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New USMCA trade deal could increase demand for nearshoring in Mexico

Cross-border trade flows in North America will prosper as USMCA settles in, according to speaker at CBP symposium

Kansas City Southern railroad CEO Patrick Ottensmeyer said the business community and elected officials need to work together to keep the United States-Mexico-Canada Agreement relevant. (Photo: KCS)

As the coronavirus pandemic continues to disrupt international trade, Mexico stands to benefit from more companies moving manufacturing to North America, said Patrick Ottensmeyer, president and CEO of Kansas City Southern.

“If you look at the interest to our company and our customers, Mexico, as a percentage of the products that are sold to the rest of North America, related to low-cost Asian countries, Mexico’s market share has increased fairly significantly from 2018 to 2019, prior to the COVID-19 pandemic,” Ottensmeyer said.

Ottensmeyer’s remarks came during the opening day of U.S. Customs and Border Protection’s (CBP) Virtual Trade Week symposium, which kicked off Tuesday with a panel discussion on the United States-Mexico-Canada Agreement (USMCA).

Ottensmeyer said the US-China trade war and subsequent tariffs have made Mexico an attractive option for nearshoring manufacturing operations.

To take advantage of increased trade, Class 1 railroad Kansas City Southern (NYSE: KSU) recently received a presidential permit to build a second international rail bridge in Laredo, Texas, which could handle up to 30 cross-border crossings daily.

The railroad, which runs its Mexican operations through its subsidiary Kansas City Southern de México, operates the largest rail freight interchange point between the U.S. and Mexico at the border crossing in Nuevo Laredo, Mexico.

“Kearney [a global consulting firm] does what’s called a nearshoring index every year. There is pretty good evidence that China, as a specific source of products moving into North America from other so-called low-cost Asian countries, called the China Diversified Index, has fallen consistently over the last three or four years, even before COVID,” Ottensmeyer said.

CBP’s Virtual Trade Week symposium will also include panel discussions on the USMCA’s forced labor prohibition, updates to the Customs Trade Partnership Against Terrorism (C-TPAT) program, the opportunities for e-commerce and a panel on the “21st century customs framework.”

The symposium began Tuesday with CBP Acting Commissioner Mark Morgan touting the recent creation of the USMCA Center in Washington.

“The center was created as a one-stop shop for all your questions about the agreement,” Morgan said. “Today, the center has hosted more than 50 free webinars to provide timely and up-to-date information to more than 4,200 customs brokers, trade attorneys, freight forwarders and producers.”

Jorge Alvarez Tovar, a U.S.-based diplomat for Mexico’s Ministry of Finance Customs and Tax Affairs, said passing and implementing the USMCA was critical for Mexico’s economic growth.

Mexico, which continues to fight the spread of COVID-19, has 638,000 positive cases and had registered 67,781 deaths as of Tuesday. However, the country is stuck in an economic crisis, with its gross domestic product having contracted for five consecutive quarters, even before the pandemic began.

“I want to stress how important the USMCA is for the economic recovery of Mexico and of North America as a region,” Tovar said during the USMCA panel. “That is exactly the message that President [Andrés Manuel López Obrador] came to convey here in Washington, D.C., a couple of months ago, when he met with President Trump.”

López Obrador stressed the importance of the USMCA again during the second annual report of his government at the National Palace in Mexico City on Sept. 1, Tovar said.

“President López Obrador said the USMCA can be the driver for productive activities such as attracting investments, for job creation, and ultimately, for more welfare,” Tovar said. “We know for sure that a successful implementation at the U.S.-Mexico border at the ports of entry of the agreement is paramount to this end.”

Ottensmeyer said the business community needs to push elected officials to keep the USMCA relevant.

“We as a business community need to be focused on and aware of, to make sure unlike the North American Free Trade Agreement (NAFTA), that [USMCA] doesn’t get stale,” Ottensmeyer said. “We have to find a mechanism to do that between the business community, between elected officials at all levels of government, to make sure that USMCA doesn’t become the target of political rhetoric that NAFTA had become almost since its inception in every certainly every presidential campaign since NAFTA was was put in place 25 years ago.”

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One Comment

  1. Gabriel Lagunes

    Mexico’s president surnames are “Lopez Obrador”, not just “Obrador”. You would say Mr. Lopez Obrador, or even Mr. Lopez would be fine (following Hispanic family names conventions).

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Noi Mahoney

Noi Mahoney is a Texas-based journalist who covers cross-border trade, logistics and supply chains for FreightWaves. He graduated from the University of Texas at Austin with a degree in English in 1998. Mahoney has more than 20 years experience as a journalist, working for newspapers in Maryland and Texas. Contact [email protected]