In NAFTA negotiations, Mexico shows cautious optimism

Claudio Montes checks a shipping manifest for U.S. manufactured parts heading to assembly plants in Mexico at Freight Dispatch Service Agency LTD in Pharr, Texas in June 2017. The freight service ships parts between the U.S. and Mexico that pass through the border freely due to the North American Free Trade Agreement. (Nathan Lambrecht/The Monitor via AP, File) Claudio Montes checks a shipping manifest for U.S. manufactured parts heading to assembly plants in Mexico at Freight Dispatch Service Agency LTD in Pharr, Texas in June 2017. The freight service ships parts between the U.S. and Mexico that pass through the border freely due to the North American Free Trade Agreement. (Nathan Lambrecht/The Monitor via AP, File)

A stroll along Paseo de la Reforma, the main boulevard in Mexico City’s center, is an exercise in window shopping. Between American- and European-style coffee shops, travel agencies and chain restaurants, you will pass shopping malls and specialty stores sporting expensive brands of clothing, shoes and gadgets. Indeed, 21st-century consumerism in the more affluent neighborhoods of this nation’s capital is on par with its European and U.S. counterparts.

Few Mexicans 30 and younger will remember that barely two generations ago this material extravagance for the middle and upper classes was virtually unknown. Before 1994, the year Mexico, the United States and Canada signed the North American Free Trade Agreement, everyone but the wealthiest Mexicans, who were able to go on overseas shopping sprees, was deprived of such luxury.

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Nafta has been the world’s most valuable trade deal, and its consequences are more deeply felt in Mexico than in the United States or Canada. Not only did Mexico’s urban middle class gain access to a wide range of new products and retailers, the country’s low-wage labor force and proximity to the enormous U.S. and Canadian markets transformed its economy into a cheap, export-oriented manufacturing powerhouse.

Before 1994, the year Nafta was signed, everyone but the wealthiest Mexicans, who were able to go on overseas shopping sprees, was deprived of such luxury.

Small wonder, then, that Mexican officials tensely awaited Aug. 16, when talks to renegotiate Nafta began in the wake of Donald J. Trump’s election as U.S. president. On the campaign trail, the real estate mogul had railed against Nafta. Candidate Trump blamed the treaty for a multi-billion-dollar trade deficit and the loss of manufacturing jobs that closed factories in the United States and devastated the Midwest.

The new U.S. president has repeatedly threatened to pull out of Nafta. He did so once again on Aug. 27, tweeting that it was the “worst trade deal ever made” and threatening to “terminate” it because both Mexico and Canada are “being very difficult” in the renegotiating process. Mr. Trump has also threatened U.S. manufacturers considering a move to Mexico with tariffs of up to 35 percent on their products.

Such language unnerved the government of President Enrique Peña Nieto back in January, but much has changed since. Encouraged by the perceived weakness of a White House plagued by scandals, infighting and with no major legislative success to speak of, Mexican officials went into the trade talks with an air of cautious optimism. Instead of fearing what it might lose, Mexican negotiators are now looking what they stand to gain from an updated Nafta.

“I certainly believe there are opportunities for us to renegotiate Nafta in such a way that it will be beneficial to our country,” one federal official with knowledge of the trade talks said, asking to remain anonymous to speak freely about the subject. “We have excellent negotiators, and there are elements of the treaty that are outdated and could be improved.”

The stakes are high for Mexico. According to the U.S. Trade Representative’s office, bilateral trade between the United States and Mexico was worth a whopping $525 billion last year, with Mexico importing $231 billion in U.S. goods while exporting to $294 billion in Mexican goods northward.

While failed Nafta talks could be catastrophic for Mexico, there are also areas in which it stands to gain if its trading relationship with the United States sours. Mexico has continued a rapid integration into the global economy in the past three decades as a champion of commerce with more than 50 other free trade agreements. That should strengthen its position in the upcoming Nafta renegotiations.

And the renegotiation is not without risk to the United States. According to the Mexico Institute at the Wilson Center, a nonpartisan think tank in Washington, while Nafta has been a contributor to job losses in the United States, along with the economic opening of China and changing technologies, it has also been a job creator, responsible for a net gain of 4.9 million U.S. jobs.

While failed Nafta talks could be catastrophic for Mexico, there are also areas in which it stands to gain if its trading relationship with the United States sours.

“Mexico is part of a fully integrated global economy at this point, not just with the U.S., but also with Japan, while it’s also getting closer to China,” said Vice President Eric Farnsworth of the Council of the Americas, a Washington-based think tank. “Their interests are the same as ours, and they’re very interested in issues like electronic commerce, intellectual property and maintaining open markets for their products in order to attract the investment they need.”

In recent months, many key players in Mexican agriculture have said that the renegotiations are a chance to modernize a sector that is generally seen as one of the losers of the original treaty. Unable to compete with its technologically superior and highly subsidized northern counterparts, Mexican agriculture lost up to two million jobs after Nafta came into force. Especially in the poorer states in southern Mexico, the countryside emptied out as millions migrated to the cities or the United States looking for work.

Most experts agree, however, that Mexico’s energy sector stands to gain most from a revamped trade deal. Mexico is currently in the process of opening its energy market to foreign investment after running Pemex as a state-owned energy monopoly since the nationalization of its oil wealth in 1938. A revamped Nafta could boost that reform.

“The integration of the energy sector into Nafta would clearly be a gain for Mexico, which, until now, wasn’t possible because of previous constitutional prohibitions,” Mr. Farnsworth said.

Another reason for Mexican businesses and officials to be optimistic about a revamped Nafta are the credentials of its negotiators. On July 31, the government announced that it had named Kenneth Smith, then the director of the Nafta trade office at the Mexican embassy in Washington, as its chief negotiator for the trade talks. Praised by many as a skilled and experienced negotiator, Mr. Smith was a member of the original team that worked on Nafta in the early 1990s.

“He’s been working with us since 1993,” Economy Minister Ildefonso Guajardo told Reuters on July 31. “He’s had a long career working on trade, having passed through the Economy Ministry and the Agriculture Ministry.”

Manuel Molano, an economist at the Mexican Competitiveness Institute, agrees with Mr. Guajardo. “Donald Trump has said ad nauseam that Mexico has better negotiators, and he’s right,” he told America, adding, however, that the negotiations go beyond the two teams currently involved in the conversations. “This is also a matter of diplomacy between mayor and mayor, governor and governor, businessman and businessman, on both sides of the border.”

Before the first round of negotiations started, some observers believed Mexico had already started from a winning position; contrary to Mr. Trump’s recent threats, the initial negotiations did not include the subject of tariffs, which would be unacceptable for Mexico.

“The fact that tariffs haven’t been put on the discussion table and that a free market will be maintained means that Mexico already won 50 percent,” said Gabriel Casillas, the president of the Mexican Institute of Executives and Finance in July. “It’s probable that there will be holes in the ground during the renegotiating process, but it’ll eventually reach a safe haven.”

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