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Dallas Business Journal: “Here’s How the New Trade Deal Will Affect DFW Companies “

October 9, 2018

Here’s How the New Trade Deal Will Affect DFW Companies 

Texas companies who spent the last two years worrying that their supply chains would be disrupted when then-Republican Presidential nominee Donald Trump called NAFTA the “worst trade deal ever” had their fears alleviated when a new agreement was unveiled last week.

The new deal, dubbed the United States-Mexico-Canada Agreement, follows after years of negations between the three North American countries. Experts within the North Texas policy and business scene say the agreement is good for Texas and is more of an update to the North American Free Trade Agreement than a total rewrite.

Transplace, a multi-billion-dollar Frisco-based logistics company, helps process tens of thousands of clearances a month across the U.S.-Mexico border. The company has a customs brokerage and border management business in Laredo, Texas, and Nuevo Laredo, Mexico. Transplace helps its customers understand implications of policy changes like the USMCA.

“More than anything else, it’s just updated to reflect the world we live in today versus the world we lived in 25 years ago,” said Frank McGuigan, Transplace’s chief executive officer. The company counts manufacturers in the food and beverage, chemical and industrial industries among its customers. “There is nothing in this agreement that’s going to significantly change their supply chain.”

There were several tweaks in the new agreement, such as easing Canadian tariffs on U.S. dairy products and allowing for easier cross-border e-commerce sales. Because the notion of e-commerce didn’t exist when NAFTA was drawn up, it wasn’t covered in the original agreement.

“It added a chapter on e-commerce, which is good for Texas,” said Luisa del Rosal, executive director of the Mission Foods Texas-Mexico Center at Southern Methodist University. “If you have a business here and you want to sell your products in Mexico, now there’s a way for you to do so under the USMCA.”

One of the biggest tweaks deals with automakers. To gain USMCA designation for their vehicles, 75 percent of a car’s components must be from Canada, the U.S. or Mexico. That’s up from 62.5 percent in NAFTA.

Within that 75 percent, almost half of the content produced has to come via workers making at least $16 an hour within five years. The move was meant to make the U.S. and Canada more competitive with Mexican labor, which is often cheaper.

In a statement after the three countries announced they had reached a deal, DFW’s local auto giant Toyota Motor Corp. (NYSE: TM) — which hosts its North American headquarters in Plano — said it’s reviewing the details in the agreement to determine its effects on production, exports and supply chain.

“We hope the agreement will lead to the elimination of auto production-related tariffs and lift the uncertainty affecting the industry,” Toyota said in a statement.

Automakers will still have a choice. They can opt to bypass USMCA rules and instead pay a tariff. So, will these rules actually have a significant impact on the North American auto industry? That answer will become clearer when companies know how much that penalty tariff will be.

“It can go into World Trade Organization rules of exports of cars, and that’s not a big percentage,” del Rosal said. “Will it really lead to more competitiveness for the U.S. and Canadian workers? We don’t know. We’ll have to see.”

Read more here.