Francisco Cervantes Díaz1 is chairman of The Confederation of Industrial Chambers of the United Mexican States (CONCAMIN)2. In this interview for Alliance Magazine, he discusses the challenges, benefits, opportunities and future of the T-MEC trade agreement.
Q. Regarding the changes reflected in T-MEC, what is your assessment of the positive effects for the North American region?
T-MEC (Tratado entre México, Estados Unidos y Canadá)3 can make North America the most competitive region in the world, thanks to the deep integration of its production value chains that will become stronger and with higher regional value added because the new agreement has stricter rules of origin (ROO) for the United States, Mexico and Canada in very important industries including automotive, auto parts, steel, aluminum, and chemicals.
New regulations for trade and an increase in the duty-free franchise will increase and facilitate trade due to streamlined and easier transit of goods and services between our borders. These new trade facilitation and simplification of paperwork will benefit small- and medium-size companies, making the new Agreement a mean to better distribute the benefits of trade and investment within the three countries.
Q. What is the perspective of the Mexican private sector towards the implementation of the agreement?
T-MEC will generate confidence in the investor community so they reinvest profits and by attracting new projects. The T-MEC will encourage new investors from other parts of the world in addition to the ones of our three partnering countries. The trade agreement introduces new rules of origin in several areas; revised frameworks for state-owned enterprises that engage in trade; updated rules for intellectual property rights; and regulations which will make North America more attractive to those companies that are now leaving China and looking to relocate in other nations.
We know that economic growth will generate new employment opportunities for Mexicans. Moreover, newly created jobs will generate higher wages for workers due to the new and improved standards related to union democracy and transparency in wage bargaining as well as better working conditions to be enforced in the three countries.
T-MEC was already ratified by a large majority in the Mexican Senate, and with majority support in both the United States and Canada, will mean certainty for investment, greater opportunities for workers and better and more competitive products and services for consumers of three countries. The Mexican private sector will continue to work with its counterparts to promote approval in the United States and Canada.
The agreement will take advantage of the opportunities of the new century by modernizing businesses such as: digital commerce, financial services and telecommunications, among others. It also facilitates the inclusion of small and medium-sized enterprises into international trade and establishes provisions that protect the environment and help fight corruption in “both sides of the table”.
Q. T-MEC presents new opportunities and challenges for Mexican businesses. How are companies preparing for their implementation, for example, in information technology?
The first steps have been engaging with authorities and within the industry associations to understand the implications of the changes, regulations and framework to ensure compliance with the new T-MEC.
Also, we need to start the necessary overhaul of internal processes that are required to be compliant with timeframes established in the agreement.
Businesspeople know that the major challenge will be implementation. One example is the creation of an oversight function led by the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes) that will propose best practices according to international standards and the T-MEC requirements.
Q. An important change implied in the T-MEC is the wage increase. Do you think this could discourage foreign companies from investing in Mexico?
I don’t think so. Mexico has had very competitive salaries compared to many other countries. Experience and history have proven that many other conditions besides wages are considered when deciding where to install a plant; good logistics are very important and Mexico surpasses most countries in this regard.
Better pay gives the worker confidence in the company and this generates a stronger commitment to the organization on the part of the employee to give its best while increasing productivity, that certainly will lead and allow better salary levels.
Q. What has been the participation of CONCAMIN during the T-MEC negotiation process?
Members of CONCAMIN were fully committed and attended the Private Sector Advisory Board, known as the “Cuarto de Junto” during all the negotiation rounds. Our members know that, through long trips and hours of work, we defended their interests and positions which are undoubtedly those of Mexico. CONCAMIN devoted substantial amounts of resources, both economic and human during the almost two years of negotiations so the end result be a modernized, enhanced and efficient framework to do business between our three countries. It has been a privilege to participate in the whole negotiation process.
Q. With T-MEC, it is expected that there will be an increase in foreign investment in the country. Which do you think will be the most favored sectors of this increase?
• Auto industry. The agreement includes changes in the rules of origin of the auto industry. With NAFTA, 62.5 percent of the production of a light car was required to be made in any of the three countries to have access to preferential tariffs. But with the T-MEC, it rose to 75 percent.
• Pharmaceuticals. In practice, Mexican pharmaceutical companies are more protected in relation to the competition by generic medicines in the marketplace.
• The Canadian dairy market. The agreement now includes provision to open to trade this sector, currently excluded from preferential treatment.
• Textiles and Garment. The new rules of origin and the flexibility to use materials and inputs not produced in the Region will increase the competitivity of this sector.
Q. With the ratification of T-MEC, which other countries do you think would be interested in investing in Mexico?
European countries and members of the Asia Pacific Basin mainly, but also through the Pacific Alliance, an Alliance that involves more than just trade in goods, but that also includes banking and finance integration, we can expect more investment from Chile, Colombia and Perú.
Q. What investment opportunities does the approval of T-MEC represent for Mexican businessmen?
To comply with the proposed new rules of origin, auto parts, plastics, textiles, garments, aluminum and steel industries have the greatest opportunities. E-commerce companies can benefit considerably under the new rules, regulations and the increased value of duty-free franchise for goods and services, will mean more and higher value transactions within the three economies.
Francisco Cervantes Díaz, Francisco Cervantes Díaz, chairman of CONCAMIN, is a Mexican businessman with 20 years of experience in the development of high-impact strategic business, technology, investment, education and national and international public relations of first level. As a public official, he served as undersecretary for Economic Development of the State of Mexico. He is chairman and CEO of Cerplastik industries and of Grupo CerPal México a real state developer. He has participated in several private and public company boards, such as: NAFINSA, BANCOMEXT, IMSS, INFONAVIT and FONACOT.
2 The Confederation of Industrial Chambers of the United Mexican States (CONCAMIN), was established in 1918, is an umbrella and nationwide trade organization, encompassing and representing most industrial sectors. It is recognized for its leadership and capacity to develop projects and initiatives and proposing public policy that contribute to the sustained growth and development of Mexican industry. For more detailed information, visit https://www.concamin.org.mx/nosotros/quienes-somos.
3 The new trade agreement between the United States, Mexico and Canada has different names for each of the North American partners. In Mexico, it is called T-MEC (Tratado entre México, Estados Unidos y Canadá); in Canada, it is CUSMA (Canada, United States and Mexico Agreement); and the U.S. refers to it as USMCA (United States, Mexico and Canada Agreement).
