American-Owned Factories Along Mexico’s Border Want An Update To NAFTA

Maquilas are integral to trade between the U.S. and Mexico, but they’re buried by paperwork required by the 1994 trade agreement.

By Lorne MatalonJuly 20, 2017 12:41 pm| ,

American-owned assembly line factories, known as maquilas, which line the Mexican side of the border with the U.S., have been bracing for change since the election of President Donald Trump. But not in the way you might expect.

Maquila operators clearly don’t want a border tax placed on their shipments to the United States, as the Trump administration has threatened. But they are embracing the possibility of an updated NAFTA agreement, saying the current version makes it a harder to operate in Mexico compared to in the U.S. It all has to do with time-consuming paperwork.

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Maquila managers and trade groups in both countries say regulatory uncertainty could be an opportunity.

“NAFTA is 30 years old. It hasn’t kept up with today’s economy,” says Mike Myers, a Texan who runs a maquila owned by Metal Industries Inc., a Florida company that makes vents for air conditioners and heating systems.

Maquilas are foreign – often American-owned factories in Mexico that produce goods for export. Some are also owned by organizations in Mexico and Asia. Maquilas sprung up like mushrooms after the rain, when NAFTA, or the North American Free Trade Agreement, took effect in 1994. They leveraged low labor costs in Mexico and duty-free access to the U.S. market to produce everything from televisions to medical equipment to computer parts.

“Everything that you use, all our consumer products, are being touched in Reynosa then shipped to the United States because of geography,” says Myers on his factory floor, where the din of powerful punch presses meld into the sound of the beehive-like assembly lines.

Rhetoric over a border tax that marked the arrival of the Trump administration has eased lately. Leading Republicans like House Speaker Paul Ryan have said the idea of charging duty on imports to the U.S. lacks support and needs to be rethought. Still, Myers says NAFTA needs a makeover.

“It was negotiated with different sets of rules on both sides of the border,” Myers says. “You have to spend a lot of time and effort making sure we’re a hundred percent compliant with the Mexican government in order to stay compliant with NAFTA.”

He’s referring to the figurative mountain of paperwork Myers must show Mexican authorities in order to bring in raw material such as steel and aluminum from the U.S., and to return finished products like nuts, bolts and screws back to the U.S.

Under NAFTA, he can import raw material and export the end product duty-free in both directions. But he and others in both countries say the paperwork Mexico demands from maquilas to prove that they are meeting a required threshold is intense and far more rigorous than what the U.S. asks for, in terms of NAFTA compliance, when his finished goods cross the border.

“If we’re renegotiating the treaty, we ought to simplify things like that,” Myers says.

Maquilas matter for both countries. Americans pay far less for products they routinely buy, and maquilas represent one of the few sectors that consistently generates jobs in Mexico.

But there are other NAFTA details that the maquila sector wants to change.

Keith Patridge is CEO of the McAllen Economic Development Corporation, a nonprofit that promotes the interests of American-owned maquilas.

“Right now CBP – Customs and Border Protection – hours of operation for trucks doesn’t match hours of operation for the Mexico aduana,” he says, referring to Mexico’s customs inspection stations.

Patridge says that different hours translate into lost revenue.

“Companies are more and more looking at really fast turnaround and delivery, and logistics is the name of the game. We’d like to see that changed,” he says.