Fears that a push from the United States to renegotiate the terms of the North American Free Trade Agreement (NAFTA) would have a negative effect on Mexican exports and the economy in general might prove to be unfounded.
In fact, the Mexican Institute of Financial Executives (IMEF) believes that Mexico has won the first battle in looming trade talks with its northern neighbor after the U.S. government announced Monday that it would not seek to introduce protectionist measures such as tariffs or new quotas on industrial and agricultural goods entering the country.
The Office of the United States Trade Representative released an 18-page document entitled Summary of Objectives for the NAFTA Renegotiation in which it outlined its goals across a range of areas from digital trade to energy, the environment to investment and anti-corruption measures to currency, among others.
President of the national economic studies committee of the IMEF, Gabriel Casillas, explained that one of the main points for renegotiation from the U.S. perspective will be the rules of origin, which determine whether a particular product gets preferential treatment under the agreement depending on where it was made or produced.
However, some of the measures proposed will benefit not just the United States but Mexico and Canada as well, giving all three an advantage over competitors from other regions of the world.
“To update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America,” is the objective as stated in the document.
No reference is made in the document to a desire to introduce tariffs on imports from either Canada or Mexico, news that is welcomed in Mexico.
“That there are no tariffs on the discussion table and a free market is maintained is a 50% win for Mexico. It’s probable that in the renegotiation process there will be bumps along the way but in the end it will arrive at a good place,” Casillas remarked.
There are currently more than 16,000 clauses in the 23-year-old agreement, each one dealing with a specific product.
Another objective is “to ensure that the rules of origin incentivize the sourcing of goods and materials from the United States and North America.”
Mechanisms already exist in the agreement that stipulate what percentage of the constituent parts of a product need to be sourced from the North American market in order for protectionist mechanisms not to apply, but the U.S. is seeking to make the rules stricter.
“If you want to make a car in Mexico and export it to the United States we need it to have at least 62.5% of its parts from the neighboring country so that it can pass free of tariffs. On this matter, they want to increase the origin content measures on some products for the benefit of the U.S.,” Casillas explained.
Objectives related to tackling corruption and making labor laws central to a renegotiated NAFTA are also outlined in the document.
Casillas conceded that introducing the changes in those areas might be complicated but that they are not necessarily bad for Mexico.
“They can be seen as a straitjacket to achieve good things, above all on corruption issues,” he said.
IMEF president Adriana Berrocal commented that it would be preferable for NAFTA renegotiations to conclude before Mexico’s presidential election and the United States midterms, both to be held in 2018.
“Both administrations are very conscious of that and are doing what is possible to meet [the requirements] on time. If for any reason it is delayed and it carries over to the next government, there’s not much to forecast now,” Berrocal remarked.
The United States has a trade deficit with Mexico that reached $63 billion last year and the stated objective to “reduce the trade deficit with the NAFTA countries” is seen as a priority for the U.S. in the upcoming talks.
Still, both members of the IMEF remain confident that an agreement that benefits all three members of NAFTA will be reached despite President Donald Trump’s occasional rhetoric and Twitter tirades that suggest otherwise.
A trade attorney and former counsel for international trade at the Economy Secretariat described the document as “very positive.”
“It deals with many of the fears of Mexican officials, particularly on going back to a tariff system . . . . It’s clear the U.S. does not want to move back to tariffs,” Carlos Véjar said in a report by the Financial Times.
U.S. Trade Representative Robert Lighthizer today announced that the first round of negotiations will be held August 16-20 in Washington, D.C. He said John Melle, assistant trade representative for the western hemisphere, will be the U.S.’ chief negotiator.