Mexican approach to NAFTA renegotiation offers lessons for U.S., observers say

Mexican business and trade interests are astonished that an array of U.S. industries, as well as the U.S. Chamber of Commerce, are at odds with their own government over what provisions should be included in the renegotiated North American Free Trade Agreement (NAFTA), a Mexican attorney with extensive international trade experience told the Coalition of New England Companies for Trade (CONECT) 16th Annual Northeast Cargo Conference in Providence, R.I., earlier this month.

Such conflicts don't arise between Mexican businesses and the country's trade negotiators, according to Edmundo Elías-Fernández, who practices with Cacheaux, Cavazos & Newton in Guadalajara. Mexico has a private sector advisory group commonly referred to as the "Cuarto de Junto" ("in the next room"). These advisors represent the interests of Mexico's major industrial and service sectors. Though they don't participate in the negotiations, they are present at every round to provide immediate feedback to negotiators, Elías-Fernández said. As a result, Mexican private industry will not be "blindsided" by negotiators' proposals, as has been the case in the U.S., he said.

There has been no shortage of squabbling between the U.S. government and industry over NAFTA. In early October, a U.S. Chamber of Commerce executive called some Trump administration proposals "highly dangerous" to the U.S. economy. Later that month, several automotive-industry groups formed the "Driving American Jobs" coalition to fight the White House's stance on renegotiating the treaty, including a proposal that cars made in North America contain 85 percent NAFTA-origin content, with 50 percent of inputs manufactured in the United States, to qualify for duty-free treatment. Numerous business groups and companies have slammed President Trump's assertion that he will pull the U.S. out of NAFTA if he does not get what he wants. The groups have warned that the three North American economies would suffer irreparable harm if the agreement were to fall apart.

For now, negotiations are moving quickly, said Nicolas Guzmán, a senior associate with Drinker Biddle & Reath, a U.S.-based law firm with a large international trade practice. Guzmán noted that previous rounds have covered approximately 60 percent of the issues to be renegotiated, and a fifth round that begins later this week in Mexico could reach accords on perhaps 75 percent of the topics on the table, he estimated. (Mexico's chief negotiator is Kenneth Smith Ramos; read our Q&A with him here.)

Guzman, who also spoke at CONECT, said Mexico seeks four things from an updated accord: Strengthened competitiveness across North America; regional trade policies that are "inclusive and responsible"; rules changes that will allow Mexico, Canada, and the U.S. to take full advantage of "21st century" economic opportunities; and economic certainty that encourages trade and investment in all three countries.

Elías-Fernández and Guzmán highlighted several areas of disagreement between the U.S. and Mexican positions. Number one on their list is the U.S. demand that cars made in North America must include 50 percent U.S-made content in order to qualify for preferential treatment under NAFTA. This has "set off a lot of fireworks" because U.S. automakers have invested heavily in Mexican assembly plants, Guzmán said. "The capacity doesn't exist in the U.S." to meet the 50 percent requirement, he contended.

Elías-Fernández said that although the 50-percent proposal is unacceptable, he thinks the automotive rules of origin "are going to change in some way." He also believes the United States will try to push similar U.S.-content requirements on other industry sectors. Both Canada and Mexico strongly oppose such positions.

Other concerns include the Trump administration's proposal to renegotiate NAFTA every five years, a plan that would create enormous uncertainty and instability for businesses, Elías-Fernández said. "Nobody makes plans or invests in five-year time spans," he said. Mexico is also worried about the U.S. demand that the three countries follow Washington's lead and raise the de minimis threshold for formal customs entries to US$800, meaning that imports valued below those levels would be exempt from certain import documentation requirements. Mexico City calls the U.S. demand a non-starter due to concerns about smuggling and security.

A sixth round is scheduled for January in Canada, and a seventh round is possible, Guzmán said. Mexico's negotiators will "remain at the table" and will respond firmly even to proposals that are unacceptable, he asserted. Mexico "is not taking the bait, but it's not backing off, either," he said.