This is the twenty-third year during which trade between the United States, Mexico, and Canada has been governed by the rules of the North American Free Trade Agreement (NAFTA). At present, each of the signatory countries has put NAFTA renegotiation on the front burner its public policy agenda.
Since NAFTA’s inception in 1994, trade volume between the three nations has multiplied by more than three times. In 2016, duty-free trade among the nations was approximately eighty billion US dollars in value. Fourteen percent of global trade is now conducted under the umbrella of NAFTA Rules. For the United States, Canada and Mexico, there are benefits and risks, as well as objectives and goals associated with renegotiating NAFTA. This article will take a view of this topic from Mexico’s side of the negotiating table. Firstly, it will examine the conditions under which Mexico will negotiate with its partners. Secondly, it will enumerate some of the benefits that Mexico can potentially enjoy by renegotiating NAFTA favorably, and, lastly, it will consider three risks that may be present.
NAFTA RENEGOTIATION: MEXICO’S CONDITIONS
Mexico’s Economic Secretariat has articulated the conditions under which it is willing to come to the bargaining table. The following six items have been communicated by Mexican government trade officials as those of most importance.
Renegotiating NAFTA must produce a win-win-win outcome: Mexico’s president, Enrique Pena Nieto, stressed that talks between Mexico and the Trump and Trudeau administrations would be based on five guiding principles that include: a respect for jurisprudence in each of the three countries, the preservation and strengthening of national sovereignty, a greater regional integration and a comprehensive renegotiation of the twenty-three year old accord, as well as the maintenance of an overall constructive vision for the future of the agreement. Conditions for Mexico’s coming to the negotiating table include the following provisions:
- 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.
- Mexico will do no NAFTA renegotiation 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.
- 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.
- Finally, 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.”
RISKS FOR MEXICO IN NAFTA RENEGOTIATION
Upon the commencement of NAFTA talks this past August 16th, Mexican officials made it clear that negotiating a bad treaty would be to the great detriment of the country’s overall economic health and well-being. More specifically, a less than desirable deal would have an adverse effect on at three of the most important areas of the nation’s economy.
To start with, a negative that the country would likely face because of a badly renegotiated NAFTA would be the decrease in exports. This 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 thirty-five percent of exports to the Canada and thirty-four percent of exports to the United States would be duty-free. This would cause a reduction in the competitiveness of Mexican made products in both the US and Canadian markets.
Secondly, a bad outcome of Nafta Renegotiation 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 United States, and would be a drag on the overall growth of the Mexican economy.”
Lastly, 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 producing within its borders 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 thirty-two Reciprocal Investment Promotion and Protection Agreements (RIPPAs) with thirty-three countries, nine 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).
POTENTIAL BENEFITS OF NAFTA RENEGOTIATION
On the other side of the coin, along with the risks of NAFTA renegotiation, it is important to be aware of the benefits that a reworking of the twenty-three-year-old agreement could result in. The following are five areas in which Mexico could come out of present talks a winner:
- 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.
- 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.
- 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.
- 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.