[CTC] Mexican Election Could Accelerate Nafta Talks

Mon Jul 2 07:47:44 PDT 2018

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Mexican Election Could Accelerate Nafta Talks

By WIlliam Mauldin
July 2, 2018

The Mexican presidential election on Sunday removes a hurdle to the renegotiation of the North American Free Trade Agreement, raising the likelihood that the 24-year-old treaty once again will become a focal point in President Donald Trump’s effort to rewrite the rules of global trade.

Efforts to overhaul the pact had floundered in recent weeks, amid missed deadlines and concern among many observers and participants that Mexico’s shift to a leftist-nationalist government could complicate negotiations.

In fact, the election of Andrés Manuel López Obrador may instead pave the way for at least some progress on the negotiations, according to trade negotiators and other observers. While U.S. businesses have concerns about Mr. López Obrador, the Trump administration’s approach to Nafta appears to dovetail with at least some of Mr. López Obrador’s economic priorities.

One big example: Mr. López Obrador has signaled his administration will be more receptive to Washington’s push to raise labor standards in Mexico—a key goal of both President Donald Trump and Democratic lawmakers in Washington—than had been the government of outgoing President  Enrique Pena Nieto, according to a U.S. congressional aide briefed on the talks.

With the Mexican election concluded, “we very much anticipate the Nafta negotiations will move into an intensive phase,” said Canadian Foreign Minister Chrystia Freeland last week before the election. Mexican officials made similar predictions last week.

President Trump said he wanted to wait until after the Mexico elections to continue with Nafta talks and threatened to impose tariffs on vehicles made in Mexico and Canada if a deal isn’t reached. “If they’re not fine I’m going to tax their cars coming into America,” he said in an interview with Fox News broadcast Sunday.

The talks are likely to focus again on a slew of contentious issues with significant stakes for all three members: the U.S., Mexico and Canada. President Trump, who has repeatedly threatened to pull the U.S. out of the agreement, last month attacked Canadian Prime Minister Justin Trudeau after the G-7 meeting in Quebec, and there have since been few signs of a thaw.

The fight adds to concerns over the Trump administration’s imposition of steel and aluminum tariffs on its neighbors to the north and south. Canada on Sunday imposed retaliatory tariffs on steel, aluminum and dozens of U.S. products, following a similar Mexican retaliation earlier in the month. Some of Canada’s planned tariffs target lawmakers in politically sensitive U.S. states.

Now, the Trump administration is threatening to apply tariffs on imports of all autos and auto parts, which if imposed on Nafta countries would eat away at the heart of the agreement. Mr. Trump has sought to use the auto tariff threat to win concessions from Mexico and Canada, a strategy that hasn’t sat well with the two Washington partners.

Mr. López Obrador, frequently referred to by his initials as AMLO, has brought a nationalist message that could clash with the “America first” policy of Mr. Trump. “Any of these ‘arm-twisting’ tariffs—whether the threat of auto tariffs or the imposition of auto tariffs—could be enough to make Mexico under AMLO walk away,” said Monica de Bolle, senior fellow at the Peterson Institute for International Economics, a Washington think tank.

Moreover, Mr. López Obrador’s leftist stance could make him more resistant to efforts by the U.S. to use Nafta to maintain competition in the country’s energy and telecom industries, the aide said. Another divisive topic—the U.S. proposal for a sunset clause to sink the agreement if the countries don’t regularly reauthorize it—has generated strong resistance from Canada.

Still, key economic and trade advisers for Mr. López Obrador say that they support the stance taken by Mexico’s outgoing government, and they have pledged continuity and willingness to reach an agreement on the sticky topics, such as U.S. efforts to weaken or abolish the international arbitration panels that currently resolve commercial disputes.

“Because of geopolitics, vicinity, friendship, economy, commerce, migration and culture, we are obliged to understand each other and to walk together,” Mr. López Obrador said in his closing campaign speech on Wednesday, adding that he plans to pursue a “comprehensive treaty” to the U.S. and Canada that will foster development.

U.S. officials had pressed Canada and Mexico to achieve a deal this spring, before the Mexican election and before a mid-May deadline for guaranteeing a vote in the U.S. Congress this year. Now any future Nafta deal would go to a different group of lawmakers in 2019 at the earliest, and officials have warned new congressional leaders may seek changes to any rewrite to the treaty, and thus put their stamp on it.

Mexico will have a long lame-duck transition period, as the president-elect won’t take office until Dec. 1, but current trade negotiators will seek the involvement of a member of Mr. López Obrador’s team as soon as he is formally declared president-elect later this month, officials say.

Under Nafta, U.S. manufacturers have produced cars and parts in Mexico, where wages are lower, but Mr. Trump’s administration wants Mexican factories to pay more for labor—or send auto jobs back to the U.S. or Canada.

Robert Lighthizer, the U.S. trade representative and lead negotiator for the administration, has sought to rework Nafta to require that 40% of the content of any car that trades duty free within the North American bloc come from workers who earn above a particular wage level, according to industry officials familiar with the trade negotiations.

The U.S. earlier this year discussed a wage floor of about $16 an hour, the officials said. By comparison, Mexican vehicle-assembly workers made less than $8 an hour on average in 2017, with those at parts plants making under $4 an hour, according to the nonprofit Center for Automotive Research.

Cars that don’t have at least 40% of their content produced with labor at or above the wage floor would be ineligible for duty-free trade and be subject to tariffs at the border, according to the proposal. For light trucks, a higher amount—45% of the vehicle—would have to come from such higher-wage labor, the officials said.

Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826

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