Photo : ittnews.com

By EARL ANTHONY WAYNE, former U.S. ambassador to Mexico

(The following article first appeared on the U.S. political website “The Hill.” It is being republished in Pulse News Mexico with specific prior permission.)

Mexico and the United States are striving to reopen their integrated supply chains while grappling with the COVID-19 pandemic. Mexico is the United States’ biggest trading partner and the United States buys about 80 percent of Mexico’s imports.

The two countries, along with Canada, also plan to launch the new North American trade accord — the United States-Mexico-Canada Agreement  (USMCA) — on July 1. That could help the continent’s economies rebound from the pandemic. To maximize the impact on jobs and prosperity, however, the USMCA’s launch and reopening supply chains need to be managed well.

The economic effects of the pandemic sent clear messages about the importance of resilient, robust, reliable and secure supply chains around the globe, including in North America. Half of the goods traded in North America under NAFTA have been intermediate goods used in the production of final products in the United States, Mexico and Canada. The private{sector commercial networks of the USMCA’s precursor, the North American Free Trade Agreement’s (NAFTA), created mutual reliance on the supply chains, linking the three neighbors.

The economic effects of the pandemic sent clear messages about the importance of resilient, robust, reliable and secure supply chains around the globe, including in North America.

The covid-19 pandemic, however, disrupted supply chains within countries and across borders. The U.S., Mexican and Canadian governments managed to coordinate reducing cross-border traffic to decrease health concerns, while allowing commerce to continue. However, the U.S. and Mexico did not well coordinate decisions about which supply chains were designated as “essential.”

This inadvertently disconnected some Mexican supply chains to important sectors of the U.S. economy. To counter the pandemic, Mexico’s government ordered many companies to close, including producers of parts and inputs for U.S. sectors such as health, aerospace, autos and food and agriculture.

The United States and Mexico understandably were scrambling to protect workers from the virus. However, there was not sufficient communication between the two governments about the potential effects of decisions on crucial supply chains for the medical and defense sectors, for example. They apparently did not share definitions of what supply chains were essential. While there also were some initial U.S.-Canada problems, those two governments adopted similar definitions of essential supply chains and did not suffer serious disconnects.

Mexico and the United States share responsibility for assuring good crisis communications on supply chains, given the massive economic integration that exists. Since problems came to light, both governments have been moving to resolve them and restore the operations of key supply chains, while still caring for the health of workers.

Each national government must work with its respective state governments and private sectors, which built the supply chains over the past 25 years.

This is a delicate task, given the pandemic’s characteristics. Each national government must work with its respective state governments and private sectors, which built the supply chains over the past 25 years. Successfully reigniting both economies will be boosted by closer U.S.-Mexican coordination. Trade with Mexico supports some 5 million U.S. jobs, for example, and the International Monetary Fund (IMF) predicts big pandemic-linked GDP falls for both countries.

From Mexico’s perspective, it is critical that bilateral supply chain issues not fuel arguments to pull production back to the United States. Mexico’s prosperity is closely linked to being a reliable U.S. economic partner.

Mexico and the United States should establish mechanisms for addressing supply chain issues on a regular basis going forward. The private sector must be involved. The overarching goal should be to make North America’s supply chains more secure, reliable and competitive.

A valuable step would be to create a group of experts, from the public and private sectors, charged with providing recommendations to both governments for making supply chains more resilient and robust. The group could identify factors to help the governments find agreement on the relative importance of various sectoral supply chains, such as health, aerospace, food and autos, as well as on the steps to better prepare for and manage future crises.

Recent moves by Mexican authorities to change the rules of operation for the generation and sale of renewable energy in Mexico send worrisome messages about how investments will be treated.

Mexico has much to gain if it moves effectively to restart the supply chains and establish an effective bilateral dialogue. Many companies will be looking to establish shorter and more reliable supply chains as the world emerges from the pandemic.

Mexico’s location gives it an obvious advantage. On the other hand, mishandling issues and negative signals regarding investment security could be costly. For example, recent moves by Mexican authorities to change the rules of operation for the generation and sale of renewable energy in Mexico send worrisome messages about how investments will be treated. This has sparked alarm, bitter complaints, concern and protests from Mexican and international businesses, as well as from other governments.

Beyond U.S.-Mexico supply chains is the importance of implementing the USMCA, which crucially includes the United States’ second-largest trade partner, Canada. A good start for the USMCA will support economic recovery across North America. The agreement promises 16 years of certainty for private-sector creativity to build on networks fashioned under NAFTA.

Governments will delay implementation of certain requirements to take account of the pandemic’s effects. Officials are working to set up new procedures. Smooth implementation requires close cooperation among the three governments, with the involvement of the private sector.

The USMCA also holds the promise that the three governments and stakeholders can look ahead for ways to make North America more competitive compared to other global producers. For example, the agreement establishes a Committee on Competitiveness to consider how North America can improve its ability to compete globally.

Long before the pandemic, the international economy faced ongoing disruption from the rapid pace of technological change. The pace of change may well accelerate in the post-pandemic economy. We may see:

The three North American governments thus must manage and coordinate better than ever the issues that will deeply affect their economies and societies in the years ahead. This will require stronger consultative mechanisms and more serious, regular cooperation. It will be crucial to incorporate meaningful input from the private sector and other stakeholders.

The challenges are big, but the opportunities are larger.

EARL ANTHONY WAYNE is a public policy fellow at the Woodrow Wilson Center and career ambassador (ret.) from the U.S. Diplomatic Service, where he served as U.S. ambassador to both Mexico and Argentina, as well as assistant secretary of State for economic and business affairs. He is also the co-chair of the Wilson Center’s Mexico Institute Advisory Board and a Diplomat in Residence at American University’s School of International Service.

…June 11, 2020

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.