NAFTA 2.0 Or What?

By Julio Espinoza, Staff Writer

Last week the Wall Street Journal reported that the U.S. Trade Representative passed a NAFTA draft letter in Congress to outline the strategic objectives of the renegotiation of NAFTA. The letter allegedly was moderate in tone and does not align with the electoral propaganda that NAFTA was the worst deal ever, but rather clarifies the benefits of NAFTA for the U.S. What was the Mexican reaction to the draft letter? What would be their approach towards the renegotiation? Can the Trump administration understand the strategic interests at stake?

The reaction in Mexico City to the draft letter has been difficult to monitor until recently. It seems that Mexico City did not make any comments on it. Why did they avoid commenting? Maybe because Mexico City did not have any feedback yet from their grassroots, thus enabling a politically correct yet strong response. Or maybe it’s because Mexico City has two messages to deliver: First, they are open to renegotiating, as the Mexican minister of foreign affairs expressed in his visit to Washington D.C. The other message is more technical. Mexico has two policy conditions, 1) no more countervailing duties/quotas, and 2) better rules of origin, according to a statement made by the Mexican secretary of Economy. I would add a third policy condition, and correct me if I am wrong, but NAFTA should not allow any kind of subsidies in the agricultural sector.

Mexican minister of foreign affairs, Videgaray, left, and U.S. secretary of State, Tillerson, right. Courtesy of
Mexican minister of foreign affairs, Videgaray, left, and U.S. secretary of State, Tillerson, right. Courtesy of

While some experts argue that NAFTA has been painful for Mexico, particularly in the agricultural sector, others see opportunity in the renegotiation of the trade agreement as long as it creates value for all parties by modernizing and including new trade topics. This is the Mexican government’s first approach to take advantage of the change in status quo. If the Trump Administration wants to modify NAFTA, this is the moment for Mexico to make NAFTA a preferential trade agreement that not only includes the traditional mix of trade and investment, but also comprises of cooperation, security, political dialog, immigration, energy, SME’s,  and synergies in industrial clusters.

Mexico is currently upgrading its trade agreement with the European Union to make it compatible with current challenges. After acknowledging the new realities of the global economy, the E.U.-Mexico joint statement of the first round of negotiations expresses commitment to: “increase cooperation and coordination on foreign policy issues to better respond to the shared global challenges of a new modern world, from security threats, to migration, the fight against epidemics and climate change.” It seems that both the European and the Mexican negotiators are in high spirits regarding the modernization of the E.U.-Mexico PTA.

Moderates on both sides are calling for a renegotiation to upgrade NAFTA, and we should renegotiate with good faith. The E.U.-Mexico PTA modernization could be a good example of two strategic partners talking about new ways to grow the pie for everyone. If the U.S. Trade Representative fails to renegotiate NAFTA, we can expect three scenarios: 1) MEXIT (Mexico leaves NAFTA for not finding it a win-win deal, as I have already elaborated in a past contribution). 2) Mexico starts negotiations with Canada for a bilateral trade agreement and manages the U.S.-Mexico relationship according to the standards of the WTO. 3) Mexico leaves the U.S. area of influence and strengthens trade, cooperation and political dialog with China.

Is the current U.S. President able to deliver a better NAFTA deal? It is in the U.S.’s best interest to keep the rhetoric off the negotiation table this summer and upgrade NAFTA with a win-win approach. President Trump argued that America was losing to everyone, including China and Mexico. Now that we are losing consensus on the direction of our healthcare system and the influence of Russia on the current president’s inner circle, we cannot lose a trade negotiation for not being able to differentiate between electoral politics and geopolitics. We cannot see a revival of Mexican nationalism in the 2018 presidential/congressional elections because the new Mexican President and Congress could reboot the relationship back to the good old days  (the minimum of cooperation and the maximum of distrust), starting with taking control of the embarrassing situation of the undocumented U.S. population living illegally in Mexico. Some of them, hopefully very few, are “bad hombres” – U.S. citizen fugitives hiding from justice in Mexico.

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