Mexico’s Covid-19 response threatening North American supply chains
By ADAM BEHSUDI
04/24/2020 10:00 AM EDT
With help from Sabrina Rodriguez and Doug Palmer
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— Mexico’s decision to shutter hundreds of factories it doesn’t consider essential has dealt a major blow to North American supply chains, as businesses face disruptions producing food, medical and other critical goods needed during the pandemic.
— USTR is expected to notify Congress as early as today that it is ready to implement the U.S.-Mexico-Canada Agreement on July 1.
— The administration issued another round of China tariff exclusions on everything from printed circuit board for medical infusion pumps to football helmet chin straps.
Driving the Day
MEXICO’S COVID-19 RESPONSE THREATENING NORTH AMERICAN SUPPLY CHAINS: A range of U.S. companies — from N-95 mask supplier 3M to defense contractors — are concerned that Mexico’s response to the coronavirus could be hindering their ability to produce food, medical and other critical goods needed during the health crisis.
What’s the problem?: Mexico’s government has been criticized in recent weeks for the guidance it offered for an “essential activity” during the pandemic that ignores supply chain needs — a major difference from its neighbors in the U.S. and Canada. Mexico’s definition leaves out all of the materials needed to make critical goods. Both the U.S.'s and Canada’s guidances have language specifying supply chain needs.
Sync up: The Trump administration has urged Mexico to sync its guidance with the U.S. on what is considered essential during the pandemic, as it’s becoming increasingly clear that the shutdown in Mexico could complicate President Donald Trump’s efforts to reopen the economy.
Business and industry groups — like the National Association of Manufacturers and U.S. Chamber of Commerce — are urging Mexico to adopt the U.S.’s guidance, which was developed by the Homeland Security Department’s Cybersecurity and Infrastructure Security Agency.
“This is a pivotal moment. We are working with urgency to arm our health care providers and other COVID-19 frontline workers with the resources they need to save and protect the lives of our fellow citizens. The shuttering of our companies’ and suppliers’ facilities in Mexico, however, threatens to undermine that effort,” a group of 326 manufacturers wrote in a letter to Mexican President Andrés Manuel López Obrador that was obtained by POLITICO.
Mexico’s not going for it: López Obrador said Thursday that he does not intend to make changes to Mexico’s policy until the U.S. economy starts to reopen, meaning an immediate solution is unlikely.
“It’s still not the moment. We’ve committed, above all to our national business owners, to analyze the opening [in the U.S.] to little by little start going back to normal productivity at the border,” he said in a daily press conference.
Some companies catch a break: The Consumer Technology Association this week praised the Mexican government for clarifying to all state governors and local mayors that telecommunications and radio broadcasting are considered essential services. In a letter to the Mexican government, the group noted that Mexico’s measures had resulted in the shutdown of many facilities that make “up to 50 percent in some cases” of the televisions and monitors in the North American market.
“We strongly support continued efforts to enable production, where feasible and safe, for television and monitor products as essential services,” CTA President and CEO Gary Shapiro wrote.
USTR COULD SEND USMCA NOTIFICATION TODAY: USTR is expected to officially inform Congress as early as today that it has completed the domestic procedures required to implement the USMCA on July 1, an industry official briefed on the matter said. A similar notification is expected to be delivered to Canada and Mexico.
Canada and Mexico both certified on April 2 that they are prepared to implement the agreement, leaving only the U.S. to complete the last step required before the deal can go into force.
There were two signs this week that USTR was moving toward notification. U.S. Customs and Border Protection posted its interim implementing instructions for the pact on Monday, while USTR gave automakers more time to comply with the trade deal’s new rules-of-origin.
Still, unless USTR provides a great deal of flexibility, the decision to move ahead could require companies to deal with complicated new rules and procedures for North American trade at the same time they are grappling with the economic fallout of the coronavirus. USTR did not respond to a query about whether the announcement would come today.
Warning: Last week, a private sector committee created by Congress to advise CBP urged the Trump administration not to implement the deal before Jan. 1.
“Now is not the time to implement a trade agreement that contains so many important and meaningful changes that will impact certain industries in a significant financial manner,” the Commercial Customs Operations Advisory Committee said. “The trade simply is not, and will not be, ready to shift from NAFTA to USMCA on June 1, 2020.”
ANOTHER ROUND OF CHINA TARIFF EXCLUSIONS: The Office of the U.S. Trade Representative issued another round of exemptions on a list of 108 Chinese imports hit with the administration’s punitive Section 301 tariffs. The list includes some items that have obvious medical uses, such as printed circuit boards for medical infusion pumps and controllers for hospital beds. The list also included a wide range of motor equipment, certain types of backpacks and luggage, bicycles and bike parts, football chin straps and pre-chopped garlic that can be bought in stores. The exclusions will apply retroactively to Sept. 24, 2018, and will extend to Aug. 7, 2020.
U.S. OIL INDUSTRY LOOKS TO CHINA AS SAVIOR: The American Petroleum Institute is urging the administration to make sure China lives up to its obligations in the "phase one" trade deal with the United States, particularly its energy purchase commitments, arguing they will provide some relief to a U.S. industry reeling from a collapse in price and demand.
“In the recently signed Phase 1 Agreement, China agreed to purchase in 2020 an additional $18.5B over their 2017 purchases of various U.S. energy products, including crude and LNG cargos. This amount, in today’s markets, could translate into significant export quantities, but still not equal the full extent of China’s overall domestic energy demand,” API President Michael Sommers wrote in a letter sent Thursday to U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and Energy Secretary Dan Brouillette.
The U.S. oil industry is searching for anywhere to stow barrels of crude now that demand for fuel has fallen much faster than producers can switch off their drills. Oil prices closed at around $17 a barrel Thursday, less than a third from where they were in January, when the U.S.-China deal was signed.
But China’s demand is down too: A dropoff in China’s demand for oil and gas due to its own pandemic-fueled economic malaise is expected through the year. The U.S.-China Economic and Security Review Commission cited OPEC data in a new report that found China’s imports of oil shrank by 3.2 million barrels per day in February compared to the same month last year, and overall demand for the entirety of 2020 will decline by 0.83 million barrels per day.
A PROLIFERATION OF MEDICAL SUPPLY EXPORT RESTRICTIONS: Since the start of 2020, the world has seen 115 separate export restrictions pop up on medical supplies and equipment.
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WTO REPORTS ON EXPORT RESTRICTIONS: The World Trade Organization put out a report Thursday on export restrictions imposed as a result of the Covid-19 pandemic. The findings showed that 80 countries and customs territories have imposed export prohibitions and restrictions, including 46 WTO members and eight non-WTO members. Most measures have focused on medical supplies and equipment as well as medicines but also extend to food and toilet paper.
The report notes that transparency in terms of requirements for reporting export restrictions has been lacking. Only 13 WTO members, which includes the EU, have notified new measures.
“Insufficient information makes it hard for them [WTO members] to efficiently adjust their purchasing decisions and find new suppliers,” the report said. “This could be particularly damaging for those seeking to procure materials needed for the fight against the COVID-19 pandemic.”
— A forthcoming report from the U.S. International Trade Commission could put pressure on the administration to speed up tariff cuts in response to the pandemic, POLITICO Pro reports.
— Americans could start to see real meat shortages as soon as May as the virus shuts down major meatpacking plants, POLITICO Pro reports.
— Canada’s new envoy to Washington has stepped into the role at a time Covid-19 is roiling diplomatic relations with the U.S., POLITICO reports.
— Canada says 1 million respirator masks imported from China failed to meet its standards for use by frontline medical professionals, POLITICO reports.
— The EU should focus on concluding more free trade agreements rather than reshoring, EU trade chief Phil Hogan said in an interview with the Financial Times.
— The Trump administration is looking at blocking imports of uranium from Russia and China to help the U.S. nuclear industry, Reuters reports.
— The U.S. is lagging behind other countries in procuring medical supplies from China, Tribune News Service reports.
— Hundreds of thousands of tons of rice are stuck at Vietnamese ports after the government restricted exports of the grain, Bloomberg reports.
— France has expanded its list of drugs that face export restrictions despite calls by the EU to lift curbs, The New York Times reports.
— Farmers are looking at the prospect of killing hogs due to meat processing plant closures, Bloomberg reports.
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