March 8, 2017 / 6:58 PM / a year ago

NAFTA clouds investment hopes in Mexican state hit by Ford loss

SAN LUIS POTOSI, Mexico, March 8 (Reuters) - The Mexican state that the Ford Motor Co abandoned after Donald Trump’s election is courting Asian manufacturers to make up for the loss, but clearing up uncertainty over the future of NAFTA will be key to attracting new investment, its governor said.

In January when Ford canceled a $1.6 billion plant in San Luis Potosi it was a major victory for President Trump’s campaign to force U.S. industry to bring jobs home, but it also sparked fears of a slump in foreign investment in Mexico.

Trump has threatened to ditch the North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada if he cannot rework it to his advantage, but Mexico’s government has also said it could walk away from an unfavorable deal.

Juan Manuel Carreras, governor of the central state, said until Mexico and the United States establish the basis for future trade, drawing in major investors would be challenging.

“Once we have clarity on NAFTA, I’m sure Mexico and San Luis Potosi will have plenty of opportunities to attract new investment,” Carreras said in an interview.

Mexican and U.S. officials have said NAFTA negotiations could begin from around mid-year onwards.

San Luis Potosi’s economy minister Gustavo Puente Orozco, traveled to China and Singapore in February after Ford pulled out. He heralded some new investments from Asian suppliers, but it was not substantial enough to compensate for the loss.

Puente told Reuters 56 Japanese companies do business in San Luis Potosi, up from just three eight years ago. Still, nearly half the foreign direct investment in the state over the past 16 years have come from the United States, he said.

Suppliers in San Luis Potosi have grown cautious since Ford withdrew, and estimates on the potential cost to the state run into the hundreds of millions of dollars..

Ford attributed its decision to declining demand for small cars, though Trump lashed out at Ford when it unveiled the investment last year, and he took credit for its change of plan.

Mexico accounts for one-fifth of all vehicle production in North America and has attracted more than $24 billion in investment from the industry since 2010, according to the Michigan-based Automotive Research Center.

The country exports most of its car production to the United States, but Trump wants auto makers to invest more at home, and has threatened to impose high tariffs on cars made in Mexico. (Reporting by Roberto Aguilar; Writing by Dan Freed; Editing by Bernard Orr)

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