More than 20 years after the North American Free Trade Agreement (NAFTA) was concluded, a panel of logistics stakeholders at this year’s Vancouver, B.C. Cargo Logistics Conference examined the overall perception of NAFTA in the marketplace, and how the trade community can drive the benefits forward.
NAFTA was born to eliminate trade barriers, promote safe competition, promote foreign direct investment, create an effective procedure to manage disputes and finally, to establish a cooperation framework, a North American trade block.
“After they set out to create this trade block, 9/11 increased border and homeland protection. Then there was the rise of drug trafficking trade, the 1994 Mexican recession, and the 2009 US economic crisis. Mexico implemented many financial controls that helped them get through the 2009 crisis. What we didn’t see coming when we signed NAFTA was how much technology was going to help us, (i.e. on customs clearances, for example),” noted moderator Jordan Dewart, VP, Yusen Logsitics Mexico.
The criticisms of NAFTA are that trade did not grow as much as it could have. The perception was that job losses in the US were due to outsourcing leading to a smaller GDP, and larger immigration into the US from Mexico.
“The reality is that trade has increased five-fold since NAFTA’s 1994 implementation. Foreign direct investment within the NAFTA regions has increased beyond all expectation, and mass immigration from the US back into Mexico has been noted with the growth of the Mexican middle class and the creation of well paid jobs related to international commerce and logistics,” he said.
Compared to other trade blocks, NAFTA has managed to generate a bigger amount of trade.
“It’s important to drive NAFTA forward because we need to ask ourselves-do we want to do business with European nations, Asia, or in our own backyard?” Dewart said.
Troy Ryley, Managing Director of Transplace Mexico, an integrated logistics provider, sees relative stability today in Mexico.
“About 50% of trade is done through Laredo, Texas. Mexico is a young nation, and the maquiladora industry fit well with NAFTA. There are six thousand maquilas operating in Mexico today, with no tax on import material,” he said.
With nearshoring a rising trend for some companies in Mexico, the speed to market of 24-72 hours offers major benefits, and predictable transportation and costs as well, Ryley noted.
There has been continued growth in automotive in Mexico. All major car manufacturers are present there, he said. Ocean freight is now moving directly into Mexico and volumes have increased.
“In logistics you’re seeing a lot of Asian companies come in with a huge trade imbalance from April to July, when it’s chaotic to try and get freight out of Mexico. You’re waiting for equipment changing dynamics and cost of doing business,” Ryley said.
The shortages are the combined effect of factors like the driver shortage, the agricultural season, the Mexican consumer season (which starts Q3-Q4), and retooling of automotive plants.
NAFTA Next: rebranding
The Coalition for America’s Gateways and Trade corridors has as its mission the promotion of sufficient funding in federal legislation for multimodal goods, essentially a movement system to relieve chokepoints, congestion and to improve connections between the modes of transport.
Leslie Blakey, Executive Director of the Coalition, which holds a bi-annual “NAFTA Next” summit examining the issues surrounding the deal, noted that the CAGTC published, in 2013, a report on the road infrastructure issues of border crossings, in view of increasing trade volumes between Canada, the US and Mexico.
“A lot of the reshoring trend is going to continue. North America has the lowest costs of raw materials, oil and gas products in the world.
Groups like ours need to be focused on a North American program,” Blakey said.
The Coalition started a program aimed at turning around the previous “brand” of NAFTA and put together a mission for moving forward: among the developments in the last year that have bearing are the Three Amigos Summit, where one of the takeaways was that we need a North American transportation plan.
Noted Blakey: “There are 47 different agencies with jurisdiction over borders.”
The US-Canada Beyond the Border action plan is developing a Single Window initiative for submitting trade data.
“Hopefully this will be expedited,” Blakey said.
The next NAFTA Next summit will take place in 2016 and aims to address how each NAFTA country is fulfilling its role, as well as the most important NAFTA opportunities that have not been addressed.
NAFTA-strength as one
In 2012, 75.7% of Canada’s total merchandise exports were destined for NAFTA partners, and 1/5 jobs in Canada are related to trade.
But there is still a good deal of protectionism in Canada, with supply management tariff rate quotas, noted Patti O’Malley, Senior Trade Advisor, with Pacific Customs Brokers, citing the example of a 245% duty on certain imported cheeses.
Between Canada and Mexico trade is now beginning to flourish. Mexicans and Canadians don’t know each other that well and their relationship is not as developed as that of the US and Mexico.
“There is huge potential between the two countries,” O’Malley said.