico trade barely able to consider what would happen if the Trump closed the border. Ernesto Gaytan, president of the Laredo company Super Transport International, which has 200 trucks on the American side of the border and 300 more on the Mexican side, said he couldn't put a number on it, but knew the delays were costing him money. A complete border shutdown, he estimated, would cost his company $200,000 a day.

On the other side of the border, Roberto Hernandez was idling at the back of the line with hundreds of 18-wheelers ahead of him. Hernandez doesn't get paid by the hour, but rather by the number of loads he delivers.

Usually, he makes four cross-border runs a day, earning the equivalent of about $15 per load. But he was only able to make two trips on Tuesday and his is daily pay fell to $30 from $60.

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Binational pact aims to keep industrial plants in border region

Binational Pact

Brownsville officials were among Rio Grande Valley economic development leaders who signed a bi-national collaboration agreement on March 5 between South Texas and the state of Tamaulipas, Mexico, aimed at boosting economies on both sides of the border.

The initiative was led by the Rio South Texas Economic Council and the Ministry of Economic Development of the state government of Tamaulipas, with the signing ceremony in Weslaco. Besides officials from Brownsville, also participating were economic development leaders from Alamo, Donna, Edinburg, Harlingen, Hidalgo, Laredo, McAllen, Mission, Palmview, Pharr, Roma, Rio Grande City, San Benito, Sullivan City and Weslaco.

From the Mexican side, in addition to Matamoros, were leaders from Altamira, Camargo, Ciudad Victoria, Diaz Ordaz, Guerrero, Madero, Mier, Miguel Aleman, Nuevo Laredo, Reynosa, Rio Bravo, Tampico and Valle Hermoso.

According to RSTEC, the agreement is intended to strengthen investment recruitment and job creation in communities north and south of the Rio Grande.

Mario Lozoya, executive director of the Greater Brownsville Incentives Corporation and one of the agreement's signatories, said the agreement was forged partly in response to a situation with U.S.-owned maquiladoras (industrial plants) in Matamoros that has prompted some of them to relocate to the United States or Mexico's interior.

A mandate from Mexico's new president, Andres Manuel Lopez Obrador, doubling the minimum wage along a narrow strip of the country's northern border, led to a dispute between labor unions demanding higher wages for employees making above minimum wage and "maquila" management, who refuse to raise wages, arguing that their employees were already making the wages Obrador sought to bring about.

Another piece of Obrador's northern-border program entailed slashing the value-added tax on maquilas in the border region so they could afford the wage increase. At any rate, tens of thousands of maquila workers have walked off the job in Matamoros.

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USMCA opens a can of worms

USMCA Agreement

Traditionally, Mexico has offered foreign manufacturers cost advantages in the form of low wages. That may change soon.

Labor organizations in the U.S. and Canada often cite low wages and paltry workers' rights as the reasons why many jobs have been lost to Mexico. Hence, it is no surprise that the U.S. and Canada made it a point to include provisions that addressed these issues in the proposed replacement for the North American Free Trade Agreement.

For example, in addition to increased regional value content rules, the new United States-Mexico-Canada Agreement includes labor value content requirements. Under those provisions, 40 to 45 percent of a vehicle's value must be manufactured by employees earning at least $16 an hour. Automakers will be able to credit up to 10 percent from R&D and 5 percent for assembly in high-wage regions.

The precise formulas will be addressed in the uniform regulations still under discussion.

The underlying intention of this new requirement is to slow the outsourcing of U.S. manufacturing to Mexico. The unintended consequence is the increased compliance cost that will ultimately be transferred to the consumer.

Further, as part of the concluded trade deal, Mexico agreed to reform its labor laws. Passage of the USMCA by the U.S. Congress is conditioned on it. The two main objectives of the Mexican reforms are:

  1. Achieving labor union democratization, transparency and liberty.
  2. Shifting the dispute settlement process from local employment courts to the federal judicial branch.

Perhaps most important to labor organizations is the first, the issue of workers' representation in unions. It is widely claimed that Mexican labor unions don't legitimately represent their members' interests, lack transparency in their governance and are structured to advance economic interests over workers' rights. That is why many believe wages in Mexico have remained so low despite overall good macroeconomic performance in the country.

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What Auto Manufacturers Need to Know About Mexico Under the USMCA

Mexico and USMCA

Building upon the centuries-old business relationship between Mexico and the United States, NAFTA allowed both countries to benefit from a seamless workshop that clearly made the pie larger. The 25-year-old contract needed to be revised, though, with motor vehicles and auto parts taking the lion's share of the modifications (for better or worse depending on how well your company coordinates upstream and downstream operations and record-keeping).

Mexico's economic relevance to the United States is frequently overlooked. The 11th largest economy in the world, Mexico has a population (126 million) roughly 40 percent that of the U.S. and is close to three times the size of Texas. The country has a network of 12 Free Trade Agreements (FTAs) with 46 countries, and seven additional ones will be added with the renewed Trans-Pacific Partnership (an agreement now known as CPTT, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, TPP 11 in short), from which the U.S. withdrew under the Trump Administration.

Mexico was, in 2018, either the first or second largest export market for more than 50 percent of states in the Union. (It was first for six states –Arizona, California, Kansas, Nebraska, New Mexico and Texas, and second for 22 States–Colorado, Georgia, Illinois, Indiana, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, and Wisconsin.) It is also the third-largest source of imports in the U.S.; has an expanding middle class that has grown accustomed to purchasing American goods and services; has demonstrated to be a near-shore, reliable manufacturing partner; as well as will benefit from a demographic bonus during the next several years that will help neutralize the dwindling U.S. population (and necessarily its workforce).

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Doing Business in Mexico

NAFTA

NAFTA boosted the centuries-old business relationship between Mexico and the United States by allowing both countries to benefit from a seamless workshop that undoubtedly made the pie larger. As with any 25-year-old contract, however, NAFTA needed to be revised. Negotiations required delicate balancing between technical and political issues, with motor vehicles and auto parts requiring the lion´s share of the modifications.

In this article, we take stock of the revised agreement and, at the same time, look ahead at what the 2019 business calendar may bring in Mexico through the following top four issues:

  1. The (possible) execution of the US-Mexico-Canada Trade Agreement (USMCA), and what it means, particularly, for motor vehicles and auto parts manufacturing and sales in North America
  2. The newly elected (2018-2024) Lopez-Obrador administration
  3. New Product Safety Requirements and Recall Procedures
  4. The New Mexican Anti-corruption Law

Read the entire article here.
Originally publish in The National Law Review.

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