ALBUQUERQUE, N.M. — Business remains strong for international shipping company J.H. Rose Logistics in southern New Mexico, despite all the uncertainty swirling around the future of the North American Free Trade Agreement.
The company, which manages shipments for businesses to and from Mexico at the Santa Teresa industrial park along the border, reports little change in customer demand since the U.S. opened negotiations in August to modify the 23-year-old trade accord with Mexico and Canada. But company partner James K. Robinson says clients on both sides of the international divide are holding off on most business expansion until they see the outcome of NAFTA negotiations.
“Nobody’s willing to go out on a limb and spend a lot of money until they know what’s happening,” Robinson said. “There are a lot of concerns. Nobody is really willing to pull the trigger on investments right now.”
Like J.H. Rose, most trade professionals and export-import companies say business continues as usual along the border despite the NAFTA renegotiation, which marks the first effort to update the accord since the trilateral agreement launched in 1994. Some are even optimistic the talks could modernize and improve the pact, strengthening cross-border trade and investment.
But President Donald Trump’s ongoing threats to pull out of NAFTA if negotiations don’t go his way throw a wild card into everything, casting a pervasive cloud over the ability of trade representatives to reach a new agreement.
“A lot of it is negotiating tactics (by the U.S.) to soften or scare the other side, and the other NAFTA partners understand that,” said Jerry Pacheco, executive director of the International Business Accelerator at Santa Teresa. “But what scares me is if all the rhetoric from Trump gets him backed into a corner where he sees nothing truly substantive come out of negotiations and then feels pressured to cancel the agreement in a kind of shoot-first, ask-about-repercussions-later approach. That does worry me.”
Aggravating concerns is the difficulty of some issues being raised in negotiations, such as indications the U.S. wants to increase the amount of domestically manufactured components that go into automobiles and other products to qualify for tariff-free imports from its neighbors.
The Trump administration may push for that to bring jobs back to the U.S. But altering NAFTA’s “rules of origin” could undermine supply chains that often rely on components from outside the region to keep production costs down, raising strong opposition from Mexico and Canada.
Other big issues include efforts to raise workplace standards and pollution controls in Mexico to lower its competitive advantages, plus proposals to eliminate or modify a NAFTA arbitration panel that allows investors to circumvent local courts in trade disputes. Those are difficult things to negotiate, especially with competing pressures coming from industry, labor and environmental groups in all three countries.
NAFTA negotiators have met two times since mid-August, with a third round of negotiations scheduled for later this month.
But uncertainty reigns, since few details have publicly emerged about specific proposals under discussion.
“They haven’t announced anything of substance yet, which makes me a little apprehensive,” Pacheco said.
Most local trade professionals expect the negotiating teams to resolve their differences given the huge costs at stake if the U.S. were to exit NAFTA. The accord regulates more than $500 billion in annual trade between the U.S. and Mexico.
Trade a boon for NM
New Mexico has benefited a lot. Southbound exports grew more than fourfold in the past decade, from $376 million in 2007 to $1.58 billion last year. Mexico now accounts for more than 40 percent of the state’s total annual sales worldwide.
That’s helped build Santa Teresa into a bustling hub for trade with Mexico. About 60 companies and 4,000 employees are now located in the zone’s three industrial parks, with a fourth park under construction.
Hundreds of businesses elsewhere have also launched or expanded trade south of the border, particularly in Albuquerque, where local and state government are working to build closer trade relations with Mexico. That includes opening a trade office in Mexico City in 2014, providing technical assistance for businesses interested in Mexico and organizing frequent trade missions there.
Randy Trask, manager of the Albuquerque Bernalillo County Trade Alliance, said the NAFTA talks could improve lingering trade issues if addressed by negotiators, such as making customs more efficient.
New NAFTA clauses to regulate e-commerce, and efforts to open Mexican markets to more U.S. sales of energy-related products and investment, could also favor New Mexico, said Robert Queen, director of the U.S. Commerce Department’s New Mexico Export Assistance Center in El Paso.
“There are several New Mexico energy companies actively engaged in selling oil and gas equipment into Mexico that would benefit,” Queen said.
Preparing for the worst
In general, however, most businesses are less concerned with the details of negotiations than simply seeing a successful agreement that ends speculation about a U.S. pullout. It’s the lingering concern about talks breaking down altogether that raises concern.
Few expect that to happen, but trade officials on both sides of the border are prepared.
New Mexico, for example, would concentrate on recruiting businesses in Mexico to the state.
“If that happens, a lot of companies would need to consider setting up operations in the U.S., and many would seek locations close to the border, so we’d focus on recruitment,” Trask said. “That’s not by any means what we want to see, but we’d work to capture our share of jobs coming back to the U.S.”
Mexico, meanwhile, is aggressively exploring trade with other countries in Latin America, Asia and elsewhere, said Carlos Yates, state director in Chihuahua for the Mexican government’s trade and investment promotion agency ProMexico.
“Many businesses are very interested in market diversification,” Yates said. “We have alternative markets for many products in South America, and countries like China and India are seeking closer trade relations with Mexico.”
For now, New Mexico trade with its southern neighbor remains robust, and some new businesses have even set up shop at Santa Teresa in recent months, Pacheco said. That includes the refrigerated distribution company Valley Cold Storage, which moved into a new 107,000-square-foot building in June, and FedEx, which occupied a 215,000-square-foot space in July, bringing 80 new jobs to the park.
But many remain anxious about the future of NAFTA.
“Without NAFTA in place, it could lock us out of the Mexican market,” said Ron Corio, CEO of Albuquerque-based solar tracker manufacturer Array Technologies. “We import and export products to and from Mexico. It would directly affect our ability to win projects there if we could no longer export products tariff free from the U.S.”
Businesspeople on both sides of the border remain concerned, said Robinson of J.H. Rose Logistics.
“Everything is running as normal now, but there’s nothing new and exciting happening,” Robinson said. “I don’t think we’ll see any real growth until things become clearer.”