The State of Sonora has recently announced an agreement with Rolls-Royce to collaborate to develop the Rolls-Royce supply chain in the State of Sonora.  The announcement was made at the Paris Air Show in June, 2011.

According to information released by the Economic Development Council of Sonora (COPRESON), the key focus of this long-term collaboration will be to support the development of an aerospace manufacturing cluster in Sonora.  The significance of the announcement was immediately underscored by a second announcement:  the commitment by thermal processing specialist Bodycote, of Waterbury, Connecticut and its aerospace and defense division in Dallas, Texas, to build a vacuum heat-treatment facility in Empalme, Sonora.  Bodycote stated that the plant will provide services for the Sonora plant of U.K.-based Trac Precision, a supplier to Rolls-Royce and Siemens.  According to Bodycote, the Empalme plant, which is scheduled to open in the third quarter of this year, is the first of its kind in the region, and will also offer services to other aviation manufacturers in the region.

This announcement will make the manufacturing of a much broader range of aerospace components – ones that require the heat treating process – much more cost-effective to develop in Sonora.  Sonora was an early leader in the aerospace industry in Mexico, and currently has over 30 aerospace companies operating in the state, primarily in the Empalme-Guaymas area.  This thriving area in the central part of the state has long been a manufacturing center – it is the home of Maquilas Tetakawi, one of the largest shelter maquiladoras in Mexico (a shelter maquiladora provides all the Mexico-related support services for manufacturers).  It also hosts a deepwater seaport and excellent rail and road connections.

From the standpoint of Arizona’s aerospace industry, this development across our border in Sonora opens new opportunities for collaboration and global competitiveness, for the companies, education institutions and  the people of both states.  The combination of talents and capabilities in the aerospace and defense industries in the Arizona-Sonora region is competitive with any other location in the world.

Recently we were asked to address the Maricopa Association of Governments (MAG) Economic Development Committee, regarding growth opportunities for Arizona’s economy.  The focus of this presentation, which is available here, is to explain several significant growth opportunities that are associated with Mexico’s Export Manufacturing sector.  Now called IMMEX (“Programa de la Industria Manufacturera, Maquiladora y de Servicios de Exportación”), this sector comprises over 5,000 foreign-owned and Mexican-owned manufacturers that significantly export their output from Mexico.  It is often referenced by the term “maquiladora.”

What decision makers in Arizona need to understand – whether in economic development roles or in private companies – is that there are untapped opportunities here that can help Arizona grow our economy.

Here are a few key points from the presentation:

• U.S. companies export over $40 billion to supply these over 5,000 Mexican export manufacturers - almost half of their total supply chain purchases. To put this number in context, the total of Arizona’s manufacturing exports to Mexico (some portion of which went to the IMMEX supply chain), was $5 billion in 2008.  Arizona firms can supply more of the inputs to Mexico’s manufacturers.
• There is clear research-based evidence that manufacturing growth on the border in Mexico provides net employment growth in
  border cities in the United States. The most recent data, from El Paso, showed a 3% net, non-farm job growth in El Paso for every 10% increase in output in the manufacturers across the border in Ciudad Juárez.  Growth such as this on the Arizona-Sonora border would no doubt help Arizona’s border communities.  However, Arizona’s share of the Mexico border manufacturing dropped to below 5% of the total in 2006, the most recent year for which data is available.  In fact, it went down by 40% over the fifteen preceding years.  More manufacturing growth along the Sonora border could help Arizona border communities grow new, value-added jobs.
• The opportunity to cooperate across the border, to strengthen comparative advantage within the global manufacturing competition, is shown with proven examples from both California and Texas.  From scientific collaborations, to advanced manufacturing initiatives to business incubators, teaming with skilled organizations in Mexico has the potential to strengthen the competitive advantage of Arizona as a place to do business.

ASMI is continuing to work with both public and private organizations to strengthen Arizona’s economic growth.  There are some excellent opportunities with Mexico’s Export Manufacturing sector, that we, in Arizona, can approach to greater advantage, to help reinvigorate and grow Arizona’s economy.

Where are the missing jobs?  Most business people want to grow their businesses.  If they are not, there are reasons why: the two most frequent being a lack of demand for their products, and a lack of capital to expand.  I want to address the former in this article, as it pertains to the situation of small and midsized U.S. manufacturers.

What has happened to demand for small and midsized U.S. Manufacturers?  Over the past two decades the demand for small and midsize manufacturers’ services has shifted to become a global marketplace.  Twenty years ago, a large manufacturer in the United States would be unlikely to consider an offshore company to help with tasks such as prototyping, early and specialized production runs.  This is no longer true. 

This trend is critical to the job equation, since the vast majority of U.S. manufacturers are small and midsize manufacturers. (For further background on this sector in Arizona, see this presentation).  These specialized production activities have historically formed the backbone of demand for small and midsize U.S. manufacturers’ services. 

The consequences of this trend for small and midsize U.S. manufacturers are significant.  Even when the larger manufacturers experience growth in demand, the translation to the small and midsize manufacturers is attenuated through the global marketplace, where an increasing percentage of this demand is now being fulfilled.  As outsource, offshore manufacturing capabilities continue to expand, the possibility is very real that the percentage supplied by U.S.-based firms will continue to diminish.

 A Quick History of Outsourcing and Offshoring in U.S. Manufacturing.   Many large U.S.-based manufacturers have reaped substantial financial benefits, especially in the past 10-15 years, from moving jobs to outsource suppliers.  At first, many of the outsource suppliers were U.S.-based small and midsize manufacturers, who could fulfill a focused portion of a larger company’s activities.  The motivation for the larger company was  to obtain specialized capabilities, more flexibility and lower cost.  Even though the smaller company was U.S.-based, their costs were often lower,  because of lower overhead and economies of scale from specialization in a particular technology or process area.

Once the larger companies started to outsource, they began to realize that managing an outsource supplier was quite different from managing their own production facility. The role of managing the relationship was generally moved from the  product development/manufacturing organization to a specialized group focused on outsource supplier management.  Overtime, these groups have transformed into the “supply chain management” organizations of today.  Their goal is to “source” everything needed to produce the products that the company “manufactures,” whether with internal or outsourced production.  The main focus is on operational metrics, such as cost, quality and timeliness.  The opportunities to find “best in class” suppliers is global.

Consider an example:  Flextronics is a major outsource provider to the electronics industry, headquartered in Singapore, that operates production, engineering and design centers in 30 countries, including the U.S.  In its fiscal year ended 10/1/10, the company reported revenues increased by 27%, to $7.4 billion, while adjusted net income increased 72% during the same period.  That is significant growth, that no doubt did involve job creation.

Over the past decade there has been a substantial consolidation in the outsourcing sector, resulting in the creation of large multi-national outsource firms, such as Flextronics, among others.   As the capabilities of these outsource suppliers have continued to grow, capacity – and particularly their flexibility - has expanded dramatically.  Their workforce is global.  They have vertically integrated to provide many of the services historically performed by small and midsize U.S. manufacturers, and even small design shops. 

What Are the Implications of these Trends for the U.S. Job Market?

 As strong as the capabilities of U.S. small and midsize manufacturers are, it is going to be very difficult for them to prosper over the next decade without a significant change in their competitiveness equation.  Not only is this important because of job growth, it is also key to the innovativeness of the American economy in the future.  Many of the inventions that have fueled U.S. economic growth since the mid-1800s  originated in small-to-midsize manufacturing firms.  If these firms are substantially diminished, it is quite possible that much of that innovation will take root elsewhere. 

Government, education and the private sector itself must move beyond the level of recent efforts if the dramatic change necessary to sustain the global competitiveness of this sector is to be achieved.  We are going to have to think outside the box and come up with new solutions. 

Our next post will present some specific ideas on how to address the competitiveness issue.

We’ve updated our earlier study on the manufacturing sector in Arizona, which you can access in this presentation.  From this presentation you can get an overview of the U.S. manufacturing sector, as well.

The basic message that Arizona’s manufacturing sector remains highly concentrated in the computer and electronics, and aerospace subsectors continues to be shown in the most recent data.  Several key areas, in particular aerospace and optical, have increased in their concentration of employment in Arizona, relative to other parts of the U.S.  Even semiconductor and electronic component manufacturing (which overall has continued to decline in the percentage of employment that is U.S. based), appears to have grown relative to the U.S. overall.  These are encouraging signs that Arizona is remaining competitive in several critical high-tech manufacturing areas.

See Wendy Vittori, ASMI President, on the Horizon Show. 

Wendy discusses export opportunities in Mexico for Arizona manufacturers.

http://www.azpbs.org/horizon/detailvid.php?id=2521

Arizona has the opportunity to substantially increase our export performance.  This is the conclusion of a study just completed by ASMI.

While U.S. exports have experienced a decline in the 2008-2009 period associated with the recession, overall U.S. export performance actually saw very strong growth in the 2000′s prior to 2008.  What we need to consider is why Arizona’s export performance, both in growth and in absolute size, is not higher.  We think it can be.

For example, let’s look at the period of 2005-2008.  During this period Arizona’s manufacturing exports grew by about 25% — not bad.  But, when we look at the performance of other states with similar state Gross Domestic Products (GDP) and exports to Arizona, we see that some had much higher levels of growth.  For example, Maryland, with a GDP slightly larger than Arizona, increased exports 63% during this same period.  Connecticut  increased exports by 55.5%.  South Carolina saw exports grow 42%.  When you compare the growth in exports as a percentage of GDP, traditional manufacturing states like Indiana, that had slower GDP growth than Arizona during this period, nonetheless grew exports as percentage of GDP by 44%. 

Our greatest opportunity for exports is with Mexico.  When it comes to trade, there is an advantage in being on the border with another country.  Arizona’s largest trading partner, Mexico, is the destination for 32% of Arizona’s exports, representing $5 billion in 2008.  Sounds like alot – doesn’t it?  But, consider that the total manufacturing exports to Mexico from the United States in 2008 were $134  billion — only 3.7% came via Arizona.

Another border state, Texas, stands out for its export performance.  With total exports of over 12% of state GDP, Texas also dominates the export trade with Mexico — supplying 44% of all U.S. manufacturing exports in 2008 – totalling almost $59 billion.  The Texas economy is five times that of Arizona, but it supplies 12 times more exports to Mexico — Doesn’t it seem reasonable that Arizona could supply more?

Why is this important to Arizona?  Exports are a main driver of high quality, sustainable jobs.  The average manufacturing job in Arizona in 2009 had compensation of $79,313 – vs. an average of $53,864 in the rest of the workforce.  The National Association of Manufacturers estimates that in 2008 there were 85,000 Arizona jobs associated with manufacturing exports. Exports were 7.9% of Arizona’s GDP in 2008 – 12% below the nationwide average of 9.0%.   If Arizona were able to raise our level of exports by only a few percentage points – just slightly above the nationwide average - this would translate into tens of thousands of jobs.

Exports don’t come just from large companies.  According to the National Association of Manufacturers, in 2008 small businesses were 89% of Arizona’s 5,404 exporting firms, accounting for 19% of the total exports, representing an average of $639,000 in exports per small business exporter.

86% of Arizona’s exports are manufactured goods, with the top 5 categories being 1) computer and electronic products,2)  transportation equipment, 3) machinery (except electrical), 4) fabricated metal products, NESOI, 5) electrical equipment, appliances & components.  These five together represented 65% of Arizona exports in 2009, totalling over $9 billion.  These industries represent the backbone of Arizona’s manufacturing sector.  By strengthening Arizona’s competitiveness in these industries, we strengthen our export potential.  This is a double win for Arizona.

In order to focus our attention on what is needed, the first thing we need to do is make a mindset shift that the growth of our manufacturing sector in Arizona is critical to our current and future prosperity, and to growing the high-wage jobs that will be viable for the long term in Arizona.  Then, we need to ensure that we have an educational system that is adequately preparing this workforce, and that our business climate is competitive with other states who are setting the pace. 

Almost twenty years ago Arizona published its first state economic development strategy.  Retaining and growing these manufacturing businesses – which at that time were a substantially larger part of the Arizona economy than today (15.1% in 1997 vs. 7.8% in 2008) - was a cornerstone of that plan.  Unfortunately, many of the steps outlined in that plan, were not implemented, and many others were short-lived.  Marshall Vest, forecasting project director at the University of Arizona Economic & Business Research Center summed up our situation very well in an article entitled “A Lost Decade?” in the July 2010 issue of “Arizona’s Economy:“ 

• “During the aughts, money flowed into housing, which is a consumption good rather than investment in a productive asset.  During this period, money to support productivity-enhancing investment dried up.  References to the “false economy” of homebuilding often heard nowadays reflect this.  It’s the absence of growth in prosperity and the productivity-enhancing portions of the economy that bring the sense of a lost decade.”

Export-producing manufacturers are key to the turnaround we need in Arizona’s economy, and are an essential element of the productivity-enhancing portion of the economy.  Let’s focus our energy on these opportunities and bring Arizona into the top tier of export producing states.

Wendy Vittori appeared on KAET’s Horizon on August 9th to discuss this topic.  Click here to see video of Wendy’s appearance.

The latest news from the Arizona Capitol is that this year’s budget deficit is widening – now estimated at $1.5 billion, according to today’s report in the Arizona Republic.  Efforts to curtail state spending in the first three months of the fiscal year have amounted to $100 million, “not enough” in the words of state Treasurer Dean Martin.  Earlier estimates for tax revenues and proceeds of selling assets were overly optimistic.  The news report goes on to explain that spending in a fiscal year is front-end-loaded, so may not be indicative that bigger reductions will not be realized, and the governor has demanded another 15% reduction that would help…. OK, now - can anyone really imagine that this is a trajectory for successfully resolving a huge structural deficit in our state budget that has been (at least) five years in the making?  Perhaps the gyrations can begin to be brought back down to earth by the sobering reminder that the base of Arizona’s economy is withering — and it is this, not just the recent economic downturn or the inevitable real estate cycles, that is creating serious structural deficiencies and must be dealt with – with urgency. 

There has been no serious response to basic economic facts that were highlighted in the “Convening the Community” conversations organized by GPEC earlier this year.  Elliot Pollack, the noted local economist who has advised state government for many years,  gave an excellent presentation entitled, “The Economic Fundamentals of Arizona.”   Any economy operates on a basic principle of how and where fundamental value is created, and then spread throughout the economy in a “multiplier” effect, as illustrated by this slide from his presentation on the flow of a region’s economy (the full presentation can be downloaded from the GPEC website).  As can be seen, Manufacturing heads the list of “Base Industries” (which also includes Tourism, Export-Related Business Services, Retirement) – in other words, the activities that bring new money into Arizona’s economy. 

Arizona’s manufacturing and high tech sectors (which are highly related) had an enviable record of growth for decades after World War II, as new companies flocked to Arizona because of the combination of favorable climate, costs and workforce.  However, that equation has changed over the past decade, during which Arizona has seen its manufacturing base, especially its high-technology manufacturing, decline.  A 2008 study by ASU for the Arizona Department of Commerce (“High Technology Activities in Arizona: 2007 Update released January 2008“) found that “less than half (47 percent) of the high-technology jobs in Arizona in 2005 were in manufacturing industries.  Manufacturing’s share had been 63 percent in 1998.”   – that’s a 25% decline.

In Arizona we have a tendency sometimes to dismiss changes we don’t like as simply reflections of the national economic situation (except for construction, but that’s another story altogether!).  However, what is most notable about these statistics is that this is not true when it comes to high-technology — we are losing ground vs. other states, and rather badly.  Again from the 2008 ASU study:  “As can be seen in Chart 1 [reproduced to the left], Arizona’s high technology decline relative to the national average has been ongoing since at least 1990.  Thus, while it was accurate in the past to describe Arizona as a high-technology center, such a description no longer is accurate [emphasis mine].” 

The recent severe economic downturn is not likely to have helped this situation.  We applaud the passage of the Renewable Energy Tax Incentive program by the Legislature in this very difficult budget year, as a recognition of this situation and clearly a step in the right direction (thank you again, Sen. Leff for your leadership).  However, when we look realistically at the erosion of this critical base industry of high-tech and its associated manufacturing, it is glaringly evident that there is a much bigger trend and problem at hand.  By getting Back to Basics Arizona policy makers and others who are committed to revitalizing Arizona’s economy will be forced to confront this difficult reality:  Arizona is becoming less attractive for the high-value, high-technology jobs than we were quite recently –  at least compared to some other locations in the United States. 

Those of us who have migrated to Arizona for one of these high-tech jobs, and have stayed because we love being here (I am one), know that this problem is big, and it’s for real because issues arise every day in running your business.  Looking back at the Greater Phoenix Blue Chip Economic Forecast from a decade ago (Vol. 11, Number 3, August 1999), Elliott Pollack had this to say,

“If Greater Phoenix is to continue to do well as an economy, the area will have to maintain its position in most of these [high-tech location] factors, and improve in others — availability of venture capital, better use of its local educational facilities and a tax structure that is favorable to high-tech firms.  Furthermore, mature high-tech manufacturers place a higher weight on traditional cost of doing business measures than high-tech service firms do in determining their location.  This is important for Greater Phoenix since its major clusters are the former [emphasis mine], rather than the latter.”

There are many in Arizona who are sincerely committed to getting back to basics so we can deal with the reality of our situation, not find more bandaids.   I am a believer that in situations like this, adopting a learning (vs. telling) attitude may be necessary to finding a route out of the cul-de-sac we seem to be in.  If other states are doing better in this crucial stewardship of their economy we need to ask ourselves – “what do we not know or understand – that they do?”  ASMI, in the coming weeks, will be launching a new service we call “Learning Solutions.”  This is a place where we will be aggregating the facts, ideas and the capabilities needed to help us learn our way out of this situation.  It will be organized as a Portal on our website;  easily accessible to all.  If you want the latest news on our upcoming launch, join our groups on Facebook or Linkedin – and, we will be back in touch soon.

“Influential group touts aerospace for state’s future.”  Front Page, Arizona Republic, February 21, 2009.

Just as the legendary time traveller of the movie, Arizona may be poised to begin a rediscovery of its future by getting more in touch with its past.

According to the article, meetings last year among Arizona House Speaker Kirk Adams, R-Mesa, Arizona State University (ASU), Scottsdale-based DMB Associates (which is developing the former General Motors Proving Ground in Mesa, a possible location for the Institute), the Science Foundation Arizona (SFAZ) and others, led to the concept of creating an Arizona Aerospace Institute.  Adams credited Bill Harris, president and chief executive office of the SFAZ, for originating the idea.  An advisory board has been formed to flesh out the concept over the the next six months.

It is extremely encouraging to see the solid backing of Arizona business leaders for increased focus and investment for this vital sector of Arizona’s manufacturing economy.  Diversifying Arizona’s economy gets a head-start when we build on a globally competitive industry we already possess.  Recognition of this strength that is already ours, and commiting to build on it, is a significant encouragement that the importance of manufacturing to Arizona’s future is becoming more understood. 

The purpose of the Institute will be to spur innovation in aerospace, a key manufacturing sector for Arizona, that already employs more than 52,000 Arizonans with an average salary of $67,000, according to a study by ASU.

Within the economy of Arizona today, aerospace represents the only two manufacturers remaining in Arizona’s top ten employers.  These two firms are Honeywell and Raytheon.

Equally important to our present, and our future, are many of the other global players in aerospace, and  literally hundreds of smaller businesses that are a big part of what makes Arizona an attractive place for aerospace.  These firms provide precision machining and tooling, rapid prototyping, advanced electronics and many of the new ideas in sustainable systems that are vital to the competitiveness of aerospace efforts in our state.  Many of these smaller firms are actually headquartered in Arizona and represent a core capability for Arizona’s manufacturing future in all its high technology sectors.

In a dissertation completed at ASU in 2006, Jason Gart studied the origination of Arizona’s aerospace industry.  A central finding of the study was that post World War II U.S. industrial policy, which sought to move vital defense production from the East and West coast concentrations to inland locations, had a significant impact on the creation of Arizona’s aerospace and electronics industries.  Beginning with the early pioneers — Motorola, Hughes Aircraft and Goodyear Aircraft — the industry has an over 50 year track record of many industry-leading  innovations – originating right here in Arizona. 

Leading edge aerospace research – re-energized for the needs of the 21st century – can be a critical element in sustaining the vitality of not just Arizona’s aerospace industry, but Arizona’s overall manufacturing economy, which relies on its aerospace history, heart and spirit of innovation as the foundation for its future.

Today I sat down to have my lunch and channel surfed through the various TV offerings.  After skipping through numerous infomercials (apparently the current economic circumstances have not reduced interest in golfing aids and miracle vitamins), I encountered on C-SPAN an earnest Alan Greenspan addressing a gathering at Georgetown University Law School earlier this week.   Dr. Greenspan’s remarks provided a perspective on our current economic situation – I’d like to share a few of the key points from his talk with you.  To view the entire speech (see link below).

Dr. Greenspan takes us back to the time before the 18th century European “Enlightenment,” during which broad societal access to the right to own and dispose of private property, governed by the rule of law, was established.  This basic right created the means for an individual not born to wealth to better his/her existence – virtually impossible before this time.  Since then, where competitive market philosophies have prevailed, the standard of living has improved “20 times” what is was, and life expectancy has more than doubled.  Greenspan points out that in developing economies that have “abandoned central planning for markets” since the end of the Cold War,  “hundreds of millions” are now experiencing a level of affluence that those born in developed nations have known for their entire lives.

After reviewing the basic difference in the views of private property rights between capitalist and Marxist doctrines, Greenspan acknowledges that recent technological advances and globalization have led to increased concentration of income, “rekindling the battles of the cultures of socialism and capitalism” that appeared to have been laid to rest with the failure of most centrally-planned economies.  Furthermore, he states that “over the past year, some of the critical pillars underlying market competition, arguably, have failed.”

Consequently “a worldwide debate on the future of globalization and capitalism is being intensified by the current crisis.  Its resolution will define the world’s marketplace and the way we live for decades to come.”

Turning to what we need to be thinking about going forward, Dr. Greenspan notes that “competitive markets, and by extension globalization and capitalism cannot be sustained without the support of a large proportion of society.”  In an economy where there is a requirement for a high turnover of labor in order for markets to prosper, we must continue to ”support market incentives that create jobs and to find productive ways to ease the pain of job losers,” or risk their “animus.”

Boring further into the situation we now face, Dr. Greenspan brings to our attention another factor that he feels is rarely acknowledged as a vital underpinning of market competition — “trust in others.”  He notes that most market transactions are conducted based on reputation, trust and largely with strangers–what he calls a “core attribute required of competitive markets.”  In the past year, he says, “lack of trust in the validity of accounting records of banks and other financial institutions, in the context of inadequate capital, led to a massive hesitancy in lending to them.  The result has been a freezing up of credit.” 

I had the feeling, listening to this address, that Dr. Greenspan could hardly believe the extent to which these foundations of viable market competition have been eroded by the actions of recent months.  He closed his remarks by expressing a confidence that a recovery from the current economic situation will come about with the restoration of trust, the taking of new risks, and a continued reliance on the rule of law established in the United States by our Constitution.  No details, but he did say it might be “sooner rather than later.”

Like me, you are probably asking what we can do to speed the recovery of our businesses, our economy.  Dr. Greenspan provides food for thought and a number of suggestions that we might consider, in no particular order: 

• Create an environment of trust
• Build a solid reputation
• Support the rule of law
• Uphold property rights
• Nurture a free press, and
• Protect the rights of minorities — especially those who may be displaced by global economic transitions that result in the loss of jobs. 

Justice Sandra Day O’Connor and Alan Greenspan remarks at “Sandra Day O’Connor Project on the State of the Juciary,” Georgetown University Law School, 10/2/2008

When the consumption of manufactured goods is in the United States, the liklihood of  it making good business sense to manufacture those products in the United States gets a big boost.  So, why would we have tariffs that actually work against manufacturing products in the U.S. for domestic markets?  Scratching your head?  So was New Jersey congressman, Bill Pascrell, who has introduced the “Trade Agreement Parity Bill.” 

This bill would eliminate duties on component parts imported into a U.S. Free Trade Zone and then assembled into products shipped into the U.S. market.  The current law eliminates these tariffs if the product is exported out of the U.S. 

An interesting impact of the globalization of the supply chain of U.S.-based manufacturers is that many component parts are now sourced from lower cost suppliers outside the U.S.  Especially where there are compelling production economies of scale, the supplier bases have consolidated tremendously over the past several decades, in many cases virtually eliminating U.S.-based suppliers.  A good example of this can be seen in many electronics components that are almost exclusively manufactured in Asia.  On top of this, companies have aggressively consolidated their own supplier base and try as much as possible to have a single product serve all global markets – to improve their own cost structure.  This means that the inclusion of components from outside the U.S. in products manufactured in the U.S. is a trend that will likely continue to grow.

Ironically, a company could avoid tariffs on these “third-country” components in many cases by manufacturing the product outside the U.S. in a country with which the U.S. has a free trade agreement.  In most cases these agreements allow for the duty-free importation of products into the U.S. with third-country content under the “rules of origin” provisions.  In addition, many of the countries with which the U.S. has a free trade agreement permit (just as the U.S. does) the duty-free importation and assembly of third country content if the product is then exported.

Quoting Congressman Pascrell: “It is long past time to put our country’s manufacturers on a level playing field with our free trade agreement partners.”

The passage of this bill, if it occurs, will shift the economics of production in Mexico for the U.S. marketplace in some situations, based on the current duty situation of the third country content involved.  From the U.S. side, industries and products that have been burdened with high tariffs from third country content when their choice is to manufacture in the U.S. will find welcome relief from this legislation.  Companies may be encouraged to repatriate some production and reevaluate their offshoring decisions.  This legislation can provide a needed boost for U.S. competitiveness.

For further information on the Trade Agreement Parity Bill, see information compiled by the National Association of Foreign Trade Zones:  http://www.naftz.org/index_categories.php/resources/66