NAFTA Renegotiation. USA Launches Objectives to Renegotiate NAFTA

Highlights and comment:

- Reducing deficit and reciprocity. Trade deficit, not only is folly and based on ignorant arguments, but is a tool for negotiation. No idea how to solve something unnecessary.

- American agricultural export. There are obstacles to Mexican products, but Americans?

- Raising Rules of Origin. Primary theme, it offers great challenges and great opportunities.

- Prohibit exchange manipulation. What is that? Mexico since 1995 has unrestricted foreign exchange market.

- Guarantee investment rights according to American practice. This could become very delicate but interesting subject.

- Eliminate Chapter 19 of Dispute Resolution. Terrible approach.

- To approve legal framework of intellectual property. Something we could thank.

- Regulate wages and eradicate child labor. First point, extremely difficult, but equally desirable; second, by law is illegal, but efficiency is always a topic.

- Eliminate Income Tax deduction of corruption. What? where a payment for corruption is deductible?

- Increase anti-corruption review. Could mean more government scrutiny ... therefore, more possible corruption.

- Energy opening. And the Mexican Energy Reform?

- Telecomm opening and free flow of financial data. And the Mexican Telecommunications Reform?

- Environment. Negotiation within the treaty and not in parallel agreements.

In essence, it is a first public official statement, which suggests that negotiation will not be so complicated for Mexico, and therefore pressures on macroeconomic and financial indicators, will not increase volatility by these elements, in principle.

There are even issues that are irrelevant (eg manipulated exchange rate), or others already complied (eg energy or telecommunications issues) or even some crucial for our better development and which are appreciated (eg equate intellectual property protection systems or wage homogenization).

A sensitive issue is that in the proposed issues, they become long-term to negotiate and worse to verify effectiveness.

Checking each topic, the following is expliend by us:

It is underlined that the negotiations will begin on 16 August.

The issue on trade deficit will be very complicated, since it does not imply a damage to an economy by itself, but is a datum of a confluence of elements, where some are even beneficial for the pressumably affected Country. But politically and poorly managed, it has been exposed as a weakness. The apparent output will be to increase trade flows, as opposed to decreasing them and that is opportunity for all. We will have to wait.

The issue of American agricultural exports becomes absurd, since the one with the most obstacles in the matter is the US, but there is more waiting for more concrete positions.

The issue concerning Rules of Origin, while proposing great opportunities, the challenge is huge and at least still with interest, in Ciudad Juárez, has not grown participation in decades literally. Mexico does not improve internally on this basis for 3 reasons, namely lack of financing, economic regulation and lack of corporate culture. All require funding and best governance practices.

The issue of manipulation of the exchange rate becomes irrelevant, because it is not the proper subject. Actually the problem is that the peso is affected a lot with global volatility and that impoverishes the Mexicans and lowers the labor force. Then, the issue is to consolidate the Mexican economy, so that volatility damages less to the peso.

An extremely negative issue is the proposal to eliminate chapter 19 of international dispute settlement or arbitration. And it is a system that has worked very well, and in any case may require some improvements but not elimination. US exposes another point of rigging mechanisms of decision on investments to the American style (procedure). And this highlights the regular American position that only its resolution systems are functional, but the truth is that in principle, it decreases equity in conflict resolution, but neither is it to exalt the Mexican procedure, which is known slow and not-well-funcional in many cases.

Another very interesting point is that they seek to approve protection of intellectual property, which in Mexico is bad. This may even be desirable.

The labor issue is very complicated, but highly desirable, as they would push to increase the purchasing power of the Mexican employee, so that it is not an element of competition as it is today (low wages).

Seek to bridge government corruption. It will be necessary to see if the new National Anticorruption System fulfills expectations in NAFTA or new norms are required. There is even criminalization; is supposed to exist in Mexico, but recent issues leave much to be desired.

The environment issue could recover items of the Paris Agreement in a treaty like NAFTA, which offers ample opportunities in several senses.

The energy and telecomm issues seem to have been remedied by the structural reforms, but we would have to analyze what they request.

Wilbur Ross, the US Secretary of Commerce, had three months ago exposed the need to touch on three central points: salaries (seeking regional wage equalization), foreign exchange (seeking exchange rate matching), and rules of origin (increasing minimums in productive chains, to provide NAFTA benefits); in the previous ones, they are included, but not necessarily with the required or objective dimension.

These points stand out in much the substantiation of where they want to take the issues, and in fact are more beneficial than harmful to Mexico. Only the issue of chapter 19, can become conflicting to accept.

More information: https://ustr.gov/sites/default/files/files/Press/Releases/NAFTAObjectives.pdf