NAFTA talks could mark end of era for Mex­i­can ex­ports

Trump pushes to rene­go­ti­ate trade deal

Kuwait Times - - BUSINESS -

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 US trade deficit with its south­ern neigh­bor and the weakly en­forced la­bor, 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 la­bor pro­fes­sor at Mex­ico’s Sonora Col­lege, said of the country’s wage pol­icy. “Al­most all the (la­bor) 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 la­bor 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.”

La­bor laws

Tight­en­ing Mex­ico’s la­bor 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 la­bor 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-ofo­ri­gin 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 la­bel­ing 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 US bi­lat­eral goods trade bal­ance with Mex­ico has gone from a $1.3 bil­lion sur­plus to a $64 bil­lion deficit in 2016,” the US 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 la­bor and en­vi­ron­ment obli­ga­tions that are cur­rently in NAFTA side agree­ments.” Mex­ico’s CIBanco bank said in a re­port that most of this deficit is in the auto sec­tor and it could be the main stick­ing point in the talks.

“The US de­mands to use the talks to im­prove its trade bal­ance with NAFTA part­ners rep­re­sent the big­gest threat to reach­ing an ac­cord,” it said.

Mex­ico, in turn, wants the re­done agree­ment to in­clude im­mi­gra­tion is­sues while chang­ing as lit­tle as pos­si­ble in trade pol­icy. It ap­pears to want a bet­ter guest-worker pro­gram. But US Agri­cul­ture Sec­re­tary Sonny Per­due said this was not an area “that would be in­volved in NAFTA rene­go­ti­a­tions.”

On the whole, it ap­pears Mex­ico wants to change as lit­tle as pos­si­ble. Co­var­ru­bias, who stud­ies the auto in­dus­try and at­tended some of the con­sul­ta­tion ses­sions in Mex­ico on NAFTA rene­go­ti­a­tion, said he was “very disappointed” to see that the po­si­tion of Mex­ico’s govern­ment and power groups was “we don’t want to change a sin­gle comma.” “They’re just re­act­ing, wait­ing to see what the Trump ad­min­is­tra­tion says, but they don’t have any­thing proac­tive, any pro­posal,” Co­var­ru­bias said. One change sought by the U.S. is ex­pected to be an­other thorny is­sue. NAFTA’s Ar­ti­cle 19 set up a trade-dis­pute res­o­lu­tion mech­a­nism that al­lows bi­na­tional pan­els of pri­vate ex­perts to de­cide dif­fer­ences over tar­iffs.

Canada has vowed to de­fend the pan­els, and in Mex­ico there is pres­sure not to go back to na­tional courts to re­solve dis­putes, prob­a­bly be­cause both coun­tries fear it would al­low the U.S. to throw its greater weight around.

All of this comes un­der a dead­line: Mex­ico wants the talks wrapped up be­fore its pres­i­den­tial elec­tion sea­son opens up in 2018, be­cause the govern­ment fears any con­ces­sion would be­come a po­lit­i­cal foot­ball for left­ist front-run­ner An­dres Manuel Lopez Obrador.

That’s a point where Mex­ico is al­most cer­tain to be disappointed, said ex-US Am­bas­sador to Mex­ico An­to­nio Garza. “I think it’s cer­tainly as­pi­ra­tional to talk about the end of the year, be­gin­ning of (2018), but I think it’s far more re­al­is­tic to be look­ing at the end of 2018 maybe even early 2019,” Garza said. Some are more op­ti­mistic about the talks to re­tool NAFTA, which was signed be­fore the lat­est tech boom, Mex­ico’s open­ing of its oil in­dus­try and Trump’s calls to build a wall be­tween the coun­tries. “One should never let a good cri­sis go to waste,” said Mex­ico’s former am­bas­sador to the US, Ar­turo Sarukhan, adding the talks pro­vide an op­por­tu­nity to mod­ern­ize NAFTA. — AP

HAM­BURG: In this July 7, 2017 file photo, US Pres­i­dent Don­ald Trump meets with Mex­i­can Pres­i­dent En­rique Pena Ni­eto at the G20 Sum­mit, in Ham­burg. 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. —AP

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