The United States-Mexico-Canada Agreement (USMCA) is a free trade agreement that replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020. The USMCA aims to create a more balanced, reciprocal, and modern trade environment for the three countries, supporting high-paying jobs, economic growth, and innovation.
One of the sectors that has benefited from the USMCA is the maquiladora industry, which consists of factories that are largely duty-free and tariff-free, located in Mexico and owned by foreign entities. These factories import raw materials and equipment, and export finished or semi-finished products, mainly to the United States and Canada.
How the USMCA has improved the maquiladora industry:
The USMCA has introduced several changes and improvements for the maquiladora industry, such as:
Simplified rules of origin: The USMCA has streamlined and updated the rules of origin for various products, making it easier for maquiladoras to qualify for preferential tariff treatment. For example, the USMCA has eliminated the tracing requirement for certain materials, reduced the regional value content thresholds for some products, and introduced a new certification of origin system that allows any person to certify the origin of a good.
Enhanced labor standards: The USMCA has incorporated strong labor provisions that require the parties to respect and enforce internationally recognized labor rights, such as freedom of association, collective bargaining, elimination of forced labor and child labor, and protection against discrimination. The USMCA also includes a rapid response mechanism that allows for expedited enforcement actions against facilities that violate workers’ rights to free and fair union representation. These provisions aim to improve the working conditions and wages of maquiladora workers, as well as to promote fair competition among the parties.
Increased market access: The USMCA has eliminated or reduced tariffs and non-tariff barriers for many products that are produced or processed by maquiladoras, such as textiles, apparel, footwear, automotive parts, chemicals, plastics, and steel. The USMCA also provides greater access to government procurement opportunities for maquiladora suppliers, as well as enhanced intellectual property protection and dispute resolution mechanisms. These measures help to expand the market opportunities and competitiveness of maquiladoras in the North American region.
How the maquiladora industry has contributed to the USMCA objectives:
The maquiladora industry has also played an important role in advancing the objectives and benefits of the USMCA for the three countries, such as:
Supporting economic growth and job creation: The maquiladora industry is one of the largest sources of foreign exchange and employment in Mexico, generating more than $200 billion in exports and employing more than three million workers in 2020. The industry also supports thousands of jobs in the United States and Canada through cross-border trade and investment linkages. According to a study by the Wilson Center, every $1 billion of U.S. exports to Mexico supports 15,000 U.S. jobs, while every $1 billion of U.S. imports from Mexico supports 6,000 U.S. jobs. Similarly, every $1 billion of Canadian exports to Mexico supports 9,000 Canadian jobs, while every $1 billion of Canadian imports from Mexico supports 5,000 Canadian jobs.
Promoting innovation and competitiveness: The maquiladora industry is not only a low-cost manufacturing platform, but also a source of innovation and value-added activities for many sectors. Maquiladoras have invested in research and development, quality control, engineering, design, logistics, and other services that enhance their productivity and efficiency. Maquiladoras also collaborate with universities, research centers, suppliers, customers, and other stakeholders to foster innovation ecosystems and clusters in areas such as medical devices, aerospace, automotive, electronics, renewable energy, biotechnology, and nanotechnology.
Strengthening regional integration and cooperation: The maquiladora industry has contributed to the integration and cooperation among the three countries by creating regional supply chains that increase interdependence and complementarity. Maquiladoras import inputs from both the United States and Canada, add value in Mexico, and export outputs to both markets. This process creates a virtuous cycle of trade that benefits all parties. Maquiladoras also facilitate cross-border flows of information, technology, capital, skills, and best practices that enhance the competitiveness and resilience of the North American region.
The USMCA is a landmark trade agreement that has created new opportunities and challenges for the maquiladora industry. The industry has adapted to the changes and improvements brought by the USMCA and has also contributed to the achievement of the USMCA’s goals and benefits for the three countries. The maquiladora industry is a key partner and stakeholder in the North American trade relationship, and its success and sustainability depend on the continued collaboration and cooperation among the parties.
How Javid can help you take advantage of USMCA provisions:
Javid LLC, a Shelter manufacturing company in Nogales, Sonora, Mexico, can help companies take advantage of provisions in the USMCA agreement. We have extensive experience in the maquiladora industry and understand the complex rules of origin and labor requirements of the USMCA. Javid can help companies to:
Qualify for preferential tariff treatment: Javid can help companies to ensure that their products meet the rules of origin requirements of the USMCA. This can help companies to save money on tariffs and improve their competitiveness in the North American market.
Comply with labor requirements: Javid can help companies to ensure that they are complying with the labor requirements of the USMCA. This includes ensuring that workers are paid fair wages and have safe working conditions.
Improve supply chain efficiency: Javid can help companies to improve the efficiency of their supply chains by providing access to a skilled workforce, low-cost inputs, and proximity to the United States and Canada. This can help companies to reduce their costs, improve their delivery times, and increase their profitability.
If you are a company that is looking to take advantage of the provisions of the USMCA, Javid LLC can help you. Contact Javid today to learn more about how we can help you to grow your business in the North American market.