Stakes high for Mex­ico in trade talks

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - MARK STEVEN­SON

MEX­ICO CITY — 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 Wed­nes­day, the Trump ad­min­is­tra­tion is tar­get­ing the U.S. 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, lead­ing to a north­bound flood of tele­vi­sions, cars and ap­pli­ances.

“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.”

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-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 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 U.S. 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 mat­ters while chang­ing as lit­tle as pos­si­ble in trade pol­icy.

It ap­pears to want a bet­ter guest-worker pro­gram. But U.S. 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.”

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.

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 U.S., Ar­turo Sarukhan, adding the talks pro­vide an op­por­tu­nity to mod­ern­ize NAFTA.

“NAFTA is a 20-year-plus old agree­ment. In its day it was the gold stan­dard of trade agree­ments,” Sarukhan said. “In many ways it was the 1.0 of free trade agree­ments. But the global econ­omy changed sig­nif­i­cantly in the past 20 years. Ama­zon or EBay, for ex­am­ple, did not ex­ist when NAFTA was signed. Turn­ing NAFTA into a 3.0 free trade agree­ment is an op­por­tu­nity we should not squan­der.”

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