Mexico’s participation in the industry will be founded on competitiveness. Our priorities should focus on market diversification and investing in the areas that are important to OEMs and suppliers in the country. Under this administration, Mexico has worked on implementing a “light” industrial policy where the government only intervenes in matters when the market demands it. Our focus has been on four pillars: generating world-class talent, promoting innovation, supporting supply chain development and creating synergies between clusters. If NAFTA were canceled and we worked under WTO regulations, a 2.5 percent tariff in car and auto parts production would not impact us as long as we remain competitive. We must keep growing our capabilities for investment to continue.

Mexico’s two main assets as a manufacturing hub are its versatility and the quality of its production. The country can build anything from an entry vehicle to a premium or luxury model and anything in between, following the most stringent quality standards. However, we still see the absence of an automotive legislation as the biggest obstacle for the industry’s growth. Mexico is playing to its strengths — manufacturing, labor and trade agreements — and nothing is being done from a legislative or R&D standpoint. If another country offers better conditions in any of these fronts, we will see significant negative pressure on local manufacturing operations. The government must establish clear priorities for where the country should be in the coming years and R&D operations must be among them. R&D is a critical pillar in the industry’s development.

We are prepared for a scenario with or without NAFTA. We know that if NAFTA is canceled there would be an impact on our operations but it would also open an opportunity to further diversify those operations. The CPTPP, for example, opens new possibilities for our products to be exported to Asia and South America. Right now, Guanajuato exports to over 125 countries representing US$22 billion per year when 20 years ago we only exported to three countries production worth US$200 million. If we consider this administration alone, we started 2012 with US$11 billion yearly in exports and we have doubled that number. We need to diversify our operations but not compromise the good relationship we have with our North American neighbors.

If the US pulls out of NAFTA, 38 percent of Guanajuato’s total exports would be deeply impacted including pickup production, which would face a 25-percent export tariff. Boosting players’ competitiveness is crucial to prevent harm because, with or without FTAs, competitive companies will prevail. We have worked to increase the competitiveness of Guanajuato’s exports to neutralize any harm stemming from the US leaving NAFTA. And even if the US decides not to pull out of NAFTA, more competitive exports mean more business opportunities for local companies. We have analyzed all tariff codes for Guanajuato’s main exports and looked for ways to boost companies’ competitiveness accordingly.

The country has demonstrated its capabilities as a competitive automotive hub and now our goal is to define the best way to face the current trade challenges including the possibility of new tariffs that could be implemented by the US on vehicle imports, similar to those the country slapped on steel and aluminum following Section 232 investigations on national security. These are interesting times and particularly now, many changes are coming. Considering that the automotive industry is the main success story stemming from the original NAFTA, our hope is that the new agreement maintains conditions to ensure growth and progress in all three countries. There is a good opportunity to reach an agreement.

Mexico is in an excellent position in the global automotive industry. We are already the seventh light-vehicle producer and the third exporter and by 2020 I expect the industry will have an output of 5 million light-vehicle units. Our challenge now is to improve our logistics infrastructure to move an extra 1.5 million units from manufacturing plants to the final user. Ports and highways are already showing signs of over-capacity and the situation will only worsen as production increases. The automotive industry is a pillar of the Mexican economy, representing 3 percent of national GDP and 28 percent of manufacturing GDP. It is also the main currency generator in the country, at over US$60 billion per year.

The country has now entered the CPTPP agreement and is negotiating its FTA with the EU, which means more roads are opening for Mexico to diversify its operations and to lower the impact that an altered or even canceled NAFTA could bring. At the same time, talent is without a doubt one of the country’s greatest advantages. Over 100,000 engineers graduate each year and participate in the development and implementation of new technologies, including Industry 4.0 practices. Furthermore, OEMs and leading Tier 1 suppliers are now establishing their own training centers or universities to ensure talent availability. Such is the case with Nissan, BMW and Audi that have training centers working closely with the state and Federal governments.

The Mexican automotive industry has gained momentum and will continue on that path. The country has done a great job attracting OEMs and these companies have brought their Tier 1 suppliers along. The next step is to develop a strong local supply chain to support these companies. As premium brands such as BMW and Mercedes- Benz prepare to start operations and as GM ramps up its production, Mexico needs to evolve from offering inexpensive labor to being able to cater to increasingly complex vehicle platforms. This is not just about supplying a growing demand for components but also meeting the specific needs of luxury brands.