USMCA gives Mexico a golden opportunity to attract Asian capital

(Photo: Extreme Media/Getty Images)

Being a neighbor of the United States and having a treaty with North America gives Mexico an attraction that the government seeks to take advantage of for the relocation of companies after the COVID crisis.

Crises mean opportunities and Mexico wants to make the most of them in terms of business.

The COVID-19 pandemic revealed the high dependence that North American companies have on Asian suppliers, mainly from China, since the closure of production activities generated shortage problems for hundreds of companies.

This crisis was detected by Mexico’s federal government to undertake a plan that allows companies in that region to shorten production processes through relocation and further exploit the benefits of the USMCA.

The Ministry of Economy (SE) plans to attract investments mainly from China, Japan, and South Korea, or from other countries that have operations in those territories, highlighting the tariff advantages of having a trade agreement with the main economy of the planet: the United States of America.

“Mexico is starting to become very attractive again because the high tariff level reduces competitiveness in certain areas and increases competitiveness in some, such as the Mexican economy. That does not mean that they have to leave Asia, but rather that there is a new balance and there is greater participation of Mexico in the production processes, ”said Ernesto Acevedo, undersecretary of Industry, Commerce, and Competitiveness of the SE in an interview. The United States and China topped the list of world FDI recipient countries from 2017 to 2019; a period in which Mexico went from position 12 to 14. 

Trade between Mexico and Asia is not new, it dates back to the 16th century, when using the Nao de China or the Manila Galleon, Spanish sailors crossed the Pacific Ocean to take and bring goods to New Spain.

“Part of the redirection of this strategy is to have an approach with American or Canadian companies that have operations in Asian countries, but whose final products are consumed in a relevant way in the United States, Mexico or Canada. The approach has been so that they have a better balance of their supply, of their production processes, of their presence in the region, mainly in Mexico; and that they can supply the North American market ”, explained the undersecretary.

In addition, in 2020, the appearance of the coronavirus brought a global crisis, as the closure of Chinese companies resulted in disruption in supply chains. Now, in a bid to shorten production processes, Mexico has raised its hand to be a nerve center for commerce.

The Mexican government has approached American and European companies that are in Asia, as well as companies from Asian countries themselves such as Japan, South Korea, among others in the automotive, steel, aerospace, chemical, pharmaceutical sectors and also for the part logistics, the undersecretary explained while ensuring that “progress is good, they point to a very promising path.”

For now there has been no rapprochement with India, “but one of the steel companies in the world, ArcelorMittal, is being served and has a presence in Lázaro Cárdenas, Michoacán. We have a good relationship with them, as well as with other companies in the sector, ”said Ernesto Acevedo.

Mexico’s strengths

“Mexico has a young, talented workforce that is also capable of being specialized very quickly. To give an example, the case of Querétaro and the aerospace cluster, where the workforce specialized in a dizzying way. This responds to a natural talent that human capital has in Mexico ”, highlighted Ernesto Acevedo.

The country has been a good base of operations for companies whose parent company is in Asia, proof of this is Yakult, Nissan, Samsung, LG, KIA among others. Currently, 18 Asian companies appear in the Ranking of the 500 Expansion Companies 2020.

One of the advantages has to do with transportation costs, as well as having the same time zone in North America.

“So far from God and so close to the United States, it helps us because it is not the same to export a truck of products from Tijuana to San Diego than from Shanghai to San Diego,” Acevedo de Economía highlighted.

Last year China was the only country that did not have a contraction in gross domestic product (2.3%), so the eyes of the world seek to promote trade with China in particular and with Asia in general.

“We have had participation at the highest level of the bank to promote this flow of trade between Mexico and Asia in general, and between Mexico and China in particular,” said Diego Spannaus, head of trade and finance for accounts receivable for Mexico. and Latin America from HSBC.

In the specific case of the Asian giant, Mexico and China recently created the High-Level Group (GAN), Hong Kong also recognized the authorized economic operators by the SAT, the ADR ( China-Mexico alternative dispute resolution center), The International Prevention Center, and the settlement of disputes of China International Trade Court linked to the Supreme Court of China, are an example of the progress that has been made in the bilateral relationship.

The key

In addition to the T-MEC, which came into force in July 2020, and the neighborhood that we have with the United States, the largest economy in the world, mutual knowledge is needed, that is, Mexico has to know the customs and culture of each country you want to approach in Asia; and companies and investors must have knowledge of how things are done in the country.

This lack of knowledge has meant that, for example, in the case of China, projects such as the Mexico-Querétaro Fast Train, the Dragon Mart complex and the Chicoasén hydroelectric plant, Chiapas, have been canceled. This may cause uncertainty for more Asian capital seeking to land in Mexico.

“The three projects failed due to a lack of Mexican preparation, that is, not understanding how Chinese companies work in the world, in Latin America and in Mexico. Later, also due to lack of preparation of Chinese companies themselves, lack of understanding of how a country like Mexico works at the federal, state and municipal level, ”explains Enrique Dussel, coordinator of the Center for China-Mexico Studies (Cechimex) at UNAM .

“The level of mutual knowledge is a task that needs a lot of impulse,” says Amapola Grijalva, executive president of the Mexico-China Chamber of Commerce and Technology, which seeks to be the link to do business between both nations. From January 1999 to September 2020, the countries that contributed the most to FDI in Mexico were: the United States ($ 282 billion), Spain ($ 72.6 billion) and Canada ($ 44.9 billion).  Fueten: Data Mexico

Companies that seek to invest in another market require information, clarity regarding consistent investments and maintain the investment over time; In addition to national support, this has to do with an enabling environment and intelligence services: location, costs, main competitors in the sector and advisers who help with the project, the businesswoman details.

According to Dussel, the Mexican government has to make precision shots, that is, not to look in all industrial sectors, but to be clear about which ones it is competitive in and go for companies in that branch, as well as look for national companies that have an established local supply chain, such as footwear, to name one example.

“It is not the same in telecommunications as in electronics. There are hundreds of global value chains. It is not that conditions are created for all global value chains and their segments that exist in China and the US, ”says Dussel.

Another point that plays against the country has to do with the supply chain.

Asian companies in the 500 Ranking (Expansion)

“We have a weak supplier network, compared to China, for example. In many cases we have problems and that is why we are massively exporting capital and intermediate goods from China and many others that are not produced here or in the US ”, acknowledged Undersecretary Acevedo.

Something that could not be done is to compete with China, as it is still the main supplier of raw materials and intermediate items, so we have to find a way to take advantage of the strengths that Mexico has and complement them with what may come from the Asian giant.

Source: Grupo Expansion

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