Monday, August 21, 2017

Doubts Arise with the Start of the NAFTA Negotiations

By Adriana Murillo (El Semanario)

(Translation)

Pictures show a cordial and friendly relationship between negotiators of the North American Free Trade Agreement (NAFTA), and despite the differences of interests it seems that Mexico, the United States and Canada are willing to agree to a renewed trade agreement.

If what was sought was to show the markets a feeling of generalized optimism among the three parties, that was accomplished. The markets reacted calmly to the first statements that representatives of each country made at a news conference — but, is there something behind the scenes?

In the first round of negotiations, the position of the United States didn't surprise anyone as they only backed the tenacious discourse of Donald Trump to eliminate the trade deficit and conduct a major review of the NAFTA regulations, including the controversial Chapter 19 that, if disposed of, could lead to Canada pulling out.

Mexico reiterated its openness to modernization and the intense struggle that it will make to defend free trade, a position supported by the diplomatic attitude of Canada and the optimism shown by its representative, Canadian Foreign Minister Chrystia Freeland; yet certainly the issues of salary increases and auto parts production were controversial points.

Without knowing more yet, about the direction the closed-door negotiations are taking, some essential questions arise before one can talk of success or "happy terms."

THE DOUBTS

Might NAFTA disintegrate?

We cannot give a definitive answer to this. While it is not expected that Donald Trump's threats will stop appearing on his Twitter account, the reality is that to break with the agreement and to seek bilateral pacts would mean losses for the three countries.

Although, at 23-years of age, NAFTA is not the "best achieved agreement," it has represented economic improvements in the North America region, and to sever ties that have been forged over more than two decades would be harmful to 450 million consumers and workers.

When will there be a new NAFTA?

Mexican authorities have shown optimism insofar as the new NAFTA is ready to come out of the oven in December 2018, and their haste is because they seek to eliminate any risk represented by the [2018] presidential election and subsequent change of government.

If we assume, historically, that trade agreements involve long time periods of negotiation for their creation, it would be extremely rare for NAFTA to be cooked at an express pace. However, Mexico has insisted that the first round of negotiations focus on the creation of an agenda to determine the issues to address in following rounds.

Will there be many changes in the new NAFTA?

Mexico and Canada have emphasized the great benefits to trade that NAFTA has generated for the economies of the bloc, and both share the idea of modernizing the regulations of the agreement to improve the free market. This is not the case with the United States, the North American bench has insisted that the new document must include "major improvements."

What are the main changes that the USA seeks?

Donald Trump is eyeing trade deficits. In 2016, the deficit with Mexico was US$64.3 billion dollars, and with Canada almost US$11 billion.

To achieve his goal, the Republican tycoon has hinted about several contentious means, with his most controversial route being the implementation of tariffs, a measure that could mean the disappearance of the treaty.

Another change suggested by the United States is modification, or even elimination, of Chapter 19 that addresses the regulation of disputes on dumping and illegal subsidies. The chapter bespeaks that in the case of dumping practices, taxes and compensatory measures can be applied as an anti-dumping measure.

Will Canada get up from the table?

If the United States insists on the elimination of Chapter 19, Canada would not hesitate to get up from the table and break off all dialogue.

What is the controversy regarding wages?

The United States seeks to penalize Mexico's opportunity to offer its production line per its lower salary index for manufacturing labor. The cheap labor that Mexico offers to industries is a strong incentive to manufacture in the country.

By increasing wages, as the United States seeks, incentives would be reduced to move factories to the other side of the southern U.S. border.

On the subject, [Mexico's Secretary of Economy] Ildefonso Guajardo said, "The wage policy corresponds to an internal schema, of dialogue and consensus building among the various actors who are in the country's economy and that, eventually, will clearly reflect the conditions that each of the actors brings to the table."

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