NAFTA 2.0 NEGOTIATIONS - A POLITICAL OVERVIEW - MEXICO’S TOUGH ROAD AHEAD

NAFTA 1.0 HANDSHAKE

 (The following is written from an independent political analyst's personal point of view)

14.07.17

The first formal round of the NAFTA negotiations kicked off in Washington, on the 16^th of August … Informally, of course, the negotiations have been ongoing for some time now, ever since Candidate Trump set down the marker of renegotiating the NAFTA and possibly even withdrawing the U.S. from the accord. Since then, there have been rumblings and grumblings all over the map from the three countries (the psych-out phase?), but now it is time to get formal, based upon the objectives and postures expressed by the three Parties.

What, then, should we expect going forward?

To provide the reader with a context to the observations that follow, this article sets forth a political overview to the negotiations from an attorney/independent political analyst who:

1.        Actively participated in the ratification of the NAFTA 1.0 in the U.S. Congress;

2.        Was invited to the White House NAFTA 1.0 strategy sessions with the Cabinet as a VIP Opinion Leader from California;

3.        Wrote Op-Eds published in various publications, commenting on various aspects of the negotiations; indeed, was a commentator on global affairs for the San Francisco Recorder, a Time-Warner publication;

4.        Debated the merits of the NAFTA 1.0 in numerous fora, including TV and radio;

5.        After the NAFTA 1.0 was ratified in the U.S. Congress, drafted the “White House Plan to Implement the NAFTA,” at the White House’s request;

6.        As a result, was invited to be one of the 20 Women of Most Influence in the U.S. Roundtable.

In Mexico, I was Vice Chair of the COECE - the organism which represented the Mexican private sector in the negotiation of all its Free Trade Agreements, culminating with the AAE with Japan.

The Current Political Backdrop to the NAFTA 2.0 Negotiations

A Powder-Keg in the Making in the U.S.

Notwithstanding that President Trump was duly elected President of the United States according to the rules that have historically governed presidential elections, and that while as a candidate there were those who pressured him to assure the people that he would accept the results of the election if he lost, those that in fact lost, refuse to accept the results. Moreover, there are some establishment Republicans who are likewise not too thrilled he won. Not to mention the main stream media, which absolutely refuses to believe that Donald J. Trump is now President Trump, and is doing its best to make life miserable for the President and undermine his presidency.

As a result, politics in the United States have become a veritable quagmire, like nothing history has ever witnessed. There have been many pundits and commentators who have characterized what is going on as a rolling coup d’état, with disparate groups having in common the goal of deposing the president.

On the other hand, important not to believe the same faux polls which would have had Hillary sitting in the Oval Office: President Trump’s supporters have held fast; indeed, the more he is attacked, the stronger the support – and they will not sit back calmly and brook the election being stolen from them.

All of which is a domestic powder keg which everyone should fervently hope does not get detonated, because the results will go way beyond hurting President Trump, with repercussions reverberating worldwide. Canada and Mexico, as the U.S.’s next-door neighbors, most especially had best hope the keg is never set off.

That is on the domestic front. On the international front, North Korea is an eminent threat not only to the United States, but to the whole world.

Consequently – notwithstanding the calls for speedy negotiations - the NAFTA 2.0 negotiations could very well be, perhaps very understandably so, relegated for now to the back burner of the White House’s political priorities.

But, they will go on. 7 agreed rounds notwithstanding, the negotiations will most likely be long, and hard. Mexico, as well as other parties, keep saying that the negotiations are all about the “modernization” of the agreement. They are not. Except for some basic clauses, it actually is, in fact, a renegotiation. Not only that, it is a renegotiation where the U.S. wants to definitely change the balance in its favor. Moreover, there many, many interests vying in all sorts of directions and finding common ground among them all will be a challenge in itself.

NAFTA 1.0 Was Originally Negotiated to Help Mexico

The fact remains that NAFTA 1.0 originally was indeed negotiated to help Mexico. Mexico was coming out of its “lost decade” of the 1980’s and was in very bad economic shape. Clearly, the country had to change its economic model from that of import substitution, to one of an open market. Up until then, Mexico had been one of the world’s most hermetically closed economies. 

To remedy its situation, modernize the Mexican economy, and to set up a legal framework that would provide a measure of certainty for a country not exactly based upon the strict observance of the rule of law, Mexico’s President Carlos Salinas de Gortari first proposed a similar agreement to the European Union, but got no where. He then pitched the idea to President Reagan, and the rest is history: the Agreement was negotiated through George H. Bush’s administration and Bill Clinton’s put it over the goal line.

Almost immediately upon being ratified, NAFTA 1.0 did actually help Mexico during the 1994-1995 so called “tequila crisis” which caused the Mexican economy to contract 10% in the first quarter of 1995 (that is no recession – that is a full blown depression) …

It is also true, however, that NAFTA 1.0 was, in addition, conceived as a way to make the entire North American region more competitive – especially, vis-à-vis China and other Asian economic powers, such as Japan. On that front, the idea was to turn the three signatory seconomies into North America, Inc.

Thus, as the years went by, the entire region was a boon to “production sharing,” where thanks to NAFTA 1.0's rules of origin, products were manufactured and assembled in the region as a whole, each facet in the country where it made more sense.

Still, the major benefactor continued to be Mexico – the only “emerging economy” to have ever negotiated a free trade agreement with two advanced economies, and who now has a trade surplus with the U.S. exceeding 60 billion dollars.

The Roles Have Reversed

Fast-forward to 2008, where the roles have reversed, this time with the United States experiencing a deep economic crisis, with people feeling jobs are scarce, with many having to take on, two or three jobs to replace the earning power they formerly enjoyed with a full-time job.

Like they say in the law, bad facts make for bad laws, so it is with the economy: bad economic times lead to stress, lower tolerance, and a less charitable view of life. Thus, it has become almost inevitable that the U.S. would want to redress the balance, this time in it’s favor.

How Canada and Mexico will negotiate around that, will be most interesting to observe – particularly given that President Trump is a pretty hardball negotiator, and he likes to keep his opponents off-balance. His dream team of negotiators are similarly pretty hawkish on matters of trade. The current political environment in the United States with the Trump Administration under siege, further makes it quite possible that if there are hiccups in the negotiations, the Trump Administration could be tempted to use them to distract from other issues.

Who Will Have the Harder Time Negotiating?

It is to be expected that the U.S. will be steadfast in its stated objective to obtain a more favorable agreement to its own interests. Actually, it could be said that President Trump is doing exactly what President Salinas did in his moment: looking out after his own people. Having said, there is a wrinkle:

As between Mexico and Canada, Mexico will most likely have the harder time negotiating for two reasons: (1) the perception of the Trump administration of Mexico as a State known for its ubiquitous corruption (to Mexico's credit, it has been taking great measures to eradicate it), and omnipresent organized crime (a tougher nut to crack, but Mexico is working on this issue as well), and (2) President Trump’s personal unfortunate unhappy experience in attempting to invest in Mexico.

As stated in a previous article, to win at any negotiation, you have to be very familiar with the context and the personalities of those involved. That article sets forth in detail the root causes that led to Candidate Trump winning the 2016 elections, and provides a profile of President Trump as a negotiator (as it happens, yours truly had been following Mr. Trump for years, as the real estate tycoon that he was). You can find the article here: (copy/paste it if you can't click on it)
 https://acepunditry.blogspot.com/2017/02/sitting-at-negotiating-table-with.html

Perhaps most important to the current negotiations, the article notes that President Trump has a tendency to hold on to grudges. He so stated to Richard Branson, who found that worrisome. Nevertheless, it is a fact. Sooner or later, Donald J. Trump seeks payback.

Payback Time?

Consequently, while a great swath of the American population blames NAFTA 1.0 for siphoning off jobs to Mexico (Perot’s “sucking sound” to the South) – whether true or not, in politics, as all politicians know, perception is reality - and Candidate and President Trump has been giving that swath a voice, it could well be that the matter is also quite personal to President Trump. In that regard, having made Mexico already nervous about both  NAFTA 1.0 and the wall, he may consider he’s gotten his pound of flesh; otherwise, his could well be a weighted vote to either make its terms tougher for Mexico, or to scuttle the Agreement altogether as he did with the TPP.

Mexico’s Dream Team

On the other hand, Mexico negotiated NAFTA 1.0 when its domestic outlook was complicated, and yet NAFTA 1.0 became the most innovative, groundbreaking agreement the world had seen at that time.

Since then, Mexico has negotiated 12 additional free trade agreements with 46 countries, including the European Union and Japan, and has become a much more open, modern economy. As President Trump himself stated numerous times on the campaign trail, Mexico had quite a dream team of negotiators of its own – which team has only been further honed negotiating the world’s most extensive network of free trade agreements and their related ilk. Sooo, Mexico should definitely not be underestimated in these negotiations. 

Plus, in the aforementioned vast array of FTAs, Mexico has a very good Plan B should it need to leave the negotiating table: up until now, more than 80% of Mexican exports go the U.S. It has been an uphill battle attempting to convince exporters to diversify their markets; the timing might now be perfect to start doing so.

Checks and Balances And The Upcoming Elections in the U.S. And Mexico

Having said all of the above, President Trump is, as we have already seen, and will continue to be, subject to numerous checks and balances as the negotiations move forward – including from all the vested interests of the three countries in the status quo, which will be aggressively lobbying to protect their interests.

The sheer number of interests that will have to be addressed by the negotiations – especially as to new subject matters – practically guarantees that the negotiations will get mired in the U.S. 2018 midterm elections and Mexico’s 2018 presidential election. And, even if by some miracle, the negotiations were to conclude before the aforementioned elections, the ratification of NAFTA 2.0 could take a long time. Other FTAs have taken up to five years to be ratified by the U.S. Congress – and they did not have the headwinds facing the Trump Administration.

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SITTING AT THE NEGOTIATING TABLE WITH PRESIDENT TRUMP

Mexico's Perspective
(The following is written from an independent political analyst's personal point of view)

President Trump most definitely has Mexico in his crosshairs.

Mexico was not only a front and center target during much of his campaign, but if there were any remaining doubts, President Trump's press conference with Prime Minister Trudeau should have dispelled them. Mexico is definitely in for a rough ride - at least until everything gets sorted out: President Trump himself has said he ultimately wants a good relationship with Mexico - it's the meantime that has everyone worried.

Consequently, it is absolutely and perfectly understandable that Mexico and Mexicans dislike President Trump - indeed, it is a total understatement to say they dislike him intensely. 

In their heart of hearts, Mexicans never thought for a minute Donald J. Trump would become President Trump. When he did, the shock and awe of President Trump's win at the ballot box led to all manner of truly hysterical reactions played across all spectrums - particularly from pundits and commentators. Ugly epithets and ad hominem attacks spewed forward and have yet to cease.

However, hysteria has never been a good position from which to engage in any negotiations. The good news is that it appears to be subsiding.

The bad news is that the ad hominem attacks against President Trump continue - and as anyone who is intimately familiar with negotiating knows, when your adversary relies on ad hominem attacks, it's over. You've won. Sooo, unless everyone settles down and cooler heads prevail, President Trump has already won. Most importantly, to arrive at any win-win conclusion, Mexico's negotiators would be well advised to understand and study who Donald J. Trump really is, along with his negotiating style.

Know your adversary

It is negotiating 101 that to succeed you need to know with whom you are dealing on the other side. 

Unfortunately many in Mexico bought the caricature of President Trump that the U.S. mainstream media spun of him during the elections, without considering that that media was pretty much 100% in bed with the democratic party and spent its time echoing the Democratic National Committee's and the Clinton campaign's talking points. It should also be taken into account that the left has never seen a Republican it likes, automatically painting one and all as racist, misogynist, etc., no matter the true facts. 

On the other hand, unquestionably, Trump's own disruptive and provocative style added fuel to the fire. All the more reason to look past all the smoke and mirrors - and, most especially, put the emotional charge aside.

The real Donald J. Trump

If there is one thing President Trump has liked throughout his career, has been to be underestimated. And boy did the entire U.S. establishment - left and right - severely underestimate him to their ultimate peril.

Let's just review for a minute what the "ignorant" "buffoon" accomplished in the elections:

1. During the primaries, he defeated 16 of perhaps the heaviest and best array of Republican opponents of modern times.

*  Not only were there heavyweights such as senators and governors among the 16, but he also beat the big money. Jeb Bush alone had an arsenal of $100 million dollars to spend on his campaign.

2. In the general election, he beat:

* The Clinton machine - which all things being equal, has always been a force to be reckoned with.

* The establishment media, the "main stream media,"  from all sides of the ideological spectrum, which not only never made even a pretense of covering the election objectively, but aggressively went after him, in a major league pile-on, distorting many of the things he said and flat out making up stories. The NYT even issued a subsequent apology. Moreover, if you believe Wikileaks, as stated above, the same mainstream media was totally colluded with the democratic party and the Clinton campaign - neither of which ever disavowed the content of the leaks.

* The apparatus of the government - starting with the Department of Justice, which refused to indict Clinton on evidence that exceeded that used to charge and condemn others. At the very minimum, highly questionable that the Attorney General met privately with former President Clinton on the tarmac.

* Barack and Michelle Obama themselves campaigned for Hillary, very aggressively attacking Trump at every opportunity.

* At least 4 - if not more - billionaires who went after Trump with everything they had.

And yet, against what appeared to be insurmountable odds, Trump prevailed. He must, therefore, have done something right. Indeed, in hindsight, like him or not, one might even argue he waged a brilliant, low-cost campaign.

How did he do it ... ?

For starters, he was the only candidate among the 18 (including HC and BS), who actually correctly read the mood of the country. Indeed, an argument could be made that the electoral results came about not so much because Trump stirred the masses; rather it was a "bottoms-up" phenomenon - movement, if you like. A resentment against statist policies burbling up for years until it hit the tipping point. Trump was just the right candidate at the right time. 

This argument is bolstered both by the previous historical two intermediate elections which bathed the country red (the color of the Republican party) - each election reaching new highs for Republicans - as well as the fact that that red wave reached even higher historical levels across the spectrum in the 2016 elections: the House and Senate, 33 governorships, state legislatures, etc.  

During his tenure, President Obama lost an absolutely historic 1030+ Democrat seats, practically destroying his own party by imposing an alt-left ideology on a country which has always been center-right.

The American people were clearly fed up with the statist policies of the Obama administration: all three elections being testimony to the greatest repudiation possible of the direction in which the country was going. Indeed, that was the one poll which was accurate during the elections, with 78% of those polled disliking the direction in which the country was headed.

Why Trump was a different candidate

What made Trump different from other Republican candidates who previously vied for the presidency? 

Trump became a particularly appealing candidate to an electorate restive and fed-up with the status quo, due to the fact that he was the first Republican pretty much ever to push back against the Democratic party's Saul Alinsky's onslaught. Trump said very provocative, very unpalatable, at times outright disgraceful, and most definitely, very un-pc things, and then doubled-down, notwithstanding all the hue and cry from all sides. Most other politicians freeze or wilt at the very first sign of a push-back. Trump squared his shoulders and withstood an unbelievable amount of 360 flack and "friendly" fire. 

Never before had a candidate been subjected to so much incoming fire and lived to tell about it. The electorate thus saw somebody who would and could stand up to the establishment and the status quo and who would actually fight for them. Very early on, Trump trascended his Republican base, attracting followers previous candidates only dreamt about. It was extraordinary to watch the fervor with which his adherents of all races spoke about him. This was clearly no ordinary candidate.

President Trump's negotiating style

To begin with, President Trump is not an ideolog - indeed, in that sense, he is 180 from Obama who always put ideology above everything else. Trump puts results above everything else.

Most importantly, at heart, Trump is a negotiator. A very hardball negotiator. He is also a master salesman. As behooves both roles, he is a very intent listener. Contrary to his public portrayal, as also behooves both roles, he does his daily homework: he reads a lot, which allowed/allows him to keep pace with the pulse of the public. 

Furthermore, he likes to think and act big, is very competitive and likes to have the last word.

At the same time he likes to keep his adversaries off-balance and guessing as to his next move, he is the master of the put-down; he doesn't take kindly to what he perceives as personal slights, and pushes back fiercely. Along the same line, he can be vengeful if he feels he has been wronged.

He is very resilient. As the Japanese proverb states: fall down 7 times, get up eight. He has seen some very dark times, but he got off the tarmac and rebuilt his empire into the billions. He trusts his instincts, and is a fast learner when he stumbles.

He thinks outside the box; he is not one to go along with conventional thinking, and he doesn't mind taking the slings and arrows that always accompany great change. Negotiators who insist on measuring him through the prism of conventional politics, will lose. He is truly the Disrupter in Chief.

He is extremely frugal - he won the election having been the candidate who spent the least.

He is a prodigious workaholic. His new staff is having a hard time keeping up with his pace.

While he has a bigger-than-life public persona, in private he can be quite charming; indeed, he likes to banter humorously (important to distinguish when he is just engaging in banter; press tends to take his every word seriously, sometimes, too seriously). He understands the importance of relationships - he could not have built his empire otherwise. Contrary to Obama who did not care for retail politics, President Trump loves schmoozing.

He is a mediatic creature par excellence. He grew up with the Ziegfeld follies and the understanding that successful businesses are entertaining. He understands we live in a mediatic age and not only has a keen eye for what works in terms of projection and appearance on the small screen, but for what causes ratings to rise.

On the other hand, he is under no illusion - contrary to the hope harbored by other Republican candidates, to their ultimate undoing - that the press is going to treat him fairly. Unlike many of his predecessors, however, he doesn't let the press get away with it, pushing back hard.

Along the same vein, he understands the importance of social media, and his personal vehicle of choice is Twitter. Alongside, he has embraced big data.

Having grown up with a successful father, it may be that he feels the constant need to prove himself, and that could also provide his drive to succeed.

Some would say he is a narcissist, yet he is quick to give others recognition, and where he detects talent, he promotes it. He has run his business as a true meritocracy. In particular, he has placed many women in important executive positions. His campaign manager was the first woman ever to lead her candidate to a win in a presidential election: a historic milestone.

Indeed, he has a great sense of people and how to engage them. The biggest factor in his win, was/is his deep connection to his base. He did not give speeches, he had warm conversations with his audiences. 

This actually is an important factor everyone should keep in mind: the people are with President Trump. Notwithstanding the bombardment of news to the contrary, and all the alt left demonstrations, President Trump's base remains rock solid. Having missed the Trump phenomena, the press is invested in making life miserable for him, but as in the elections, negotiators should be very wary of believing everything they read - most especially from the mainstream media.

It has been little reported that President Trump can be very generous. Among other things, unbeknownst to a good samaritan who stopped on the road to help him change a tire, Trump paid off his mortgage to thank him for his kind gesture. He gave a homeless man who went to his inauguration with borrowed clothes and shoes, $10,000 on the spot. In contrast, Obama refused to help his sick brother - a conservative stepped in and gave him $1,000 to cover his medical needs.

To sum it all up, President Trump is a complex personality, and is definitely no angel, but he is also not the caricature the media would have everyone believe ... By now nobody is under the illusion that he is not one tough negotiator; he may be perceived as a bully, but he gets results, as his tweets - again, his modern weapon of choice - have shown.

The next post will address the negotiations themselves, within the context that (a) everything that affects the relationship between the two countries is on the table, and (b) the negotiations have already begun and are playing out - among other avenues, tweet by tweet if you like, but they are ongoing, and (c) whatever President Trump does needs to be addressed not only at the international level, but at Mexico's domestic level as well.