NAFTA negotiations could mark end of era for Mexican exports
President Donald Trump’s push to renegotiate the North American Free Trade Agreement is putting Mexico in a tough spot, threatening the system that has helped turn the country into a top exporter through low wages, lax regulations and proximity to the United States.
With talks set to start on Aug. 16, the Trump administration is targeting the massive U.S. trade deficit with its southern neighbour and the weakly enforced labour, environmental and manufacturing rules that for 23 years have drawn American assembly plants to Mexico and launched a flood of televisions, cars and appliances across the border.
“Mexico was resting on its merits and has been in a comfort zone, and now we have to leave it,” Economy Minister Ildefonso Guajardo told a business group recently. “The alarm clock has rung for us to wake up.”
A key draw for foreign assembly plants and investment has been Mexico’s low wages. While average manufacturing wages in China had risen to $3.60 per hour by 2016, Mexico’s had shrunk to $2.10 - a level some economists say is artificially low. With many workers unable to afford the vehicles Mexico produces, the country exports about three times as many cars as are purchased domestically, most to the United States.
“It is a very serious problem,” Alex Covarrubias, a labour professor at Mexico’s Sonora College, said of the country’s wage policy. “Almost all the (labour) contracts that are signed in Mexico are unlawful, which means that they are company contracts, which the workers aren’t aware of.”
The Trump administration is pressing to bring labour and environmental regulations originally contained in weakly enforced “sidebar” agreements - into the main body of NAFTA’s text, and to require that Mexico’s government ensures the “effective recognition of the right to collective bargaining.”
Tightening Mexico’s labour laws and strengthening unionization could push wages up, or at least stem the flight of jobs to Mexico, experts say.
Guajardo said Mexico is willing to negotiate labour and environmental issues as part of the talks to be held in Washington. “I think it would be progress, to guarantee that the benefits of the agreement are shared among all.”
Guajardo appeared to be similarly flexible about making “fine adjustments” to the rules-of-origin in manufacturing, which dictate how much regional content would be required to consider a product “made in North America.” Critics have accused Mexico of importing a lot of Chinese or European components, assembling them and labelling them made in North America.
But Guajardo is less convinced by what he calls the Trump administration’s “extreme preoccupation” with reducing trade deficits - one of the issues that make Mexican officials bristle.
“Since NAFTA was implemented in 1994, the U.S. bilateral goods trade balance with Mexico has gone from a $1.3 billion surplus to a $64 billion deficit in 2016,” the U.S. Trade Representative’s Office said in unveiling its plans for renegotiating the accord. “The negotiating objectives also include adding a digital economy chapter and incorporating and strengthening labour and environment obligations that are currently in NAFTA side agreements.”
In this March 23 photo, workers inspect and pack LG flat screens at an assembly plant in Reynosa, Mexico. The Trump administration is pressing to bring labour and environmental regulations into the main body of the North American Free Trade Agreement text in the upcoming renegotiation of the three-way trade pact set for Aug. 16, in Washington, D.C.