President Donald Trump has called NAFTA the worst trade deal in the history of free-trade deals. “A disaster,” he has said often. But anyone who has been in Texas for longer than a day knows the North American Free Trade Agreement has been, overall, enormously beneficial to America, especially to Texas.
Texas, therefore, is counting on Sens. John Cornyn and Ted Cruz, and the business lobby, to loudly proclaim the benefits of this 1993 agreement. That’s essential to protect this state from the harm that will almost certainly come if Trump follows through and withdraws this country from the pact.
Texas is the nation’s leading export state. And which country buys our products more than any other? Mexico, of course. In 2015, Texas exported $95 billion worth of goods made here to Mexico, which, thanks to NAFTA, assesses little or no tariffs on those products. The largest category of goods exported from Texas to Mexico? Computers and electronics, which in the first quarter of 2016 accounted for 31 percent of all such goods.
Other states also export goods to Mexico, naturally. And when they do, the vast majority of them are sent by trucks that travel through Texas, another source of jobs and infrastructure investment for our state. All that means jobs for America, jobs for Texas.
Has the deal also helped Mexico? Certainly.
Several thousand assembly plants have been built along the Mexico side of the border since NAFTA was ratified. Those plants are given special treatment if they agree that the goods they assemble — usually using parts manufactured in America — will be exported out of Mexico. Every year, about $300 million worth of goods are sent from those plants in Mexico out of the country, mostly back here to America.
A stronger Mexican economy is absolutely in America’s best interest — and in Texas’.
These are just some of the reasons why free trade, and NAFTA in particular, has been so strongly supported by Republicans in federal office, and by governors in Austin. It was largely negotiated, after all, by President George H.W. Bush’s administration and ratified by the Senate in the first year of President Bill Clinton’s first term.
Nevertheless, Trump has promised to put our NAFTA partners on notice that he wants a better deal. Will they agree to renegotiate? Time will tell. But Trump and his team must know that even if they do, re-opening negotiations is fraught with risk. Mexican farmers and others have long lamented what they see as a lop-sided arrangement with America. Will suddenly their concerns take center stage, too?
Any new agreement would then face the political risks associated with new rounds of ratifications in Congress and the two other capitals.
For Trump, and the many Democrats who have long opposed trade agreements like NAFTA, the risk seems negligible. He says he’s happy to pull out of the agreement if he can’t negotiate a better deal.
Mexico’s Foreign Affairs Ministry announced Friday that Gerónimo Gutiérrez Fernandez, head of San Antonio-based North American Development Bank(NADBank), will be Mexico’s new ambassador to the United States.
North American Development Bank Managing Director Gerónimo Gutiérrez Fernandez
Gutiérrez will succeed current ambassador Carlos Sada Solana, who will become undersecretary for North America on Jan. 23, the Mexican Foreign Affairs Ministry stated in a release Friday. Sada, who served as Consul General of Mexico in San Antonio from 1995-2000, was ambassador for only nine months. He will attend the inauguration of President-elect Donald Trump on Jan. 20.
Mexican President Enrique Peña Nieto will submit Gutiérrez’s appointment to the Mexican Senate for ratification. Naming a new ambassador in Washington also requires approval from the U.S. government.
“(I am) thankful to President Enrique Peña Nieto for (the) opportunity to serve my country and be a part of his administration under leadership of Secretary Luis Videgaray,” Gutiérrez stated on Twitter.
To uphold diplomatic form and comply with Mexico’s constitution, Gutiérrez said he will withhold further comments “until the conclusion of appropriate processes” in Mexico and the U.S.
Since 2010, Gutiérrez has been the managing director of NADBank, which was created in 1994 under the North American Free Trade Agreement (NAFTA). The bank is jointly financed by the U.S. and Mexico to lead environmental projects that preserve and enhance the quality of life for people living on the border.
Prior to his role with NADBank, Gutiérrez served as Mexico’s undersecretary for North America as well as undersecretary for Latin America and the Caribbean. He has held posts in sectors of commerce, finance, foreign relations, and national security in the last four administrations of the Mexican government.
As Mexico prepares for a complex new relationship with the U.S. under Trump, Peña Nieto has begun a political chess game and moved around key government roles in an effort to strengthen bilateral ties in security, immigration, commerce, and investment.
On Jan. 4 the Mexican president designated former finance minister Luis Videgaray as the country’s new foreign minister, thus replacing Claudia Ruiz Massieu. It was Videgaray who suggested Peña Nieto invite Trump to Mexico in August, a decision that caused uproar among the Mexican populace and put pressure on Videgaray to resign as finance minister.
It’s been a rough start to the new year for Mexico, as Peña Nieto grapples with Trump’s ascent, the fall of the Mexican peso, and violent unrest due to a 20% increase in gas prices. Opposition has taken the form of protests, looting, and robberies all over the country.
In his new role, Gutiérrez will have to respond to Trump’s promise to build a wall on the U.S.-Mexico border, deport of thousands of immigrants, and renegotiate NAFTA. Most recently, Trump berated members of the auto industry for investing in Mexico and opening up car plants there instead of in the U.S. His statements prompted strong responses on social media from former Mexican presidents Vicente Fox and Felipe Calderón.
“Gerónimo Gutiérrez is the perfect person to serve as the ambassador from Mexico to the United States because he is an expert on U.S.-Mexico relations,” Cavazos told the Rivard Report Saturday. “Now more than ever, his skills and experience should help bridge the economic/immigration tensions between our two countries.”
The Hispanic Chamber frequently works with Gutiérrez and other officials at NADBank to plan annual trade missions to Mexico.
“Gerónimo’s role as the NADBank managing director for six years has provided a strong partner for us at the San Antonio Hispanic Chamber of Commerce to help make our trade missions, advocacy of NAFTA, and support for free trade very effective,” Cavazos added.
MEXICO CITY — Mexican and U.S. business leaders are quietly strengthening coalitions from America’s heartland to North Texas to persuade a skeptical Donald J. Trump to maintain strong ties between the two countries. The president-elect has sent ambiguous signals over future and past trade deals and building a wall, or perhaps just a fence along the border with Mexico.
To help gain leverage with Trump, Mexico is also pondering several options, including replacing Foreign Minister Claudia Ruiz Massieu with former Finance Minister Luis Videgaray, according to three senior Mexican officials with knowledge of the plans.
The plan is to make the case that Mexico is not China and should be treated not as an adversary, but as an ally on matters ranging from economic to cultural integration, with security the critical glue binding both sides, business and policy leaders on both sides of the border said.
North Texas is key in that effort.
“These guys and gals have known each other for years,” he said. “They will push this agenda. You will see a powerful binational coalition forming between these two countries. That’s what I have been watching take place over the past 20 years and I’d be surprised if that’s not happening again.” “You have powerful people from Mexico talking, drinking, having dinner with very powerful Texas people,” said James Hollifield, director of the Tower Center at Southern Methodist University, or SMU, and a founding member of the Mission Foods Texas-Mexico Center.
Nearly 5 million U.S. jobs depend on trade with Mexico, with more than $400 billion in goods and services crisscrossing the border. Of that figure, $179 billion is between Texas and Mexico.
Over the years, the two countries have set up supply chains that snake across the countries, often along the Interstate 35 corridor, carrying manufactured goods, including cars, assembled in both countries. Cars built in places like Arlington crisscross the United States and Mexico border, including Silao, Guanajuato, at least eight times during production, according to a study by the Woodrow Wilson Center’s Mexico Institute.
“This relationship is not optional,” said U.S. Ambassador Roberta Jacobson. “And this relationship isn’t just about economics, or cultural ties, but security too.”
Employees at work in the multibillion-dollar Honda car plant in Celaya, in the central Mexican state of Guanajuato. The factory is part of a national manufacturing boom that has turned the auto industry into a bigger source of dollars than money sent home by migrants.
The timing in Mexico is critical. The country of more than 120 million is facing uncertain times, and Trump’s ascent can either mean a slower growth rate, or recession. During the presidential campaign, Trump referred to Mexicans as “rapists” and criminals, drug dealers — “although some, I assume, are good people,” he said.
He promised to deport millions of undocumented immigrants, which would curtail more than $22 billion in annual remittances into Mexico. And he also wants to renegotiate trade deals, including the North American Free Trade Agreement, or NAFTA, that over the past 22 years has woven an infrastructure of new industries stretching from Mexico, the United States to Canada.
Since the late 1980s, Mexico has shifted from a close, privately held economy into one of the most open in the world, hedging its bets on trade agreements, including NAFTA in 1994. Today, the average Mexican has about one-third of his income from jobs tied to trade.
Trump has also threatened a trade war with Mexico by slapping 35 percent tariffs on cars and auto parts imported from Mexico. His most applauded pledge was to build a wall with Mexico and have the Mexican government pay for it, leading supporters to chant “Build That Wall.”
But since his election, Trump has seemed to back off his promises.
“What shocked so many of us during the presidential campaign was not that a candidate could describe Mexican immigrants as criminals and rapists or that he would threaten a trade war with Mexico,” said U.S. Rep. Beto O’Rourke, D-El Paso, who’s from a region that’s been transformed by trade. “What was shocking was that so many people throughout the country seemed to agree with those sentiments. The vilification of Mexico and the undervaluation in the U.S. of our bilateral relationship did not happen overnight. It will take many years to get it back on track.”
In Mexico, “all possibilities are on the table,” said a senior Mexican official who was not authorized to speak publicly.
That includes bringing back Videgaray, who fell from grace as the mastermind of Trump’s last-minute, controversial visit to meet with President Enrique Peña Nieto in Mexico City last August. Videgaray promptly resigned amid the fury that ensued. But following Trump’s victory, Videgaray’s stock rose. The U.S.-trained technocrat is known as a friend to key binational business leaders and has ties to some of Trump’s key people, including the president-elect’s son-in-law, Jared Kushner.
The fiasco contributed to Peña Nieto’s worsening approval ratings — now in the low 20s — and fallout with the Democratic Party in the U.S.
Mexico will need to “simultaneously engage the incoming (Trump) administration and rebuild ties with the Democratic party,” said Arturo Sarukhan, Mexico’s former ambassador in Washington. “If NAFTA were to unravel, it would be the proverbial spanner in the works, one that will damage Mexico and the United States alike.”
Other challenges for Mexico range from gasoline price hikes and shortages to more corruption, impunity in his administration, and renewed drug violence in regions, including Ciudad Juarez, across from El Paso. In the first 10 months of 2016, more than 17,000 people were killed in Mexico, the highest 10-month tally since 2012. That has generated fears among citizens of a return of gangland mayhem that’s marred Mexico for more than 10 years.
“I don’t know that we’ve ever felt safe again,” said Francisca Jimenez, a cleaning woman in Ciudad Juarez. “There’s also more uncertainty for Mexicans here in and in the United States with the arrival of el señor Trump.”
Ironically, over the years, Mexico has dramatically slowed illegal immigration north, in part due to a decades-long campaign to lower fertility rates and transform its economy into a mega center for cars, TVs, aerospace manufacturing and computers.
“Mexican business leaders need to go to Wisconsin, Kansas City, Michigan, Oklahoma, North Texas and skip Washington, D.C., and the border,” said a senior U.S. official without permission to speak publicly. “The heartland, middle America, is where the fight is. There is a need to remind Americans that Mexico is a partner, not a rival.”
O’Rourke added: “It’s important that those who understand the importance of this relationship — especially in those places far from the border where the positive value of Mexico is not as intuitive — work as hard as they can to bring the facts to the broader public.”
Larry I. Rubin is president of the American Society in Mexico, which represents U.S. interests in Mexico. He’s one of several candidates being vetted by Trump’s team as a possible new U.S. ambassador to Mexico. During the presidential campaign, Rubin took groups of Mexican business leaders to U.S. regions, including the Midwest, to narrow the gap of understanding.
Rubin estimates more than 1 million Americans live in Mexico, a number that fluctuates seasonally. More than 35 million Americans trace their roots back to Mexico.
“Texas is used to its huge Latino population, and its integration with Mexico, but that kind of assimilation, integration is ongoing throughout both countries,” said Rubin, also leader of the Republican Party in Mexico and a dual citizen whose father is from Cleveland, Ohio. “We need to work closely with Mexico to secure the entire region and a wall is one way to do that, but it’s not the most effective way to deter terrorism.
“Broader knowledge and deeper understanding about the U.S.-Mexico relationship needs to happen on both sides of the border,” he said. “Neither side understands each other fully. We all say we do, but we really don’t.”
Business leaders like Javier Velez Bautista, CEO of Mission Foods’s U.S. headquarters in Dallas, understands the urgency. He welcomes “updating” and “reviewing” NAFTA because he said after 22 years of experience with the agreement, there are areas the countries can agree on that need to be improved.
Yet, interrupting the economic integration between both countries may prove disastrous for both sides, he cautioned.
Take tortillas, for example. Nationwide, on a daily basis, Mission produces some 100 million tortillas in its 21 U.S. plants. In Dallas alone, Mission, a unit of Monterey-based Gruma S.A., employs more than 1,000 people and is constructing a new plant in Grand Prairie. Once the plant is fully operational sometime after the fall of 2017, Mission plans to make more than 35 million tortillas per day — more than twice what it was making some 20 years ago.
“The growth is not coming just from Mexicans, because tortillas are everywhere today, shrimp tacos, sushi places, etc.,” said Velez, who’s also a board member of the Mission Foods Texas- Mexico Center at SMU. “The main growth comes among non-Mexicans, which is representative of the economic integration we’re seeing nationwide. That’s something I hope the new administration will see more as an opportunity than a threat.”
Alfredo Corchado is co-director of the Borderlands Program at the Cronkite School of Journalism at Arizona State University and author of “Midnight in Mexico.” He’s the former Dallas Morning News Mexico Bureau chief.
Follow Alfredo Corchado on twitter at @ajcorchado
Texas-Mexico trade facts
–Texas is the top exporting state in the U.S., and its main export market is Mexico.
–Trade between Texas and Mexico was more than $176.5 billion in 2015, with a surplus of $8 billion for Texas. This represents more than a third of the state’s total trade.
–Texas is No. 1 in the U.S. for export-related jobs, with 382,000 jobs in Texas depending on trade with Mexico.
–The Dallas-Fort Worth metro area is the country’s eighth-largest exporter. In 2015, Mexico was DF-W’s top foreign market with 17 percent of its total goods exports.
–Texas exports to Mexico are highly diverse, with computers and electronics making up over one fourth of exports, followed by transportation equipment at 12 percent and petroleum products at 11 percent
–Mexican immigrants continue to remit billions of dollars annually to Mexico, adding to economic growth and increasing investments in everything from housing to infrastructure, and adding to the purchasing power of Mexican consumers.
Source: Mission Foods Texas-Mexico Center at SMU, Dallas Federal Reserv
Food importers should act now to design, test, and implement foreign supplier verification plans or risk supply chain disruptions, delays in entry processing, and possibly the exclusion of their products from the U.S. marketplace. Domenic Veneziano, independent Food and Drug Administration regulatory and strategic consultant for Sandler, Travis & Rosenberg and previously the FDA’s director of import operations, issued this warning at a Nov. 4 town hall meeting sponsored by the Association of Food Industries in Newark, N.J.
Veneziano offered several tips to help food industry professionals meet the May 2017 FSVP compliance deadline.
– Know if your company or facility is covered by the FSVP requirements. “Many people are under the impression that only the U.S. Customs importer of record is required to comply,” Veneziano said. “But the definition of ‘importer’ under the Food Safety Modernization Act is much broader and can include the actual CBP importer, the owner or consignee of food being offered for import, and even the U.S. agent of the importer. All are at risk if FSVP requirements are not met.”
– The FSVP requirement does not just apply to large food importers. “The statute does make some concessions for smaller companies, but there are still requirements to be met,” Veneziano said. “Unless you meet a specific exemption, your company must create a foreign supplier plan.”
– To create an FSVP that meets government requirements, it is important to understand its purpose. “Under FSMA, importers have explicit responsibility to ensure the safety of imported food,” Veneziano explained. “Foreign suppliers are expected to produce food using the same standards of processing and procedures required by domestic producers. What you want to show the FDA is that you are taking steps to ensure that foreign-produced food is safe and that the food entering U.S. commerce is not adulterated or misbranded.”
– A qualified individual should perform required FSVP activities. “The individual creating the FSVP must have the education, training and/or experience necessary to conduct a sophisticated review of all the records associated with an activity under review,” Veneziano emphasized. “You need an expert who can not only develop the actual program but also conduct hazard analyses, evaluate risks specific to the food being imported, verify supplier activities, monitor corrective actions, and maintain records. It’s a major undertaking and requires a high level of expertise.”
U.S. Customs and Border Protection announced Oct. 11 that a new proposal from the Greater Nogales Santa Cruz County Port Authority has been selected to engage in further planning and development activities as part of the Donations Acceptance Program. This proposal would upgrade existing air-conditioned dock space at the Nogales West land port of entry to food safety-certified refrigerated space. CBP states that the Nogales West POE processes more fresh produce than any other POE along the U.S.-Mexico border and that the proposed upgrades would improve CBP’s ability to safely handle and inspect seafood, berries, avocados, and other temperature-sensitive commodities.
CBP notes that this is the first proposal selected under its small-scale process for proposals valued at $3 million or less, which is a new offering and avenue for stakeholders interested in investing in and expediting small scale, high impact border infrastructure, technology, and other related improvements. Proposals that qualify as small scale may be submitted year-round and thus evaluated 60 to 70 percent faster than proposals submitted during the DAP’s annual cycle for mid- to large-scale proposals.
Joint Cargo Clearance, the next step in Customs Clearance
By Roxana Osuna | 09/18/2016 | 2:26 PM
On July 25, 2016, U.S. Customs and Border Protection (CBP) announced an innovative concept in which CBP and the Servicio de Administración Tributaria (SAT), the Mexican tax administration service, will perform joint cargo clearance and examinations at the U.S. Customs Port of Nogales, Arizona for 120 days. By conducting joint cargo processing, CBP and SAT will reduce cargo inspections and wait-times at the border. These reduced wait-times will lower the cost of doing business in the region, as well as, enhance national security for the United States and Mexico.
The announcement came as an invitation for manufacturing companies currently certified in the Customs-Trade Partnership Against Terrorism (C-TPAT) to try the pilot program which is expanding to additional Ports of Entry. To participate, both the manufacturing company and its transportation partner must be approved to use the “FAST LANE”. Additionally, the manufacturing company must register for the pilot program with the Consejo Nacional de la Industria Maquiladora y Manufacturera de Exportacion (INDEX), the Mexican National Council for the Free Trade Manufacturing and Export Industry, which is tasked with monitoring participation and results.
The program can be seen as an incentive for companies which are currently not participating in C-TPAT or the equivalent Authorized Economic Operator (AEO) programs to support a perimeter approach to security and experience added benefits. It is also another step towards mutual recognition and acceptance of trusted trader programs while the U.S. pursues the implementation of the International Trade Data System (ITDS). ITDS, a system which will allows international traders to submit documents required by CBP and its partner government agencies through a “single window.”
The future of customs clearance looks promising as collaborative, intergovernmental programs are established that are designed to address security threats while allowing for the streamlined movement of goods and people across a shared border.
It will be easier for affected businesses to comply with import safety programs mandated by the Food Safety Modernization Act (FSMA) if more and better information from the government is more quickly shared and limitations faced by small and mid-sized firms are taken into account.
Those were some of the many sentiments expressed at three regional outreach meetings held in June by representatives of the U.S. Food and Drug Administration, according to a 22-page report FDA issued Friday.
The agency set up the meetings — in Costa Mesa, CA, Rutherford, NJ, and Detroit, MI — to give members of the public, importers, food producers and foreign and industry association representatives a chance to “provide information, share experiences and raise issues on implementation topics related to import safety.”
These FSMA rules are designed to enhance the security and safety of the supply chain for imported food, which FDA has estimated makes up 15 percent of the U.S. food supply, including 50 percent of our fresh fruit, 20 percent of our fresh vegetables, and 80 percent of our seafood.
The regional meeting discussions focused on three main topics: the state of the import industry, VQIP, and education and outreach. After FDA officials listened to 350 importers, food producers, and foreign and industry association representatives and then analyzed related data, these four main themes emerged:
Members of industry want help in understanding what is required under the FSMA provisions, including clearer, concise information from FDA.
Small importers and food producers are at higher risk of failing to comply with FSVP.
Importers will likely consider cost, return on investment and effort necessary to participate when deciding whether to sign up for VQIP, which will provide expedited clearance to qualified participants.
FDA outreach and education efforts to foreign suppliers are considered of particular importance given the global scope of the issue.
More specifically, participants told the agency that they need help to understand what the new rules will require of them. For example, it would benefit them to know how compliance with the new rules will differ from current food safety practices.
Providing case studies and organizing compliance information by sector and commodity would help importers and producers, as would FDA officials sharing information more freely, quickly, clearly, and concisely, they said.
Training was also a major issue for meeting attendees, according to the report, with most industry members suggesting that FDA “leverage its large databases of registered importers and brokers to conduct targeted outreach activities by state, sector, and commodity” in order to target those who remain uninvolve
FROM THE UNIVERSITY OF PENNSYLVANIA/WHARTON SCHOOL OF BUSINESS
When President Bill Clinton signed the North American Trade Agreement (NAFTA) in December 1993, he predicted that “NAFTA will tear down trade barriers between our three nations, create the world’s largest trade zone, and create 200,000 jobs in [the U.S.] by 1995 alone. The environmental and labor side agreements negotiated by our administration will make this agreement a force for social progress as well as economic growth.” Twenty-three years later, scholars and policy makers often disagree about the impact that NAFTA has had on economic growth and job generation in the U.S. That impact, they say, is not always easy to disentangle from other economic, social and political factors that have influenced U.S. growth.
On the positive side, overall trade between the three NAFTA partners — the U.S., Canada and Mexico — has increased sharply over the pact’s history, from roughly $290 billion in 1993 to more than $1.1 trillion in 2016. Cross-border investment has also surged during those years, as the stock of U.S. foreign direct investment (FDI) in Mexico rose from $15 billion to more than $107.8 billion in 2014. As for job growth, according to the U.S. Chamber of Commerce, six million U.S. jobs depend on U.S. trade with Mexico, a flow that has been greatly facilitated by NAFTA, which has helped eliminate costly tariff and non-tariff barriers. NAFTA has also facilitated a multi-layered integration of the U.S., Mexican and Canadian supply chains. According to the Wilson Center, twenty-five cents out of every dollar of goods that are imported from Canada to the U.S. is actually “Made in USA” content, as are 40 cents out of every dollar for goods imported into the U.S. from Mexico.
Geronimo Gutierrez, managing director of the North American Development Bank (NADB), notes that trade between the United States and Mexico reached over $500 billion in 2015, a five-fold increase since 1992, when NAFTA negotiations concluded. Thus, he explains, Mexico imports more from the U.S. these days than do all of the so-called BRIC nations combined – Brazil, Russia, India and China. (The NADB acts as a binational catalyst in helping communities along the U.S.-Mexico border develop affordable, long-term infrastructure.)
Gutierrez adds that there are lesser-known benefits of NAFTA. By promoting the tight integration of North American industrial supply chains, “NAFTA is creating partners and not competitors among its member countries. As for Mexico’s interest in this bilateral relationship, it can be summarized in two facts: about 80% of Mexico’s exports go to the U.S., while 50% of the accumulated foreign direct investment received between 2000 and 2011 comes from the U.S. Moreover, NAFTA has been the fundamental anchor for reforms that make Mexico a more modern economy and open society.”
A Modest Impact
For all that, most studies conclude that NAFTA has had only a modest positive impact on U.S. GDP. For example, according to a 2014 report by the Peterson Institute for International Economics (PIIE), the United States has been $127 billion richer each year thanks to “extra” trade growth fostered by NAFTA. For the United States, with its population of 320 million at the time of that study, the pure economic payoff was thus only $400 per person, while per capita GDP was close to $50,000. And while the costs of NAFTA are highly concentrated in specific industries like auto manufacturing — where job losses may be significant for specific firms — the benefits of the trade pact (such as lower prices for imported electronics or clothing) are distributed widely across the U.S., as they are in the case of any trade pact worldwide.
Most studies conclude that NAFTA has had only a modest positive impact on U.S. GDP.
Supporters of NAFTA estimate that some 14 million jobs rely on trade with Canada and Mexico combined, and the nearly 200,000 export-related jobs created annually by NAFTA pay an average salary of 15% to 20% more than the jobs that were lost, according to a PIIE study. Furthermore, the study found that only about 15,000 jobs on net are lost each year due to NAFTA. “On our reckoning, since NAFTA’s enactment, fewer than 5% of U.S. workers who have lost jobs from sizable layoffs (such as when large plants close down) can be attributed to rising imports from Mexico,” wrote its authors, PIIE senior fellow Gary Clyde Hufbauer and research analyst Cathleen Cimino-Isaacs. For the roughly 200,000 out of 4 million people who lose their jobs annually under these circumstances, the job losses can be attributed to rising imports from Mexico, they wrote, but “almost the same number of new jobs has been created annually by rising U.S. exports to Mexico.” Moreover, “For every net job lost in this definition, the gains to the U.S. economy were about $450,000, owing to enhanced productivity of the workforce, a broader range of goods and services, and lower prices at the checkout counter for households.”
Trade specialists agree that it has proven difficult to separate the deal’s direct effects on trade and investment from other factors, including rapid improvements in technology, expanded trade with other countries such as China and unrelated domestic developments in each of the countries.
Walter Kemmsies, managing director, economist and chief strategist at JLL Ports Airports and Global Infrastructure, notes that that many of the job losses that are popularly blamed on NAFTA would likely have taken place even in the absence of NAFTA, in part because of growing competition from China-based manufacturers, many of which have taken advantage of currency manipulation by the Chinese government that has rendered China-made products more price-competitive in the U.S. Likewise, Mauro Guillen, head of Wharton’s Lauder Institute, agrees that without NAFTA, many American jobs that were lost over this period would probably have gone to China or elsewhere. “Perhaps NAFTA accelerated the process, but it did not make a huge difference.”
“A lot of instant experts on NAFTA don’t really understand trade and what drives trade,” said Kemmsies. “And so they get confused between NAFTA and the globalization of the world’s economy. The fact is, with or without NAFTA, we would have done a lot more trade with Mexico anyway. I’m not sure that NAFTA has even fostered any growth of trade between the U.S. and Mexico. Look at Mexico and forget about everything else for a second: What is the single-biggest trade-flow corridor in the world? It’s East-West — Asia to Europe to North America. Mexico happens to sit right smack in the middle of the East-West trade flow…. Here is Mexico, with 120 million people, and all of these abilities to draw raw materials…. You have a cheap labor force, a global geographic advantage, a rising middle class. It’s a good place to make stuff.”
For a long time, because of a lack of investment, Mexico’s infrastructure was well below par, including its ports, which were made to process raw materials, rather than handle industrial goods. In that respect, NAFTA has had a positive impact on Mexico’s economic development, and it has encouraged foreign investors to trust that Mexico, whose governments were long protectionist and populist, would follow the rule of international law. International trade specialists M. Angeles Villarreal and Ian F. Fergusson of the Congressional Research Service wrote in a recent report: “While Mexico’s unilateral trade and investment liberalization measures in the 1980s and early 1990s contributed to the increase of U.S. Foreign Direct Investment (FDI) in Mexico, NAFTA provisions on foreign investment may have helped to lock in Mexico’s reforms and increase investor confidence [in Mexico.]” Nearly half of total FDI investment in Mexico is in its booming manufacturing sector.
Job Losses and Lower Wages
Some critics argue that NAFTA is to blame for job losses and wage stagnation in the U.S., because competition from Mexican firms has forced many U.S. firms to relocate to Mexico. Between 1993 and 2014, the U.S.-Mexico trade balance swung from a $1.7 billion U.S. surplus to a $54 billion deficit. Economists such as Dean Baker of the Center for Economic and Policy Research and Robert Scott, chief economist at the Economic Policy Institute, argue that the consequent surge of imports from Mexico into the U.S. coincided with the loss of up to 600,000 U.S. jobs over two decades, although they admit that some of that import growth would likely have happened even without NAFTA.
“A lot of instant experts on NAFTA don’t really understand trade and what drives trade.”–Walter Kemmsies
While conceding that many U.S. high-wage manufacturing jobs were relocated to Mexico, China and other foreign locations as a result of NAFTA, Morris Cohen, Wharton professor of operations and information management, argues that NAFTA has, on balance, been a good thing for the U.S. economy and U.S. corporations. “The sucking sound that Ross Perot predicted did not occur; many jobs were created in Canada and Mexico, and [the resulting] economic activity created a somewhat seamless supply chain — a North American supply chain that allowed North American auto companies to be more profitable and more competitive.”
Moreover, in their 2015 study published by Congressional Research Service, Villarreal and Fergusson noted, “The overall economic impact of NAFTA is difficult to measure since trade and investment trends are influenced by numerous other economic variables, such as economic growth, inflation, and currency fluctuations. The agreement may have accelerated the trade liberalization that was already taking place, but many of these changes may have taken place with or without an agreement.”
Some of its harshest critics concede that NAFTA should not be held entirely responsible for the recent loss of U.S. industrial jobs. According to Scott of the Economic Policy Institute, “Over the past two decades, currency manipulation by about 20 countries, led by China, has inflated U.S. trade deficits, which [in combination with the lingering effects of the Great Recession] is largely responsible for the loss of more than five million U.S. manufacturing jobs.” Scott argues that while NAFTA and other trade deals such as the Trans-Pacific Partnership are bad for American workers, the fundamental problem is not that they are “free trade” pacts, but that they “are designed to create a separate, global set of rules to protect foreign investors and encourage the outsourcing of production from the United States to other countries.”
Unlike the earliest generation of “free-trade agreements” – which focused on reducing or eliminating tariffs and duties that stifled trade — these newer pacts are more comprehensive. As Scott explains, they “contain 30 or more chapters providing special protections for foreign investors; extending patents and copyrights; privatizing markets for public services such as education, health, and public utilities; and ‘harmonizing’ regulations in ways that limit or prevent governments from protecting the public health or environment.” When critics of the TPP conflate their criticism of that pact with their criticism of “free trade,” they miss an essential element of the TPP that has disaffected many otherwise loyal supporters of earlier-generation agreements that truly focus on deregulation of “trade” per se, he notes.
The Role of China
Two decades ago, when NAFTA was born, China had only a faint presence in the global economy, and was not yet even a member of the World Trade Organization. However, the share of U.S. spending on Chinese goods rose nearly eight-fold between 1991 and 2007. By 2015, U.S. trade in goods and services with China totaled $659 billion— with the U.S. importing $336 billion more than it exported. China has become the U.S.’s top trading partner for goods — a development never anticipated at the signing of NAFTA. And yet, NAFTA continues to attract the lion’s share of the blame among U.S. critics of globalization, despite the fact that the U.S. and China have yet to sign any bilateral free-trade treaty.
“NAFTA did foster greater U.S.-Mexican integration and helped transform Mexico into a major exporter of manufactured goods.”–Robert Blecker
How is that possible? In a recent study that de-emphasized the impact of NAFTA on the U.S. economy, economists David Autor (MIT), David Dorn (University of Zurich) and Gordon Hanson (University of California, San Diego) stress the role of China’s emergence on job growth and wages in the U.S. In the study, published by the National Bureau of Economic Research, they write: “China’s emergence as a great economic power has induced an epochal shift in patterns of world trade. Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences…. Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.”
As Robert Blecker, an economist at American University, notes, “Contrary to the promises of the leaders who promoted it, NAFTA did not make Mexico converge to the United States in per capita income, nor did it solve Mexico’s employment problems or stem the flow of migration.” However, “NAFTA did foster greater U.S.-Mexican integration and helped transform Mexico into a major exporter of manufactured goods.”
The benefits for the Mexican economy were attenuated, however, by heavy dependence on imported intermediate inputs in export production, as well as by Chinese competition in the U.S. market and domestically. The long-run increase in manufacturing employment in Mexico (about 400,000 jobs) was small and disappointing, while U.S. manufacturing plummeted by 5 million — but more because of Chinese imports than imports from Mexico. In both Mexico and the United States, real wages have stagnated while productivity has continued to increase, leading to higher profit shares and a tendency toward greater inequality.”
Blaming NAFTA for all of these disturbing problems may make some NAFTA critics feel good, but as trade researchers have learned in recent years, the growing complexity of today’s economic challenges defies any simplistic explanations.
In a 22-page report released last week, FDA outlined its findings from three public meetings held in June about the implementation of the FSMA import safety programs. The report, “Focus on Strategic Implementation of Prevention-Oriented Import Safety Programs”, reviews the questions asked to participants about challenges and understanding in complying with the Foreign Supplier Verification Programs (FSVP), Accredited Third-Party Certification, and the Voluntary Qualified Importer Programs (VQIP) under FSMA. The agency analyzed data from 350 participants, and made the following conclusions:
Industry wants help in understanding what is required under the FSMA provisions, including clearer, concise information from the FDA
Industry may achieve faster compliance with FSVP if members are shown how it differs from existing food safety practices and compliance schemes
Organizing FSVP compliance information by commodity and sector may help in faster comprehension of rule
Small importers and food producers are at higher risk of failing to comply with FSVP
Generating case studies and other foreign supplier education mediums may aid in faster compliance with FSVP requirements
Importers will likely consider cost, return on investment and effort necessary to participant when deciding whether to sign up for VQIP, which will provide expedited clearance to qualified participants
Industry would benefit from FDA sharing information in a faster, clearer and more concise manner
FDA can use its existing facility registration database and existing relationships with industry to continue outreach efforts and elevate FSMA and FSVP compliance awareness
From The Journal of Commerce By:Susan Kohn Ross, international trade attorney | Aug 16, 2016 11:13AM EDT
In the face of its recent reorganization and enhanced computer system, it was really only a matter of time before the trade community started to see U.S. Customs and Border Protection better organize its enforcement efforts, and now the first tangible step has been publicly disclosed.
When the concept for the Centers for Excellence and Expertise, or CEE, was rolled out, it was logical to expect that CBP would combine the enhanced computer capabilities of the Automated Commercial Environment with information developed from the industry focused CEEs. That meant, we would eventually see CBP relying on computer analytics and internal expertise to help the agency pinpoint where to focus its enforcement efforts. Over the years, we have seen those with the most experience retire. CBP and Immigration and Customs Enforcement seemed to lose their ability to make serious fraud cases. Yes, criminal cases for trade fraud, involving for example for antidumping and export license violations, continued to be brought, but it has been a long time since we have heard about a really significant civil penalty. Some smaller fish got caught, and many of them made some really poor decisions. Others who got caught just plain cheated. Now, however, CBP has launched a round of “informed compliance” letters, which are really warning letters to the trade community.
The current priority trade issues for CBP are: antidumping and countervailing duty, import safety, intellectual property rights, textiles/apparel, and trade agreements. In the recent past, that list also included agriculture products, penalties and revenue.
CBP has known for years that importers regularly make duty deferral claims, whether by way of free trade agreement, generalized system of preference or other claims that carry with them a zero rate of duty and, when audited years later, cannot support those claims. CBP didn’t need ACE or the CEEs to tell them that. What these new tools do provide, however, is a more concentrated focus on given industries and specific importers. Put another way, these powerful tools now allow CBP to do a better job identifying and ranking the likely levels of noncompliance.
What transpired earlier this month is Regulatory Audit publicized a project whereby importers that CBP thinks may not be compliant were sent letters which included a series of CBP’s informed compliance publications, on such topics as value, classification, reasonable care and the like. Recipients were encouraged to review their transactions, identify instances of non-compliance and file prior disclosures.
While making clear that no importer is required to file a prior disclosure, the letters go on to make clear that, having been notified of possible non-compliance, if not cured by a prior disclosure, and any violations are later found, seizure and penalty action is possible. While not able to say seizure and penalty would actually happen, since the initiation of any enforcement action turns on the facts of that situation, Regulatory Audit has said it will now recommend penalty action when non-compliance is found.
Of course, how this really changes from current practice remains to be seen. Current practice has been to notify the importer that unless he agrees to pay what the auditors think is due, the auditors are left with no choice but to recommend a penalty action be initiated. Pulling the noose tighter around the allegedly noncompliant importer’s proverbial neck, recipients of these warning letters are requested to acknowledge receipt by returning a signed copy of the letter.
Regulatory Audit has come right out and said those who were sent the informed compliance letters are likely candidates for an audit of some sort. There is also the suggestion that the formality with which the company is sent the letter is an indicator of how serious the importer is as an audit candidate, with those receiving the letter by call or email being seen as somewhat less of a risk than those who receive the letter by mail only. Whether that indicator is accurate remains to be seen. While full-blown Focused Assessments remain rare, CBP has developed other more abbreviated means to test importer operations. The most typical of these is a quick audit, sometimes now called an audit survey. Given that Focused Assessments often go on for many months (years?), Regulatory Audit has been conducting these quick audits for some time. They are designed to allow CBP auditors to check specific transactions, figure out whether the risk which was thought to exist does exist, and if not to exit relatively quickly, in weeks instead of months.
The fact these informed compliance letters are being sent (by whatever means of delivery) tells us all that CBP is finally starting to use data from ACE, along with internal expertise, to fine-tune one of the means by which it is evaluating risk and noncompliance.
The timing of these warning letters could also be telling. At the beginning of each fiscal year, Regulatory Audit rolls out a National Audit Plan that details the companies it plans to audit in that fiscal year. As we all know, the fiscal year for the federal government starts on Oct. 1. It is not unreasonable to think that if a company received a warning letter in August and no prior disclosure is filed by late September, the auditors will eventually come calling!
By way of reminder, the industries on which the CEEs focused are electronics; pharmaceuticals, health and chemicals; petroleum, natural gas and minerals; apparel, footwear and textiles; agriculture and prepared product; automotive and aerospace center; base metals; consumer products and mass merchandising; industrial and manufacturing materials; and machinery. While not every importer in each CEE is high-risk, there are certainly patterns that can be identified. For example, the industries the U.S. has typically protected with high duty rates and complicated import requirements are steel and steel products, footwear, textiles and apparel, and auto and auto parts. Add to that whether you are importing from a country subject to an antidumping case, one in which the rule of law is less well developed that in the U.S. or deal in products where classification is complex, to name a few key factors, and you can quickly start to figure out how much risk do your import transactions carry with them? If you are not accurately and completely stating your goods and their cost on your invoices, you are certainly going to be in a lot of trouble!
If you have received one of these informed compliance letters, it is best to conduct a thorough review and make sure your transactions are compliant. It is also important that any such review take place under the benefit of the attorney-client privilege, so make sure your management and legal team know what is going on before any transactions are reviewed and once they are reviewed, make sure to document what was done and on what the final decisions were based.
Susan Kohn Ross is an international trade attorney with Mitchell Silberberg & Knupp in Los Angeles. Contact her at firstname.lastname@example.org