10 min read
The opinions of the employees of You are personal.
On July 1, the T-MEC came into force, the renewed version of the North American Free Trade Agreement (NAFTA), which has been in force for around 25 years and is one of the most important international agreements signed by Mexico.
“After months of negotiations and expectations, this new phase is not only relevant for large companies, but also represents a significant moment for SMEs which, according to the Forum for Economic Cooperation, actually account for 35% of direct Mexican exports to Asia-Pacific,” says Edmundo Montaño , CEO of Drip Capital México, a fintech specializing in exporters.
However, the National Chamber of Transformation Industries (Canacintra) assured before the start that more than 90% of medium and small businesses were not ready to comply with the provisions of the new trade agreement.
The discussion has been open for months about the main changes to the T-MEC: the certification of origin and the percentages that must now be complied with by companies wishing to export their products in this context; legal provisions for digital commerce; including regulations on working conditions and anti-corruption standards.
But what are the effects and how can Mexican exporting SMEs align themselves?
Why SMEs should think about the T-MEC
Image: chuttersnap via Unsplash
“The first half of the year has been complex due to trade tensions and the COVID-19 pandemic, and while the health crisis continues, the outlook for the rest of the year and early 2021 is still difficult,” said Edmundo Montaño. General Manager of Drip Capital México. “As various organizations agree, the T-MEC, although challenging, is a great lever to boost exports, to improve the structure of production, manufacturing and logistics, and to improve trade in our country in general.”
The executive said the T-MEC could encourage the relocation of manufacturing companies from Asia to Mexico to take advantage of entry into the North American market, which represents a great opportunity for business people and entrepreneurs in the country.
“On the other hand, by ensuring security and strengthening trade ties with the US and Canada, our country’s two main export markets, they increase the chances of better recovery and growth in the months that follow,” he added.
What the T-MEC says about SMEs
Image: Marcin Jozwiak via Unsplash
Chapter 25 of the T-MEC addresses SMEs by recognizing them as a crucial part of the economy and maintaining economic dynamism and competitiveness. With this in mind, they want to offer them new opportunities to expand and participate in international markets.
The highlights of this chapter include:
- Establish an SME committee to identify areas of opportunity, encourage cooperation, analyze best practice, and support and encourage exports to SMEs. With this in mind, this group will be responsible for developing and promoting seminars, export advice and convening a trilateral dialogue on SMEs.
- The three countries agreed to promote a permanent exchange of information and committed to maintain a publicly accessible website with information on the entire text of the treaty.
- Regarding the settlement of controversies, it is determined that neither party may resort to the provisions of Chapter 31 of the T-MEC.
- The contractual obligations that SMEs benefit from are:
- Origin proceedings. It is worth noting that under the new T-MEC framework, the certificates of origin advertised during NAFTA are no longer valid. However, the process has been simplified and can be made out on an invoice or other commercial document. With this in mind, the Committee of Origin set up under this new contract will consider amendments or additions to the Single Regulations in order to reduce their complexity and provide examples or guidelines that would be of particular importance to SMEs.
- Public orders. The aim of the contract is to facilitate the participation of SMEs by ensuring transparency in the eligibility criteria, contracting electronically and by urging the parties to take into account the size, design and structure of the contract, including the use of subcontracting . of SMEs.
- Cross-border trade in services. The articles in this chapter emphasize the need to support the development of trade in services by SMEs and enable business models for SMEs such as direct sales services. It is also stressed that the licensing procedures for a service sector do not contain any disproportionate responsibility for SMEs.
- Digital commerce. It looks at both interactive computer services and government open data to collectively figure out how each party can expand access and use of government information to improve and generate business opportunities, especially for SMEs.
- Intellectual property rights. One of the tasks of the Intellectual Property Rights Committee (DPI Committee), which includes government representatives from each country, is to analyze intellectual property issues that are particularly relevant to small and medium-sized enterprises.
- Job. In terms of cooperation, promoting productivity, innovation, competitiveness, training and human capital development in the workplace, including the SMEs in their approach, is one of the key issues for compliance with labor regulations.
- Surroundings. Specifically, the Wild Marine Capture article on fishing reaffirms the development and livelihood of fishing communities, including artisanal, small-scale and indigenous fisheries. In this sense, small or local businesses are recognized in relation to the environment with the intention of defining a framework for competition but also for sustainability.
- competitiveness The new Competitiveness Committee has the change to provide advice and recommendations for the competitiveness of the North American economy, including recommendations to improve the participation of SMEs.
- Anti-corruption. This chapter explains that with regard to the participation of the private sector and society, appropriate measures must be taken in relation to the legal system in order to implement internal controls, ethics and compliance programs or measures to prevent and detect bribery and corruption in trade and develop businesses. international investment, including support for businesses, particularly SMEs.
- Good regulatory practice. Under the T-MEC, the processes of mechanisms and regulations must take into account the pressures, significant adverse economic impacts for small and medium-sized enterprises, and create new ways to remove unnecessary regulatory burdens.
How and where can exporting SMEs seek support?
Image: Louis Hansel @shotsoflouis via Unsplash
So far, organizations like ProMéxico have focused on advising SMEs on entering the international market. However, there are also other organizations and initiatives that give Mexican companies impetus and guidelines, such as Casas México de Concanaco Servytur, the National Association of Importers and Exporters of the Mexican Republic (ANIERM) and the Mexican Foreign Trade Council (Comce) as government agencies for support of exporters.
On the part of the federal government, the Ministry of Economic Affairs has taken on an important role in this area and has support platforms for the export of SMEs, in particular to support them in adapting to the T-MEC.
This is the case with MIPYMES MX and the Undersecretariat for Foreign Trade.
What can SMEs do to become more competitive in this new phase?
Image: Andy Li via Unsplash
In addition to the guidelines set out in the contract that must be followed, there are other important elements to consider regarding investments and processes in small and medium-sized businesses.
“It is an important time for SMEs to change, to focus on improving their structures and to use more agile technological and financial instruments, as a contract of this type sets a new competitive standard for international trade,” said the Drip Manager Kapital through Make three main recommendations:
- Capital investments (CAPEX) will be vital, while improving liquidity will be necessary for both competition and growth and management of the economic crisis. In this sense, funding will play an important role and SMEs will have to look to less risky and more effective alternatives.
- Offer higher value products that represent higher profit margins. This, in turn, will make it easier to pay better wages for skilled workers, a crucial job requirement that is now being addressed by the T-MEC.
- Improving industrial processes and their operations, as well as their financial management, especially if they want to be competitive enough to take a place in the region’s export and production chain, a change encouraged by the new rules on the percentage of origin of the products . This includes investing in automation and processes to be more competitive and efficient, and generally lowering costs, as well as prioritizing digital transformation.