Texas Border Cities Welcome USMCA Under The Shadow Of The Coronavirus
After over two years of negotiations, the United States-Mexico-Canada Agreement officially replaced the 1994 North American Free Trade Agreement on Wednesday.
For those in trade, it’s a big deal—even if it has been overshadowed by the coronavirus.
"You’ve taken a 25- to 27-year-old agreement, improved it, expanded on it, and incorporated a new dimension of digital trade, telecom, and energy into the new improved agreement that will hopefully benefit all sectors,” said Gerry Schwebel, executive vice president of Laredo-based IBC Bank.
He was part of both NAFTA and USMCA negotiations. He said NAFTA was revolutionary for its time as a trilateral agreement and helped Texas’ border cities flourish. But, he added, NAFTA’s provisions eventually grew outdated, and other parts of the country lost manufacturing jobs.
So the USMCA is more expansive with new provisions on customs facilitation, e-commerce, intellectual property rights, as well as environmental protections and labor rights in Mexico.
It also raises the percentage of steel, aluminum and auto content that must come from the U.S. or its two neighbors. Now, 75% of auto content must be produced in North America, compared to NAFTA’s 62.5% requirement. And at least 70% of a producer’s steel and aluminum purchases must originate in North America.
The objective is to bring back manufacturing from other countries, particularly in Asia. But Thomas Tunstall, research director for UTSA’s Institute for Economic Development, said it's too early to tell if that’s what companies will choose to do.
“If they don’t meet the requirements, it’s not inconceivable that they will determine, 'maybe we’ll pay the tariff and manufacture in China because overall we come out ahead on that basis,' ” he said.
A new rule also requires at least 40% of auto content to be made by workers earning at least $16 per hour.
Keith Patridge, president of the McAllen Economic Development Corporation, said that could lead the U.S. to regain jobs that moved to Mexico under NAFTA.
“The wage rates are so much lower than $16 an hour that the companies are not going to raise the rates in Mexico to that level, so in my opinion, they will be looking at the U.S.,” he said.
Patridge has been leveraging the USMCA to try to bring manufacturing to McAllen but said companies have remained cautious under the “cloud” of the coronavirus pandemic.
And the changes won’t come just yet. There’s a six-month transition period, Schwebel said. The agreement also includes a review in six years and conflict arbitration, he added.
How auto manufacturing changes play out will be important for Texas, which has a Toyota plant in San Antonio and a General Motors plant in Arlington, and border cities like Laredo rely on the movement of vehicles and car parts.
But the new agreement is good news for Texas ports of entry, which have seen their traffic decline under the instability of the pandemic and nonessential travel restrictions at the border.
“We anticipate that with the increased volume of trade as a result of the USMCA, that Laredo will benefit,” Schwebel said. “The unfortunate part is that we also have restrictions still at our ports of entry.”
Trade has been allowed to continue to flow through the border, but it took a toll from coronavirus supply chain disruptions in April and May. For the month of June, commercial bridge traffic at Laredo, Texas’ busiest port of entry, remained 4.3% below that of last year, according to Economic Development Director Teclo J. Garcia.
And local businesses are suffering from the lack of Mexican customers and tourists. The federal border restrictions are slated to last through at least July 21, but Laredo and the rest of Texas have seen a recent wave of new COVID-19 cases and hospitalizations.
“We’re happy that things are getting better economic-wise, but we have to be very cautious and still do the best we can to know that we’re in the middle of a very challenging situation,” Garcia said.
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