NAFTA and Mexico’s competitiveness have promoted the installation of aerospace manufacturing and design operations. Neverending NAFTA 2.0 negotiations have clouded the sky with an uncertainty that could be starting to finally clear. However, in a public announcement on August 27, US President Donald Trump talked with Mexico’s President Enrique Peña Nieto to make a joint announcement of a major breakthrough toward a modernized trade agreement between the two countries.

Donald Trump by Matt Johnson. CC BY 2.0

The US and Canada are the main investors in Mexico’s aerospace industry as well as the main receptors of the country’s aerospace exports. Since the industry is export-oriented, the lack of a clear view on what direction NAFTA will take presents a challenge for Mexico to export aeronautics and space components to both countries. Tariff imposition by the US government on some manufactured goods as happened with steel, aluminum and vehicle imports could reduce the attractiveness of Mexico as a manufacturing hub and increase the costs of aircraft.

In 2017 alone, Mexico’s aerospace components exports amounted to more than US$7 billion, according to Armando Cortés, Executive Director of Sectorial Development at ProMéxico in a press release. According to Ministry of Economy data, Mexico’s NAFTA counterparts accounted for 87.7 percent of all the FDI that the country’s aerospace sector received between 1999 and 2017. The US is the largest contributor, with US$1.9 billion that account for 59.9 percent of the total aerospace FDI. Around 68.6 percent of all companies with foreign investments in the aerospace industry are from the US. Canada is the second-largest investor with $874.1 million that account for 27.6 percent of the total FDI in the sector.

Trump underlined that this agreement is not per se a renewed version of NAFTA but a US-Mexico Trade Deal and highlighted that it is a good deal for both countries. This optimism was reflected in an important advancement of the Mexican peso against the US dollar of more than 1 percent.

Peña Nieto highlighted the importance of including Canada in the negotiations as soon as possible to accomplish the original objective of having an updated trilateral free trade agreement that boosts competitiveness across North America.

While the importance of this deal to the farming and automotive industries was underlined, the aerospace industry was not mentioned. Any advancement toward an updated, comprehensive trade agreement between Mexico and its North American counterparts means good news for aerospace companies located in the country since these countries are the main recipients of Mexico’s aerospace exports.

Among other agreements reached in the talks between the US and Mexico is one on the US giving up on the integration of a sunset clause in the treaty’s text. Both countries agreed that the deal would have a lifespan of 16 years and be reviewed every six years, according to US Trade Representative Robert Lighthizer.

As the second-largest investor in Mexico’s aerospace industry, the participation of Canada in these trade talks and in any new deal will play a key role in the competitiveness of Mexico. Ultimately, Mexico’s trade network is one of the advantages that continue to make the country attractive to Canadian, US, French and Spanish investments such as Safran’s new plant in Queretaro.

 

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