Mexico and the USMCA: A solution to supply chain challenges

April 6, 2022
Mexico and the USMCA: A solution to supply chain challenges

Submitted by: Gloria Garcia, Global BMT, Iowa Representative in Latin America

The supply chain disruption caused by the start of the COVID-19 pandemic showcased the unreliability of current inventory management systems in times of crisis and highlighted the need to improve supply chain visibility. It also exposed the importance of diversifying North America´s supply chains.

While agriculture and farm-based exports are a cornerstone of Iowa´s economy, machinery, food, chemicals, and transportation equipment exports are also key economic drivers in the state. As such, the importance of a reliable and diversified supply chain cannot be overstated.

Supply chain resilience is more important than ever, and Mexico can pose as a solution to overstressed global chains. The country´s geographical location and 14 free trade agreements signed with 50 countries provides access to various markets. This offers businesses the possibility of generating a comprehensive business continuity plan and improve supply chain performance.

Not only is Mexico a key export destination for Iowa products, but it is also the gateway to markets, such as Latin America. Furthermore, the introduction of the United States–Mexico–Canada Agreement (USMCA) in 2020 set provisions that ensures continued North American competitiveness, reinforced the region´s supply chain and encouraged further economic integration.

While it is true that a lot of the regulations in USMCA are very product-specific, the agreement also introduced important rules of origin requirements and encourages visibility of supplier networks. This will afford businesses further access to tariff free trade and streamlining benefits, such as border processing and licensing requirements. Additionally, the U.S.-Mexico supply chain poses fewer risks due to shorter transit times between both countries, and Mexico´s robust logistics infrastructure and availability of labor force allows companies the opportunity to maintain smaller inventories and reduce storage costs.

Mexico’s location can mean reduced shipping costs and times due to the country´s proximity to the U.S., as well as lower taxes and duties. The Manzanillo and Veracruz ports can be especially advantageous, as the first is typically where goods destined for countries such as Guatemala, Colombia, China (with a transit range between 18 and 25 days), Japan, India, Singapore and Malaysia leave from, while the second connects with the main ports in Europe, the United States, Latin America and Asia through the Panama Canal.

The USMCA presents an opportunity for its three members to consolidate the region’s productive force, capital and expertise to develop a more sustainable North American economy in the face of the setback caused by the pandemic and foreign competition. In short, the USMCA strengthens the existing framework in North America to consolidate and expand resilient supply chains for Iowa products.

For further information or assistance on business with Mexico, contact Andrea Smith, Marketing Manager, Americas Trade Promotion Programs at andrea.smith@iowaeda.com or 515.348.6240.

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