San Antonio officials breathe sigh of relief over Mexico trade deal

San Antonio business leaders are breathing a collective sigh of relief following news that the Trump administration has reached a bilateral trade deal with Mexico, which observers said sets the stage for a final and renegotiated North American Free Trade Agreement that includes Canada.

U.S. President Donald Trump announced the trade deal in a live conference call with Mexican President Enrique Peña-Nieto Monday afternoon.

"It’s a big day for trade, a big day for our country," Trump said. "A lot of people thought we’d never get here because we all negotiate tough. We do, and so does Mexico. And this is a tremendous thing."

Separate trade negotiations with Canada are expected to begin immediately. Trump hinted that the name NAFTA might go away, saying it has "a bad connotation" as hurting the United States. It remains to be seen whether the deal with Mexico will be approved by Congress before the November elections or before Mexico's new President-elect Andres Manuel Lopez-Obrador takes office in December.

"We have an agreement where — both with Canada and with Mexico — I will terminate the existing deal," Trump said. "When that happens, I can’t quite tell you. It depends on what the timetable is with Congress. But I’ll be terminating the existing deal and going into this deal."

The deal with Mexico resolves a thorny issue for automakers — rules or origin, which is the criteria that determines the national origin of a product and, therefore, its taxes and duties. Under NAFTA, at least 62.5 percent of components for products such as cars must be sourced within the United States, Canada and Mexico to qualify for tax and tariff exemptions. The Trump administration was seeking to raise the rules of origin to 80 percent. The new agreement with Mexico sets the rules of origin at 75 percent.

Officials with Japanese automaker Toyota Motor Corp. (NYSE: TM), which has plant in San Antonio, were "pleased to hear that progress is being made by U.S. and Mexico negotiators to reach a consensus on modernizing NAFTA," Toyota USA said in a statement. "We are hopeful that any changes are fair and balanced."   

Calling the deal "good for all sides," San Antonio Manufacturers Association President and CEO Rey Chavez said many of the organization's members export their products to Mexico or receive parts from there.

"I think it's a win-win," Chavez told the Business Journal. "It will benefit our members, especially on the automotive side. For companies like Toyota and Caterpillar, a lot of their parts come here from Mexico."

The rules of origin were the top priority for both sides during the U.S.-Mexico negotiations, San Antonio Hispanic Chamber of Commerce President and CEO Ramiro Cavazos said. He said the deal with Mexico puts negotiations for all three NAFTA nations "back on track." The Hispanic Chamber's members include tier 1 suppliers to Toyota.

"The good news here is that provisions can be amended under this new agreement," Cavazos told the Business Journal. "If a provision isn't working, we can go back and renegotiate it just like we did with NAFTA 1.0."

San Antonio Chamber of Commerce President Richard Perez, who testified last year before a U.S. Senate Finance Committee field hearing to save the trilateral trade deal, was "beyond delighted" by the news.

"With 63,000 jobs in San Antonio directly tied to NAFTA and 135,000 jobs indirectly tied to it, NAFTA is crucial to the continued growth and success of our city, our growing industries and our economy," Perez said in a statement. "The San Antonio Chamber will remain vigilant in our support and advocacy for a successful, updated agreement with our neighbors to the north and south."

Executives with Laredo-based International Bancshares Corp. (Nasdaq: IBOC), another staunch supporter of NAFTA, said the deal with Mexico sets the stage for a final agreement that includes Canada. 

“As CEO of a Laredo-based bank, I have witnessed firsthand the powerfully positive economic impact NAFTA has had in Texas and throughout the United States over the past 24 years,” IBC Bank CEO Dennis Nixon said in a statement. “The bilateral agreement between the United States and Mexico is an important step in renewing and updating this critical trade pact.”

With demand for natural gas, diesel and gasoline growing in Mexico, the Texas Independent Producers & Royalty Owners Association would like to see any updated version of NAFTA address the tariffs on steel and aluminum imposed by the Trump administration, which are raising costs for the oil and gas industry, association President Ed Longanecker said in a statement.

"We also are closely watching whether, under the new deal, the president will uphold the values of reciprocal trade without the barriers of tariffs or quotas, including lifting levies placed against imported steel and aluminum products from Mexico," Longanecker said in his statement. "TIPRO has been a vocal advocate calling for the discontinuation of such tariffs, though it must be done in a way that will not otherwise impede critical domestic oil and gas production.”

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