Mexican Industry May Pay MFN Rates Until They Better Understand USMCA, Former Mexican Officials Say

Mexican companies may struggle to comply with U.S.-Mexico-Canada Agreement provisions due to uncertainty caused by the COVID-19 pandemic and confusion about certificate of origin provisions, two former Mexican government officials said. Some Mexican businesses may opt to forgo the preferential treatment under USMCA, which takes effect July 1, and instead pay most favored nation rates on imports until they better understand the agreement’s provisions, the former officials said.

“In the private sector, there's lots of work to do,” said Adriana Ibarra-Fernández, a Baker McKenzie trade lawyer and former official in Mexico’s Ministry of Economy. Ibarra-Fernández, speaking during a June 30 webinar hosted by the Atlantic Council, said “many” Mexican companies assume USMCA is a continuation of NAFTA and do not understand that rules of origin for their products may have changed.

Others are aware of the changes and are concerned that complying with the new rules will be too expensive, said Ildefonso Guajardo, an Atlantic Council resident expert and Mexico’s former economy secretary. “Many companies, if this bureaucratic work and compliance becomes too elevated, it will be cheaper to pay the MFN duty,” Guajardo said during the webinar. Ibarra-Fernández said that approach could be taken by companies that are “starting to be more acquainted with the new rules and want to first see how they can comply with them.”

Ibarra-Fernández added that some Mexican companies are still assessing how the COVID-19 pandemic has impacted their supply chains, which could impact how their goods are treated under USMCA. Senior management may be just now discovering that their suppliers are no longer in business, or that they were forced to switch to a new supplier whose product does not meet USMCA origin requirements. “Some of them are struggling,” she said, adding that the auto sector is facing the most difficulties. “It’s a challenge.”

But the pandemic may also bring opportunities to Mexico and help strengthen its position under USMCA, Ibarra-Fernández and Guajardo said. Mexico can take advantage of the U.S. goal to become less dependent on Chinese supply chains (see 2006260044), which should present “an opportunity for more regional integration than we used to have,” Ibarra-Fernández said. Guajardo said USMCA aligns “perfectly” with the Trump administration’s goal to reshore supply chains. “There is an opportunity,” he said. “Obviously there is a lot of work to be done in order to capture that opportunity.”