Trade pact brings relief and questions - Albuquerque Journal

Trade pact brings relief and questions

Most New Mexico exporters and trade professionals are still trying to decipher the details and analyze the potential impacts of the newly renegotiated North American Free Trade Agreement.

More than a year of talks ended Oct. 1, when the U.S. and Canada reached agreement to modify some aspects of the 24-year-old pact that took effect in 1994. Mexico and the U.S. had already completed their negotiations in late August.

International shipping company J.H. Rose Logistics loads rolls of steel for transport to Mexico at its facility in Santa Teresa. (Courtesy of J.H. Rose)

Most of the proposed changes are well known, such as a new requirement that 75 percent of components in regionally-built vehicles come from North American producers to qualify for tariff-free import among the NAFTA partners, up from 62.5 percent before, and that up to 45 percent of those vehicles be built in plants that pay workers at least $16 per hour.

U.S. trade negotiators hail those changes as major victories for the auto industry that could increase domestic production and make U.S. manufacturing more competitive with Mexico and other countries.

But the devil is in the details, and most businesses and trade experts are unsure about the long-term impacts.

For now, business remains brisk along the border. But the lack of clarity is frustrating to many.

“I don’t know the impact yet, and that’s the big thing,” said Larry Estorga, plant manager for FXI, which makes foam for auto interiors at one of the Santa Teresa border industrial parks. “A lot of specifics are still unclear, and it’s kind of frustrating not knowing where all this will lead us.”

Corrugated Synergies International, which established operations in Santa Teresa last summer, uses a high-tech digital printing process to pre-print company information, logos and art on sheets that will later be processed into corrugated cardboard packaging boxes. (Courtesy of Corrugated Synergies International)

Guy DeYoung, general manager for corrugated box maker Corrugated Synergies International, said business remains normal for now at Santa Teresa, where CSI recently established operations.

“I don’t know anybody here who really knows what it all means yet,” DeYoung said. “It will take awhile for the new regulations to get rolled out and to really know what we’re dealing with.”

For most, simply having reached a successful conclusion to trade negotiations is a welcome, stabilizing achievement, given the acrimonious relations between the U.S. and its neighbors since President Donald Trump took office. Trump repeatedly threatened to end NAFTA if Canada and Mexico didn’t make critical concessions in talks.

Under the new agreements, the pact will remain in effect another 16 years.

“It’s mostly a collective sigh of relief,” said Jerry Pacheco, executive director of the International Business Accelerator and president of the Border Industrial Association. “At least we’ll get the rules of the game known now, and we can learn to play by them.”

In addition, the basic structure of NAFTA – now called the U.S., Mexico, Canada Agreement – remains unchanged, with most goods and services unaffected by the proposed modifications, said Robert Queen, director of the U.S. Commerce Department’s New Mexico Export Assistance Center.

“The changes are mostly focused on the auto industry,” Queen said. “Things are pretty much the same as before for most other commodities.”

A few things could directly benefit local producers, such as an agreement by Canada to increase the amount of tariff-free dairy it imports from the U.S., since New Mexico is one of the country’s largest dairy producing states. Other changes, such as stricter protections for intellectual property and lower restrictions on trade of digital products and services, may also be beneficial.

“Those agreements are good for New Mexico as a technology state,” said New Mexico Trade Alliance President Randy Trask. “Modifications on digital content include some criminal punishments for piracy and other things. That could be good for us as we grow our creative economy.”

And New Mexico continues to strengthen trade relations with Mexico – the Mexican airline Volaris has announced it will launch direct flights between Albuquerque and Guadalajara in November, Trask said.

Rio Bravo Brewing cans its own beer at the company’s Albuquerque facility. Rio Bravo is negotiating with Mexican distributors to sell its canned brews at high-end Mexican resort areas. (Jim Thompson/Albuquerque Journal)

Local businesses also continue to seek new export opportunities with assistance from the state’s trade office in Mexico City. Albuquerque-based Rio Bravo Brewing, for example, is in negotiations with two Mexican distributors to begin selling its homegrown, canned beer in high-end resort destinations south of the border.

“We’re looking at Guadalajara, Mexico City, Monterrey and other places,” said Rio Bravo co-owner Randy Baker. “I don’t believe the NAFTA modifications will have any impact on us. They don’t have any effect on trade in our goods.”

Still, changes in auto industry rules could substantially impact local companies that export components to maquilas, or assembly factories, that produce vehicles in Mexico. Many of Santa Teresa’s 60-plus companies are directly focused on that industry, supplying everything from massive rolls of steel, cable wire and plastic injections to electronics, textiles and foam for auto interiors.

Some companies may benefit through increased component production in the U.S. as Mexican maquilas struggle to meet the new requirement for 75 percent North American content.

Acme Mills, which produces textiles for auto interiors at Santa Teresa, is cautiously optimistic.

“I see no direct impact on our business,” said plant manager Alexander Sierra. “If anything, the new rules could help us.”

But some businesses could struggle along with Mexican producers to meet the new $16 wage requirement, such as foam maker FXI.

“We start our minimum wage at $8.50 to $9 an hour, and we’d have to reevaluate our costs if those new requirements affect us,” said plant manager Larry Estorga. “It could push our overhead way up. From the corporate standpoint, we’ll have to see how to work the new wage into our cost model and analysis for pricing.”

As costs go up for auto production, the industry as a whole will be affected as higher costs trickle down to consumers, potentially lowering demand and slowing markets.

Trucks cross the border at the Santa Teresa Port of Entry, where business remains brisk despite uncertainty from newly imposed tariffs on steel and aluminum and the renegotiation of NAFTA. (Angela Kocherga/Albuquerque Journal)

“You have to look at the whole supply chain to see the impact,” Estorga said. “There’s a trickle effect with the end consumer absorbing those costs, and if demand goes down as a result, it would impact the entire supply chain.”

Metal plants at Santa Teresa also still face newly imposed import tariffs on steel and aluminum as a result of Trump’s growing trade war with China. The NAFTA negotiations didn’t resolve that.

“We have four major steel manufacturers and sellers of steel coil here, and those tariffs have really thrown them a curve ball,” Pacheco said.

With so many lingering questions and uncertainties, many businesses along the border may stall major investments for the foreseeable future, especially since the renegotiated trade accord must still be approved by legislatures in all three NAFTA countries.

“There’s still a lot of concern by big investors whether to build things or not,” said James K. Robinson, a partner in the international shipping company J.H. Rose Logistics at Santa Teresa. “Businesses are looking twice at major expansions and investments to see how it all shakes out. People are being very cautious.”

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