On the same day United States and Mexican officials announced the positive outcome of potentially contentious sugar trade talks earlier this month, a group of elite CEOs meeting in Washington, D.C. resolved to form a new organization ahead of negotiations that might alter the landmark North American Free Trade Agreement established in 1994.
That organization, the U.S.-Mexico Economic Council, is the result of the biannual CEO Dialogue hosted by the U.S. Chamber of Commerce. It’s where Texas-grown IBC Bank CEO Dennis Nixon, IBC Executive Vice President Gerry Schwebel and others met to discuss ways the U.S. can enhance economic and commercial relations between the two countries.
NAFTA essentially created the largest free trade area in the world, according to the International Trade Administration (ITA). It links 444 million people, producing $17 trillion worth of goods and services.
And the efforts to organize and unify in order to maintain its strengths, especially here in Texas, the No. 1 exporting state, just keep coming.
Last week, on June 15, four organizations – the Texas Association of Business, Texas Business Leadership Council, Texas Association of Manufacturers and The Borderplex Alliance – announced the launch of a business-led, statewide effort to advocate in support of NAFTA. Chaired by IBC Bank Senior Vice President Eddie Aldrete of San Antonio, the Texas Mexico Trade Coalition will deliver a message to Washington that “NAFTA works, and it’s time to make it work even better.”
U.S. Rep Will Hurd (R-Texas), who represents a district neighboring much of the Texas-Mexico border, believes this state should lead the way on that effort.
“We have unique position within the trilateral relations. Texas should have some influence – a little Texas flavor – and use the next couple of weeks and months to solidify that,” Hurd said. “Twenty-three years is a long time, and we forget stuff and take things for granted. We need to remind people how important [NAFTA] is to our competitiveness.”
“The positive impact of NAFTA in the well-being of our communities on both sides of the border is undeniable,” said Ambassador Reyna Torres Mendívil, consul general of Mexico in San Antonio. “Texas is Mexico’s main trading partner in the U.S., and San Antonio plays a key role in these exchanges. The voice of the different stakeholders in this region must have a positive impact in the upcoming renegotiation.”
In 1999, just five years into the agreement, Texas experienced the second-largest gain in total exports among all 50 states, according to Texas Public Policy Foundation. At $18.9 billion in exports, Mexico had become Texas’ largest foreign market by far. Also in that time, San Antonio experienced a 56% increase in exports to Canada and an incredible 202% increase to Mexico.
Last year, the U.S. exported about $262 billion in goods and services to Mexico – $93 billion of which came from Texas.
Much of that trade in goods was happening at the border three hours south of San Antonio, in Laredo, which is home to the second largest port in the U.S. Laredo is also home base for IBC, a bank that Nixon has led for the past 41 years.
“When [NAFTA] was put in place, we were a little town with high unemployment and no business and nothing going on,” said Nixon, whom many consider foremost an expert on border issues and who helped craft the original agreement 25 years ago. “NAFTA has transformed the community entirely.”
But the issue is not just a “Texas thing,” he said.
An ITA report shows export shipments of U.S. goods to NAFTA partners (Canada and Mexico) totaled $266.9 billion in 2003, up 88% from the year before NAFTA was signed. Exports to the NAFTA countries rose faster than total exports to the world, which grew 56% from $464.9 billion in 1993 to $723.7 billion in 2003.
Thus, the report states, NAFTA markets are increasingly important to U.S. companies, and Mexico and Canada have contributed nearly equally to the growing significance of NAFTA.
President Donald Trump has called NAFTA “a disaster.” After threatening in April to withdraw from the agreement, he had a change of heart days later. That was a relief to government leaders like Hurd and to business leaders like Nixon, who agree that it’s time for revisions that would modernize NAFTA.
“We have an opportunity to upgrade on something of incredible valuable to the Texas economy and the U.S. economy,” Hurd said. “So the fact that Prime Minister Trudeau, President Trump and President Peña Nieto have all agreed that there are ways to improve NAFTA, and that all three have said that is their goal, I think is important. Hopefully by the end of July, we’re going to see from Commerce and the U.S. trade representative what the renegotiation plan is.”
Hurd also believes there’s good reason NAFTA 2.0 should be centered on energy. “The name Eagle Ford was not on people’s lips 23 years ago. You didn’t have foreign direct investment in the energy sector in Mexico. This is an area where the U.S., Mexico and Canada can truly be partners in energy, and this is going to help with our ability to be effective in other parts of the world … NAFTA can be the signature agreement when it comes to the 21st century economy.”
“There’s a lot of rhetoric to kill NAFTA, but that has not happened,” said Jose Martinez, president and CEO of the Free Trade Alliance at a meeting on June 7. “And people are not worried about a NAFTA tax because we have a plan to fight it for Texas.”
At the same meeting, attorney Miriam Name, a partner at Mexican law firm Cacheaux, Cavazos & Newton (CCN), served on a panel with two others, and described Mexico as more than just a neighbor to Texas.
“We are married and have kids,” she said. “It’s more than a simple business partnership. Each [relies] on the other party, and we’ve built up trust over the years, and that’s not easy to build. After it’s built, you cannot separate that – economically or culturally.”
Her partner at CCN, Rob Barnett, an attorney licensed here, said he has had a number of clients in the past nine months cancel or suspend “significant” projects here or in Mexico due to the impending negotiations.
“But things have calmed down now and clients are getting to work and working within trade groups and their contacts to understand what’s going to be renegotiated and how they might be impacted,” Barnett said.
Both Name and Barnett agree that NAFTA needs to be renegotiated, and so do their clients.
“They’ve expressed a desire to have improvements made in regulatory aspects and paperwork and the processes that one goes through to export products or [does] manufacturing in another place, here or there,” Barnett said. “I think there is a need to modernize something that is 25 years old, and that would include many of the things that have been talked about, like electronic commerce and other types of … intellectual property that didn’t exist 25 years ago, such as tightening patents and protections and cooperation on those issues.”
But Barnett sees no reason for withdrawing from the agreement, or for radical change, including a proposed increase in border taxes. “The free trade that NAFTA brought about, and that led to regional integration of our economy, has led to a fulfillment of what NAFTA was designed to do, which is make it easier to do business across borders and realize the efficiencies of the three economies. So that’s all occurred. But if you change it radically, then everyone who benefited from it or has interest in it will be affected and that includes San Antonio and South Texas.”
The Toyota manufacturing plant in San Antonio, and agriculture in South Texas and elsewhere, are some of the most visible fulfillments of what NAFTA was designed to provide. Nixon said the biggest beneficiary of NAFTA was agriculture, going both ways, and the fact that the tone of the sugar talks was positive speaks well for future trade negotiations.
“The genius of NAFTA is that is keeps us competitive,” Nixon said. “If we try to do it all ourselves … we’re not able to compete.”
He cited the example of Carrier moving hundreds of jobs from Indiana to Mexico in order to cut costs and remain competitive, as well as WalMart no longer marketing only goods made stateside as examples of how the U.S. is now competing on a world stage. And that means some jobs will go overseas for cheaper labor, while other positions go unfilled because of a lack of skilled labor.
Trade with Mexico supported about 1.2 million U.S. jobs in 2015, according to the U.S. Department of Commerce. Trade with Canada supported about 1.6 million jobs. But other estimates go even higher.
“It starts with education in the U.S. We have to teach our kids and prepare them for jobs that don’t exist today,” Hurd said. “That’s how we keep our edge. Entrepreneurship and creativity is what has spurred American economic development over the last decades. And I think that is something that’s going to have to be handled outside of the trade agreement – it’s basic and fundamental to what our economy has to be built on, to be prepared for the next economy. That focus is bigger than NAFTA negotiations.”
Nixon favors renegotiation of every international trade agreement the U.S. has made, especially one with China that he said blocks the U.S. through burdensome regulations.
“I’ve been in business for over 50 years, and I’ve found that the only agreements that survive are the ones where both parties are treated fairly and benefit from the deal,” Nixon said. “We have to respect the fact that we are the biggest guy and we have an obligation to protect our people and our country. But we do have an obligation to be the leader for the world and make fair deals.”