By Jorge Armijo *
Mexico and its North American partners face a historic opportunity to boost development through innovation in technologically advanced industries and improving the governance of labor mobility in the region. The Covid-19 pandemic made evident vulnerabilities of global value chains (GVCs) based on efficiency rather than resilience. It also accelerated relocation processes. The issue is far from new however since it had gained relevance since the start of the trade war between the U.S. and China.
Mexico is positioned as a very attractive option for reshoring or nearshoring production mainly from Asia to North America in sectors such as automotive or electronics. Nowadays, American companies are seeking to bring production closer to the U.S. market. According to the AmCham China’s Business Climate Survey 2021, 16 percent of companies in China say they have already started or are planning to start their relocation outside of the country. Destinations such as Mexico and Canada are gaining popularity among them with 19 percent saying they preferred these two countries. This is two points higher compared to 2020. Therefore, GVC relocation represents a unique opportunity to attract more investment to Mexico and the region, especially in high-technology sectors such as semiconductors and electric vehicles, which in turn could make North America even more competitive.
Innovation as a key driver
The North American trade partners must seize the opportunity to promote technology transfer and innovation focused on the needs of the market of the future. It is important that North America develops a semiconductor industry capable of competing globally which requires significant investment in research, design and manufacturing. Currently, the U.S. Congress is considering authorizing US $52 billion under the U.S. Innovation and Competition Act (USICA). At the same time, U.S. chipmaker Intel has already invested US $20 billion in two chip production plants close to the border with Mexico in Arizona. Mexico can take advantage of these investment decisions by seeking deeper participation in the production chain from design, to manufacturing and programming.
The entire semiconductor production chain has already a foothold in Mexico. The western city of Guadalajara already has several design and programming centers -including an Intel facility- while the industrial corridor of northern Mexico gathers several technology manufacturing plants. However, Mexico’s challenge is now how to increase production and carry out manufacturing activities with higher local content value. The same logic applies to the electric car industry, where Mexico has the potential to become one of the world’s main production bases. Mexico’s auto manufacturing capacity and its deep integration with the U.S. and Canada offer the foundations this industry. The opportunity for innovation in this sector is equally outstanding given Mexico’s great experience with high-precision manufacturing. It must be said, however, that companies considering Mexico as a nearshoring option are also seeking a business environment that provides investment certainty.
In order for Mexico to have higher added value participation in the North American semiconductor and electric vehicle industry, it is necessary to align national priorities with regional trends. The idea of a North American Corridor 4.0 promoted by the Mexican Ministry of Foreign Affairs could be further exploited in this regard. Also, work must be done to modernize Mexico’s normative and regulatory environment to further encourage investment, to facilitate technological innovation and to promote the adoption of digital technologies.
Labor mobility & skills transfer
The North American region should also focus its efforts on workforce development by building skills and recognizing the need for regulated labor mobility in the region. Orderly and regular migration channels contribute to the development of workers, companies and countries. Despite the doubts, creating channels for labor mobility would be a win-win-win for North America. More than ever is a currently need to work on a regional approach in North America to labor mobility given the transformation of labor markets, changing demographics, and increasing demand for new skills.
A well-implemented labor mechanism can help destination countries meet skills shortages with labor market needs and improve the skill set of migrants. Above all it contributes to countries of origin through remittances, development and skills transfer. Based on U.N. frameworks and guided by the principle of protecting the well-being of workers, the International Organization for Migration (IOM) has identified a series of essential prerequisites that must be met for a labor mobility mechanism to be operable and sustainable across countries: long- and mid-term planning; multi-stakeholder approach & policy coherence; data for evidence-based policy; local development and job creation; skills classification and recognition at national level and beyond; among others.
The U.S.-Mexico Foundation has already laid some elements for a broader discussion in its recent publication “Advancing Labor Mobility Between Mexico and the United States: a Time of Opportunity”. However, labor mobility should be understood as a complementary element to the current debate on the reordering of the GVC.
Innovation in high-technology industries such as semiconductors and electric vehicles could produce thousands of new and better paying jobs, which will increasingly demand skilled workers. Taking advantage of these opportunities could make North America more competitive compared to other regions. In sum, the future of regional integration depends to a large extent on developing a joint vision that considers innovation and labor mobility as two key pillars.