American-owned assembly-line factories known as maquilas that line the Mexican side of the border with the U.S. have been bracing for change since the election of Donald Trump, but perhaps not in the way you might expect.
They clearly do not 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 North American Free Trade Agreement, saying the current version makes it harder to operate in Mexico than in the U.S. It all has to do with bottom-line draining paperwork.
Maquila managers and trade groups interviewed in both countries see regulatory uncertainty as an opportunity.
"NAFTA is 30 years old. It hasn't kept up with today's economy,” said Mike Myers, a Texan who runs a maquila owned by Metal Industries, a Florida company that makes vents for air conditioners and heating systems.
Maquilas are foreign-owned factories in Mexico, many American-owned, that produce goods for export. Mexican and Asian interests also own maquilas, which sprung up like daisies in the spring when NAFTA took effect in 1994. Maquilas leverage 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,” Myers said on a factory floor where the din of powerful punch presses melded into the sound of beehive-like assembly lines.
Rhetoric over a border tax that marked the arrival of the Trump administration has eased lately. Leading Republicans such as House Speaker Paul Ryan have said the idea — where duties would be placed on imports to the U.S. — lacks support and needs to be rethought. That aside, Myers said NAFTA needs a makeover.
"It was negotiated with different sets of rules on both sides of the border,” Myers said. “You have to spend a lot of time and effort making sure we're a hundred per cent compliant with the Mexican government in order to stay compliant with NAFTA."
Myers was referring to the mountain of paperwork. Myers must show Mexican authorities that all raw material he brings in from the U.S., such as steel, aluminum, nuts, bolts and screws, leaves Mexico as finished product.
Under NAFTA, that is how he can import raw material and export the end product duty free in both directions. However, he and others interviewed said the paperwork Mexico demands from maquilas to prove that they are meeting that threshold is intense and far more rigorous than what the U.S. asks for to show NAFTA compliance when finished goods cross the border.
"If we're renegotiating the treaty we ought to simplify things like that,” Myers said.
Maquilas matter for both countries. Americans pay far less for products they routinely buy while maquilas are one of the few sectors that consistently generate jobs in Mexico. There are other NAFTA details that the maquila sector wants changed.
Keith Patridge is the CEO of McAllen 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,” Patridge said, referring to customs inspections stations.
Patridge said the 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,” Patridge said.
