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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