Mexico thinks of a world without NAFTA

In view of the differences raised in the first round of negotiations, there is the possibility of a future without a trade agreement between the US and Mexico. 

Mexico thinks of a world without NAFTA

Leer en Español:México piensa en un mundo sin NAFTA

Mexico is having to seriously consider a future where the possibility of continuing the North American Free Trade Agreement (NAFTA) is very diminished, given President Donald Trump's threats that the United States will abandon the treaty, in force since 1994. According to the US President, Canada and Mexico are intentionally blocking the negotiations. Moreover, as he has repeatedly stated in the past, in case he believes that it is necessary to cancel the agreement, he will not hesitate to do so. For Mexico, meeting the conditions, set by the US as requirements for its continuation, have shown to be very difficult to meet.

In his speech to the Senate, Mexico's Secretary of the Treasury, Ildefonso Guajardo, said that "we also have to think about a scenario without NAFTA". The speech was given only moments before the start of the second round of treaty negotiations in Mexico City. Acknowledging the grim outlook, Guajardo called on the senators of the PRI not to ignore this possible outcome.

Guajardo said that some of the existing differences with respect to the US position are due to the American government's demands to modify the dispute resolution mechanism and to tighten labor standards. In his comments to the Senate, the secretary also said that about 15 of the 25 negotiating teams have had serious disagreements with their American counterparts in the first round of negotiations that began in August in Washington. The main point of conflict involves working hours and their standardization.

Mexican Secretary of Foreign Affairs Luis Videgaray said that Mexico and the United States are going through a "moment of definition" of their bilateral relations. "The decisions and agreements that we reach with the United States will define how our coexistence will be in North America in the coming years and probably in the coming decades."

Read also: Cancelling NAFTA would be lost opportunity for 3 countries

Videgaray also reiterated his conviction that Mexico should pursue the firm goal to preserve NAFTA. "We have said many times: we will remain in NAFTA as long as it is good for Mexico and if this is in accordance with Mexican interests." Moreover, he recalled that improving the agreement so as to assure that its benefits remain evenly distributed constitutes the main goal of the renegotiation process, given that the circumstances have changed considerably since 1994. 

Regarding the conflicting interests involving NAFTA, one of the main advantages for foreign manufacturers wanting to build production plants in Mexico are its low labor costs when compared to the US. While the average wage in China's factories has increased, it has declined in Mexico, turning the country into an opportunity to source cheap labor for production. If the United States manages to impose labor standardization, it would no longer be possible to take advantage of the lax Mexican laws regarding working conditions. 

Mexico is already working on an alternative plan in case that NAFTA comes to an end. For the Mexican government, the search for new markets should not be difficult thanks to the agreements it already has with other countries, such as the Pacific Alliance which in the past two years has significantly increased its trade volume. Mexico has even thought of extending its trade partnership with China, but Mexican politicians are aware that this challenge requires more extensive preparation. Mexican economists on the whole agree that, while Mexico undoubtedly benefits from NAFTA, it is the United States that ultimately enjoys most of its economic advantages and that, therefore, it would be the most affected country assuming the worst case scenario.

For Gonzalo Abad Frias, a specialist in trade agreements and Latin America, if the United States decides to withdraw from NAFTA, the automotive sector will be one of the biggest losers. "Mexico exports about three times more cars than domestic ones, and the destination is The United States, and this is one of the sectors that will return to high tariffs, causing these to become worse seeing themselves as detrimental to them, not Mexicans." According to the expert, about 40% of the goods consumed in the United States come from Mexico, so it would be worth analyzing in more detail the potential consequences of cancelling NAFTA for US citizens. The trade flow, as well as the number of companies present in Mexican territory seem to favor Mexico in such a scenario, but the possible economic contraction that may arise from this event should be further evaluated.

 

Latin American Post | Carlos Eduardo Gómez Avella

Copy edited by Susana Cicchetto 

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