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NAFTA: a view from Mexico

NAFTA: a view from Mexico

Closeup of the flags of the North American Free Trade Agreement NAFTA members on textile texture. NAFTA is the world's largest trade bloc and the member countries are Canada, United States and Mexico. 3D rendering with detailed textured grunge effect on closeup.

Forget the Wall. The future of NAFTA has been the no.1 bilateral issue between the USA and Mexico since Donald Trump was elected US President.

During the campaign Mr. Trump labelled NAFTA “the worst trade deal ever…” and said the agreement must be renegotiated or annulled. In Mexico, President Peña Nieto responded by naming his most trusted confident- former Finance Minister Dr. Luis Videgaray- as Foreign Minister and de facto lead negotiator. In turn Videgaray - who holds a PhD in Economics from MIT and has had a personal relationship with people in/around President Trump for many years - appointed Gerónimo Gutierrez as Mexican Ambassador to the USA.  Mr. Gutierrez is widely seen as having unparalleled knowledge of the technicalities of NAFTA, dating back to his role in the 1992-1994 negotiations. With the ‘A team’ in place Mexico then turned to its negotiating strategy.

Soon after Mr. Trump arrived in office Canada started bilateral trade and investment talks with the new US administration, a move which worried Mexico greatly. The Mexican administration rightly felt its hand would be strengthened in a more ‘balanced’ trilateral negotiation and pushed hard for Ottawa’s support. Following a series of high-level conversations between Canada and Mexico, the Foreign Ministers of the two countries declared their preference for a trilateral renegotiation; a position endorsed by Prime Minister Justin Trudeau. The Mexicans then made it clear they would seek to bundle together any discussions on the future of NAFTA with topics such as immigration and illegal drug and weapon trafficking, where the US is hugely reliant on Mexican cooperation.

This is not to suggest Mexico is not open to reviewing and updating NAFTA in certain important respects. In fact, the Mexican Government sees some clear ‘win win’ opportunities for both parties. The Agreement is over twenty years old and whole industries, such as e-commerce, did not exist back when it was first negotiated. Furthermore previous ‘no go’ areas for the Mexicans - such as energy and telecoms - are now areas where they would welcome trade and investment. Ironically, recent work done on the TPP treaty - which President Trump vetoed on entering office- could provide a solid foundation on which to modernize NAFTA and secure these ‘win win’ opportunities.

However to reach any meaningful new agreement the Mexican administration needs President Trump to tone down the rhetoric and pick up the pace. The more the US President talks of ‘beating’ the Mexicans the more Mexican public opinion turns and the less space the Government has for compromise. Likewise, the closer it gets to the 2018 Presidential election the greater the pressure on the Government to take a hard line in negotiations. As things stand the Mexican Government are prepared to give meaningful ground on areas such as intellectual property, investor state dispute settlement and rules of origin. However they are not willing to countenance a so-called “U.S. border adjustment tax”. Officials are clear. Such a tax would mean the end of NAFTA as we know it.

Stakeholders we speak to in and around high levels of Government all say that a successful renegotiation could take place, swiftly. Half-jokingly, some say that if President Trump wants a ‘big win’ they are happy to take a short-term beating on Twitter or accept a name change to the NAFTA agreement. But in complete seriousness almost all say that they hope the US Government understands the reality of the looming election: the candidate of the left, Andrés Manuel López Obredor is surging ahead in the polls. Any López Obrador administration will be far less pro-trade and far more nationalistic the current Government. If a deal isn’t struck quickly, it is highly likely that a deal won’t be struck at all.

Speyside has consultants on-the-ground in Mexico City and Washington D.C. and partners in Ottawa and Toronto. We are currently supporting clients with domestic and foreign policy insights and intelligence around the future of NAFTA, including granular sector by sector and company risk analysis. To discuss how we can support with information, strategic counsel or advocacy support please contact ian.herbison@speysidecr.com or gonzalo.escribano@speysidecr.com

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