1. NAFTA: Opportunities and Challenges for the Trade Community Presented By: Jorge A. Torres President/U.S. Licensed Customs Broker Interlink Trade Services Border to Border Transportation Conference November 19, 2014

2. Since NAFTA entered into force in 1994, trade with Canada and Mexico has risen three-and-one half fold to $1.2 trillion, and the two countries buy about one-third of the U.S. merchandise exports Trade with Canada and Mexico supports nearly 14 million U.S. jobs, and nearly 5 million of these net jobs are supported by the increase in trade generated by NAFTA, according to a comprehensive economic study commissioned by the U.S. Chamber of Commerce NAFTA: The North American Free Trade Agreement

3. The expansion of trade unleashed by NAFTA supports tens of thousands of jobs in each of the 50 states – and more than 100,000 jobs in each of 17 states (including Texas) NAFTA has been a boon to the competitiveness of U.S. manufacturers, which added more than 800,000 jobs in the four years after NAFTA entered into force Canadians and Mexicans purchased 428 billion of U.S. manufactured goods in 2011, generating $36,000 in export revenue for every American factory worker NAFTA: The North American Free Trade Agreement

4. NAFTA has been a bonanza for U.S. farmers and ranchers, helping U.S. agricultural exports to Canada and Mexico triple and quintuple, respectively One in every 10 acres on American farms is planted to feed Canadian and Mexican people NAFTA: The North American Free Trade Agreement

5. With new market access and clear rules afforded by NAFTA, U.S. services exports to Canada and Mexico have tripled, rising from $26 billion in 1993 to $82 billion in 2011 Canada and Mexico are the top two export destinations for U.S. small and medium-sized enterprises, more than 122,000 of which sold their goods and services to Canada and Mexico in 2010 NAFTA: The North American Free Trade Agreement

6. One of the biggest debates in the trade community is the question as to whether NAFTA directly impacted the growth of the maquiladora industry in Mexico There are many studies by the government, private consultants, groups and associations and the academia about this matter with mixed results NAFTA and The Maquiladora Industry

7. The Mexican government initiated the Border Industrialization Program in 1965 as a response to the demise of the “Bracero Program” by the U.S. government in 1964. The “Bracero Program” had allowed Mexican agricultural workers (mostly migrating northbound from the interior of Mexico) to work legally in the U.S. on a seasonal basis. History of The Maquiladora

8. After the end of the “Bracero Program” the Mexican government was forced to implement the Maquiladora Program to alleviate the rising unemployment burden along the border. This is a concept whereby the Mexican government mostly allows the duty-free, temporary importation of raw materials, supplies, machinery and equipment, etc. as long as the product assembled or manufactured in Mexico is exported. The Mexican government also sought to utilize this program to increase the level of “hard currency” and as a vehicle for the transfer of technology. Since the conception of the maquiladora program, the changes have been dramatic, to say the least! History of The Maquiladora

9. The first years of the program saw few U.S. companies move to the border areas to take advantage of these incentives. The ones who did and especially the first Tijuana Maquiladoras were mainly in the electronics field since lower priced products arriving from Asia were competitively squeezing them. In addition, the value of the Mexican peso against the U.S. dollar was similar during this time frame, a major factor that made Mexico less attractive from a labor cost perspective. History of The Maquiladora

10. As the 1970’s arrived, Mexico found itself awash in oil reserves and began to borrow heavily in foreign currencies to expedite the exploration and processing of their “black gold”. Many of us remember the global economic uncertainties of the 1970’s- particularly high interest rates raising havoc on new infrastructure projects worldwide. As Mexico incurred a massive oil based debt, the Mexican economy began to falter, which gave rise to inflation and finally to a serious currency devaluation. These devaluations have since continued, albeit on a less dramatic scale (with the exception of the 1994 devaluation). History of The Maquiladora

11. The serious devaluation of the Mexican Peso began in the late 1970’s and escalated to the point of the country being in a bankrupt mode in the early 1980’s. As a result of heavy borrowing and high interest rates, coupled with changes in U.S. Customs laws, Mexico became an attractive location for foreign investment. History of The Maquiladora

12. In the early 1980’s, many U.S. business were feeling the “squeeze” from their Asian competitors and had decided that in order to remain in business, lower labor costs were necessary. As they began to look to Asia as an option for their investments, Mexico’s currency devaluation and economic crisis became both an opportunity for U.S. investors looking to go offshore and for Mexico who badly needed hard currency. It was during this period that the Maquiladora industry experienced the steady and substantial growth that has continued to this day. History of The Maquiladora

13. This began Mexico’s “Network of Treaties” with Mexico becoming a contracting partner to GATT (General Agreement on Tariffs and Trade). In the late 1980’s the Mexican government further liberalized foreign investment through modifications of the “Regulation of the law for the Promotion of Mexican Investment and Regulation of Foreign Investment”. The NAFTA negotiations began in 1992 and took effect in 1994. Also in 1994, the U.S./Mexico Bilateral Tax Treaty (to avoid double taxation), took effect. Continuing in 1994, Mexico joined the OECD (Organization for Economic Cooperation and Development), in an effort to become a global partner in trade and commerce. History of The Maquiladora

14. The NAFTA has made Mexico a viable trading partner with the U.S. and Canada and has assisted Mexico in opening up trade with South America and the European Union. It was the high profile of the NAFTA that made the Maquiladora industry more visible to the American public in both a good and bad light. Many people still believe that the Maquiladora Industry was a result of the NAFTA - this of course is not true. As a matter of fact, some of the provisions within NAFTA, which were implemented in 2001 as per the Agreement, made it more difficult for maquiladoras to import non-NAFTA materials into Mexico In Summary

15. There have been many changes to the Maquiladora Industry in Mexico throughout the years and many of these changes have been as a result of the NAFTA. Unfortunately the “Rules of the Game” have made it more complicated to operate in Mexico than prior to the signing of the NAFTA. Even though the promotional arm of the Mexican government, SE (Secretary of the Economy), has done an outstanding job in making it easier to obtain permits, etc., the fiscal authorities (HACIENDA) are looking for more ways to increase the country’s revenue through new tax schemes for the Maquiladora Industry. In Summary

16. Thank You!! Merci!! Gracias!!

17. -NAFTA Triumphant “Assessing Two Decades of Gains in Trade, Growth, and Jobs” – Report prepared by the U.S. Chamber of Commerce -The Maquiladora Industry: A Brief History – Report prepared by Made in Mexico, Inc. (www.madeinmexicoinc.com)www.madeinmexicoinc.com Information Sources