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USMCA’s Energy Dispute Raises Concerns in Automotive Sector

By Rodrigo Andrade | Mon, 08/29/2022 - 10:46

Following the US and Canada’s request for consultations to discuss Mexico’s energy policy, several members of Mexico’s industrial sectors have highlighted the importance of the USMCA for the country’s economy. The National Auto Parts Industry (INA) recently added its voice to the concerns, mentioning that the collaboration between the countries of North America has been critical for the development of the Mexican economy for over 23 years. 

The previous agreement, the North American Free Trade Agreement (NAFTA) delivered US$83.88 billion in foreign direct investment (FDI), wrote INA in Cluster Industrial. “This is why it is important not only to maintain the free trade agreement between Mexico, the US and Canada, the so-called T-MEC (USMCA) but also to take care of it and improve it, so that the automotive sector continues to be the pride of the Mexican families that depend on it and of all Mexicans, as it is the second most important pillar of our country's economy,” wrote INA.

The USMCA provides Mexico with 18.3 percent of its manufacturing gross domestic product (GDP), which represents 3.8 percent of the country’s total GDP. The country’s manufacturing sector represents over 1 million direct jobs. Mexico is the main auto parts supplier to the US, as 36 percent of the latter’s imports come from assembly plants located in Mexico. 

Mexico has a privileged location that has made it an attractive destination for nearshoring. “The auto parts industry has adopted nearshoring as a result of the new normal. This has the objective of bringing closer supply chains to protect the industry from pandemic risks and it brings cost benefits,” said Fransisco Gonzáles Díaz, President, National Industry of Auto Parts (INA), as reported by MBN. 

The Mexican Association of the Automotive Industry (AMIA) had previously mentioned its concerns about the consultations requested by the US and Canada regarding Mexico’s energy policy, which prioritizes state-owned energy companies inside the country and allegedly violates the USMCA. 

The dialogues requested by the US and Canada began last week and will last for 45 days so participants from the three countries can exchange their points of view. If no agreement is reached, a dispute panel will be established that might lead to retaliations in trade. This last point is causing concern in Mexico’s automotive industry. However, Marcelo Ebrad, Mexico’s Minister of Foreign Affairs asked the industry to remain calm: “The fact that we have a variance with the US regarding one topic does not mean that the bilateral relationship will collapse nor that we will withdraw from the agreement,” as reported by MBN. 

Photo by:   IADE-Michoko
Rodrigo Andrade Rodrigo Andrade Journalist & Industry Analyst