The Impact of Unilateral Measures on Strategic Sectors: Reflection and Proposals

Date:

By Octavio de la Torre
President of Concanaco Servytur

The recent implementation of tariff restrictions and limitations on the IMMEX program (Programa de la Industria Manufacturera, Maquiladora y de Servicios de Exportación – Manufacturing, Maquiladora, and Export Services Industry Program) has raised serious concerns in export sectors such as services, warehousing, distribution, textile factories, and manufacturing operations in Mexico. These measures, taken without comprehensive analysis or consensus with affected sectors, are shutting the doors to international investments and eliminating thousands of jobs, primarily in the northern border region of the country.

Additionally, they send a worrying message to U.S. investors, who may reconsider their operations in Mexico after decades of contributing to the national economy.

Warehousing and Distribution of Products from American Brands Manufactured in Other Countries

A key operational model for Mexico, particularly in the northern border region, is its role in the distribution chain of American brands manufactured in Asia. These U.S. based companies outsource their manufacturing to Asian countries and send finished or semi-finished products to Mexico, where specialized processes are carried out, including:

● Warehousing: Logistics centers along the border handle large volumes of merchandise.
● Specialized Services: Washing, ironing, labeling, printing, and packaging are performed before exporting 100% of these products to the United States.
Specialized Logistics and Distribution: Mexico facilitates efficient exports to the U.S., leveraging its infrastructure and strategic location.

These operations are crucial for Mexico’s competitiveness in international trade and generate jobs in regions like Baja California, Sonora, Chihuahua, and Tamaulipas. However, the new restrictions have a negative impact:

● Massive Job Losses: Thousands of workers in these services face the risk of unemployment.
● Corporate Relocation: U.S. companies may transfer their operations to the U.S. or other countries such as El Salvador or Guatemala, where regulations are more favorable.
● Erosion of Foreign Investment Confidence: Regulatory uncertainty undermines Mexico’s image as a reliable business destination, especially since companies relying on the IMMEX program –structured as part of the supply chain– were abruptly shut down, despite being legally compliant.

Textile factories and Manufacturing Dependent on Textile Inputs

Another export sector impacted is the textile factories and manufacturing industry, which relies on imported textile inputs to produce goods for export to the United States under strict international standards. These companies, mostly of U.S. origin, depend on an efficient supply chain to:

● Integrate textile inputs into specialized production processes.
● Meet the timelines and quality standards established in international contracts.

Current restrictions create significant challenges:

● Production Interruptions: The inability to import key inputs disrupts manufacturing processes, leading to contract breaches.
● Risk of Closure: Companies operating under tight deadlines may opt to leave Mexico.
● Loss of Competitiveness: Without consistent access to inputs, foreign-capital companies established in Mexico lose their edge over international competitors.

While the domestic textile industry needs support to compete, enforcing mandatory purchases or obstructing operations for exporters is not the solution. Instead, incentives and subsidies should be developed to boost the innovation and productivity of the textile sector, enabling it to integrate more effectively into the export sector.

The IMMEX sector, which I write about, generates nearly 9 million direct and indirect jobs in Mexico. It is exclusively export-oriented, operating under certifications and strict controls by the Ministry of Economy and the Tax Administration Service (SAT). These companies were established to perform productive processes for items solely exported abroad.

The Cost of Isolation

The impact of these measures is substantial:

  1. Job Losses: It is estimated that these decisions could lead to over 35,000 direct and indirect job losses in affected export service sectors.
  2. Business Closures: Additional costs and the lack of viable domestic alternatives may force foreign companies to shut down operations in Mexico and relocate elsewhere.
  3. Deterrence of Foreign Investment: Nearshoring, a $100 billion opportunity, could decline if Mexico fails to maintain a favorable environment; abrupt rule changes foster distrust in the sector deciding whether to remain in Mexico.

Sectors such as medical devices, furniture manufacturing, and auto parts, which depend on imported inputs, are already reporting difficulties operating under the new conditions. This also affects the logistics services sector, all of which are essential for the dynamism of Mexico’s export economy.

Root Causes of Smuggling in Mexico

Smuggling is a structural issue that affects Mexico’s economy and exacerbates tensions between productive sectors. Factors contributing to smuggling include:

  1. Lack of Border Oversight: Limited capacity to control illegal traffic allows finished products to enter the country without meeting regulations and tariffs, declared with lower value or as outright smuggling.
  2. High Taxes and Compliance Costs: Excessive tariffs and bureaucracy drive some actors to resort to smuggling for survival.
  3. Corruption: Corruption at border checkpoints facilitates the entry of illegal goods under documented or outright smuggling schemes.
  4. Demand for Cheaper Products: Many consumers opt for smuggled or counterfeit products due to lower costs, often tolerated by authorities.

Fighting against this issue requires more than restrictive trade measures. It is essential to strengthen border oversight and implement effective strategies against corruption and informal labor practices.

During this administration, the federal government has conducted high-profile operations in various states, which have been recognized by local merchants as efforts not seen in over 20 years.

A Call for Consensus

Restrictive measures for maquiladora, manufacturing, or export service companies have historically been implemented through dialogue and consensus with affected sectors. However, in this case, the realities of IMMEX industries and services were overlooked. In the effort to target those who violate the law, collateral damage was caused, but this time without prior assessment of the risks, impacting companies that indeed provide a benefit and added value to our country.

It is important to reconsider certain actions, and we join efforts to responsibly seek the greatest benefit for our country. Among these actions:

  1. Establishing Working Groups: Including representatives from affected sectors and governments in Baja California, Sonora, Chihuahua, and Tamaulipas.
  2. Designing Support Programs: Creating subsidies and incentives for the domestic textile industry without harming international trade actors contributing to the formal economy.
  3. Implementing a Comprehensive Strategy Against Smuggling: Strengthening border oversight and applying effective sanctions to deter the entry of illegal goods.

Mexico has established a strategic position in international trade, thanks to its proximity to the United States and its capacity to integrate global processes. This leadership must not be compromised by hasty and poorly considered decisions.

We trust that President Claudia Sheinbaum will reconsider these measures and improve them, prioritizing human capital development, employment, technology, competitiveness, and economic stability for families in border regions, as well as the development of our country.

Mexico’s future depends on policies that integrate all productive sectors, promote their growth, and ensure a favorable environment for foreign investment without sacrificing jobs or stability.

Keep up with the most important news of Business Agenda of Texas in all the platforms of Mundo Ejecutivo and in its social networks.

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