Renegotiating NAFTA: A View from the Mexican Side
This year marks the twenty-third in which the North American Free Trade Agreement governs tri-lateral trade between North American neighbors Mexico, the United States and Canada. At this point in time, renegotiating NAFTA is a priority for each.
Since the accord came into effect in 1994, the volume of trade between the three signatory nations has increased by a factor of three. Today duty-free trade amongst the countries is valued at approximately US $80 billion per annum. A full 14% of global trade is now conducted under the auspices of NAFTA Rules. For each of the countries involved, there are risks and benefits, as well as goals and objectives associated with renegotiating NAFTA. This article will consider the process from the Mexican side of the negotiating table. Additionally, this post will initially examine three risks that Mexico faces in updating the trade pact. Secondly, we will look at six ways in which Mexico might benefit by the comprehensive retooling of the accord, and, finally, we will examine the conditions under which Mexican officials have stated they are willing to renegotiate.
THREE RISKS FOR MEXICO IN RENEGOTIATING NAFTA
At the outset of the initiation of NAFTA talks which began this past August 16th, Mexican officials made it clear that negotiating a bad deal from their nation’s point of view would be to the great detriment of the country’s overall economic health and well-being. More specifically, a bad deal would have a negative effect on at least three of the most important areas of the nation’s economy.
To start with, a poorly negotiated NAFTA could have an adverse effect on the country’s ability to capture an ever-increasing share of global foreign investment. Companies, primarily from the United States, bring their capital and know-how to Mexico for the purpose of producing within its borders in order to gain access to markets in which Mexican products enjoy preferential treatment. Mexico has a network of 10 free trade agreements that govern its commerce with a total of forty-five nations. Additionally, Mexico has 32 Reciprocal Investment Promotion and Protection Agreements (RIPPAs) with 33 countries, 9 trade agreements (Economic Complementation and Partial Scope Agreements) within the framework of the Latin American Integration Association (ALADI), and is a member of the Trans-Pacific Partnership Agreement (TPP) .
A second risk that the country would likely face as a result of a badly renegotiated NAFTA would be the decrease in exports that would be provoked by the imposition of tariffs on certain products by all parties to the agreement. Should this happen Mexico’s Economic Secretariat (SE) estimates that going forward, only 36% of exports to the US and 35% of exports to Canada would be duty-free. This would cause a reduction of the competitiveness of Mexican made products in the US market.
Thirdly, a bad outcome of renegotiating NAFTA would be the negative effect that it would have on the growth of Mexico’s gross national product (GNP). The country’s Economic Secretariat cites information from the International Monetary Fund (IMF) that asserts that “the negotiated imposition of unilateral import taxes and other non-tariff barriers to trade would have a negative impact on imports to the US market, and would be prejudicial to the overall growth of the Mexican economy.”
POTENTIAL BENEFITS OF RENEGOTIATING NAFTA
On the flip side of the coin, along with the possible risks of renegotiating NAFTA, it is important to be cognizant of the good that a reworking of the twenty-three-year-old accord could result in. The following are five areas in which Mexico could come out of present talks a winner:
- Energy Sector – Mexico, the US, and Canada all have highly developed energy sectors that represent great opportunities. When the NAFTA was first put into place Mexico was not able to exploit them.
- Agricultural Sector – Although some agri-products such as corn, apples, and pears were displaced in Mexico by US product, Mexico has an opportunity to sell more of its harvest in the US should it make the effort and investment in updating its technology and methods of production.
- Investment – The opening of Mexico’s energy sector will be the impetus for large-scale investment by the US and global companies.
- Migration – Migration is a topic that was not addressed in the first version of the NAFTA. Renegotiating NAFTA may present an opportunity to propitiate the integration of the three nation’s labor markets, and prove to be a mechanism for the establishment of guest worker programs.
- Negotiations – A newly revised North American Free Trade Agreement would open the possibility that, in the future, the three countries negotiate further trade agreements as a bloc.
RENEGOTIATING NAFTA: MEXICO’S CONDITIONS
As is the case with the other two parties to the agreement, Mexico’s Economic Secretariat has articulated the conditions under which it is willing to come to the bargaining table. The following five points have been communicated by Mexican government officials:
- Any renegotiation of the NAFTA must include chapters on labor and the environment: At the last meeting of officials of Asia-Pacific Economic Cooperation countries, Mexico’s President, Enrique Pena Nieto, declared that any renegotiation of the NAFTA would have to include talks in these two important areas.
- Negotiation of the agreement must result in a win-win-win: Enrique Pena Nieto stressed that negotiations between Mexico and the Trump and Trudeau governments would be based on five guiding principles that would include: the defense of national sovereignty, a respect for legal systems of the three countries, an overall constructive vision for the future of the agreement, a greater regional integration and a comprehensive renegotiation of the twenty-three year old accord.
- A recognition of the positive value of the NAFTA by the Trump government: Since the campaign trail, US President Donald Trump has been a harsh and vocal critic of the North American Free Trade Agreement. Mexico’s Economics Secretary, Ildefonso Guajardo, recently stated that Washington’s recognition of the benefits of the NAFTA “is a must.”
- Mexico will do no renegotiating of the NAFTA if the levying of tariffs is included: In a recent interview with Bloomberg, Idelfonso Guajardo declared that Mexico would withdraw from negotiations should the United States insist on imposing tariffs or quotas on any of its imports from Mexico.
- Mexico, the United States, and Canada will work to further eliminate non-tariff protectionist barriers that remain in place: Mexico’s Economics Secretary recently made it clear that it is his government’s position that the maintenance of barriers to trade is in the interest of none of the three NAFTA countries.
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