Seize the Day and Get Ready for North American Free Trade Agreement
The New Jersey business community is as well or better positioned to take advantage of the proposed North American Free Trade Agreement (NAFTA) as that in any state in the nation.
Although the agreement is pending ratification by the U.S., Mexican and Canadian governments and will be implemented over a 15-year period, it is not too soon for state businesses to start understanding and preparing to take advantage of it.
Business leaders should understand and be prepared to act right now on the understanding that the NAFTA is not an interesting policy hypothesis or an obscure political issue. It is a virtually established fact that will reshape the U.S. way of being in business and doing business.
Businesses that manufacture components of durable industrial products, or produce or distribute finished consumer goods are among the best candidates to get in on the ground floor of the enormous open market the NAFTA will establish in North America. But there are also enormous possibilities for the trade and export of intellectual property, with special emphasis on telecommunications and data processing know-how and technologies, and concurrent opportunities in financial services that will be needed to meet business and consumer demand generated by NAFTA expansion both here and in the NAFTA partner nations.
The way to jump start the opportunities of the NAFTA is to begin promptly the economic, business and legal research that will be needed to seize the initiative and gain the advantage. In addition to the trade possibilities inherent in the NAFTA, the agreement offers potential business benefits from exchanges of personnel, production and distribution relocation, and cross border fulfillment of capital investment needs.
This is especially true in terms of the new opportunities that will emerge in Mexico, the sleeping economic giant that NAFTA looks sure to awaken. As NAFTA increases economic development and employment in this developing nation of 87 million, it will inject wage and payroll growth into the Mexican economy that will unleash significant new demand for consumer goods and financial services from the U.S. Also expected is increased demand south of the border for industrial machinery and technology to make Mexico a world class producer itself.
Just as Now Jersey has always been a commercial corridor on the U.S. eastern seaboard, it is poised to be a main NAFTA commercial corridor. As the foremost maritime state on the East Coast, already shipping nearly $500 million worth of manufactured goods to Mexico each year and exporting $2 billion of products to Canada annually, the NAFRA is ready made for New Jersey business and industry. New Jersey has the ports, the international air cargo facilities at Newark, and an excellent and improving highway infrastructure to be a vital axis in the NAFTA area. NAFTA is going to make investment a three-way street in the biggest international open market ever conceived or constructed by governments.
Even without the NAFTA, Mexico has grown in importance as a market for New Jersey exports. In 1987 New Jersey shipped $189 million worth of goods there. By 1991 the volume of New Jersey exports to Mexico grew to $451 million as Mexico jumped from llth place to sixth place among all foreign markets to which New Jersey exports, and New Jersey ranked eleventh among all 50 states in sending goods and products to Mexico.
Some of the key principles businesses in New Jersey need to know to begin evaluating NAFTA opportunity for trade and two-way investment with Mexico:
Mexico is not an environmental void. It has tough environmental laws on the books but has been lax in enforcing them. The U.S. is expected to seek amplification of the NAFTA to guarantee stricter enforcement.
Wage and salary rates in Mexico are a fraction of comparable U.S. figures, and labor standards are considered more lax. Again the U.S. is expected to insist on greater parity in workplace health and safety before ratification.
Mexico already has important investment opportunities for foreign businesses in its maquiladoras programs. Maquiladoras, from the Spanish word maquilar meaning to mill, are production plants that assemble components into finished goods for shipment back to their place of origin.
Mexican law favors business arrangements in joint ventures between overseas investors and Mexican nationals.
Mexican business tax law is complex. Though it has some similarities to U.S.business tax codes, it is sufficiently unique to require detailed evaluation before getting into business in Mexico.
The U.S. Embassy in Mexico City maintains a trade and commercial office that assists U.S. business.
These are but a few of the hundreds of details that need to be investigated and mastered by businesses seeking to do business in Mexico. The NAFTA makes it more than worthwhile for businesses in New Jersey to start that process right now.