Giving one of the keynote addresses at the 53rd annual meeting of worldsteel (World Steel Association) held this week in Monterrey, Mexico, Dr. Jesús Seade, deputy foreign minister in the Mexican government and one of Mexico’s top negotiators in the United States-Mexico-Canada Agreement (USMCA) talks, began by talking about the origins of the USMCA in the North American Free Trade Agreement (NAFTA) of 1994, through which Mexico went from being basically a single-product trading nation, exporting oil, to being an industrial nation, with a huge manufacturing sector, with manufacturing representing more than 80 percent of the country’s trade. This came after the crises of the 1970s. He said NAFTA brought social diversification and was very much the vehicle for Mexico to become an open economy. It became not only a very diversified economy, but the biggest exporter in Latin America. Nevertheless, there have been criticisms, he noted. While creating a very export-oriented economy and diversification in industry and services, a combination of NAFTA and government policies meant that growth in Mexico has been abysmally poor for the past 25 years, two percent on average. A policy of repressed salaries has given Mexico an edge as an exporter, but internally as a result there has been no demand and so no growth. At this juncture, Andrés Manuel López Obrador has come to power with a mandate to combat corruption and income inequality. This is a president, a government, with a social conscience, which is on the left but a very peculiar Mexican-style left, Dr. Seade remarked, affirming that López Obrador has always been an absolute friend of private enterprise. As governor of Mexico City, he worked closely with private enterprises and had a very successful tenure. His orientation very much on coming to power as president has been to work with private enterprises, Dr. Seade stated, while his main announcements were focused on fighting corruption and inequality.
At a time of certain criticisms in Mexico of NAFTA, Donald Trump became US president and decided to pull out of NAFTA. While noting that Trump wanted to have a very protectionist policy to benefit industry in the US, he went on to say that on the Mexican side everyone would have expected a disaster with the negotiations taking place before and after a change of government, but in fact the Mexican side proved to be very cohesive: the new government was very much pro-trade, pro-NAFTA 2.0, pro-completion of these negotiations. The intention on the US side was hugely protectionist initially; e.g., there was a proposal for the car industry that 50 percent of cars had to be costed in the US - unprecedented in a free trade agreement. This was changed.
In this presentation, the Mexican deputy foreign minister noted firstly regarding the USMCA negotiations that the updating of NAFTA was essential. It was found to have imprecisions, ambiguities and timelines that were not realistic. The new treaty is a deep systematic revision of NAFTA, he said, making it much more precise, user-friendly, business-friendly, while it also covers new areas such as electronic trade. Secondly, he remarked, of fundamental importance is the renegotiation of the rules of origin - the conditions under which the goods can be deemed to be North American and can therefore be exported from Mexico to the US duty-free. In the renegotiations, these rules of origin have been expanded, so it has become much more difficult to define products as North American. If a product has a little too much content coming from Europe, Asia or South America, then it is not North American. So the incentive is thus created for companies to invest in the North American region, to continue to be able to benefit from the biggest market in the world, which is the US. Already, Dr. Seade noted, in one the areas most affected by the new rules of origin, automotive, five major companies have announced an increase in investment or intention to increase investment in the region. To summarize, he said, one major impact of the new treaty is to make it more attractive or necessary for companies to invest more in the region to continue to benefit from free trade in the region.
Thirdly, he said, this is the first treaty - together with the Trans-Pacific Partnership (TPP) but it goes well beyond the TPP - to bring in rules extending beyond commercial areas of the economy, to social issues. There is a major labor chapter, which will alleviate the situation of repressed salaries in Mexico. There is also a major chapter on the environment, a chapter which will increase protection of and assistance to SMEs, a chapter on anti-corruption, a chapter promoting assistance for original indigenous peoples. It has more of a social conscience, he said, adding “All in all, I am convinced that it is a good treaty for Mexico, US and Canada.”
Dr. Seade remarked that, while the USMCA negotiations were initiated by Trump and his team and while before all the talk from the Democrat side was of rejection, their talk now is just of correction of specific points, of improvement. He said that one of the major areas for which change is sought on the US side, one which Mexico supports, is eliminating the possibility of blocking the formation of dispute settlement panels, which existed under NAFTA.
In general, the treaty is moving towards completion, he said. The recent moves to impeach Trump will help the treaty rather than harm it. This is because, since the Democrats are nervous now that the electorate are going to suffer the uncertainty of impeachment, they are not going to want to create additional uncertainty for the people with the USMCA. He concluded that soon, within the month of November, if not in early November, Nancy Pelosi, Speaker of the US House of Representatives, will give the go-ahead for the ratification.
A final remark on steel, the deputy foreign minister said steel has suffered from an abuse of trade instruments on a pretext of US national security. After a long stalemate, South Korea, Argentina and Brazil negotiated quotas, while Australia has negotiated exemption from quotas or tariffs, with all other countries subject to high tariffs. Mexico is the only country that has negotiated its way out on a free trade basis, he noted. How did this happen? It is a pointer, he said, towards the emergence of the creation of a more cohesive North America in economic and commercial terms, that with close trading partners you do not do such things.
Wrapping up his presentation, Dr. Seade said that Mexico has a hugely popular government and president, who cares for the poor, adding that this is fundamental for capitalism or else it would be headed for a train crash in Mexico. We are now caring for the poor, he said, but not by attacking industry or raising taxes, but on the contrary, working with private industry. This, he stated, is very much the flavor of López Obrador. Combined with this, the emerging increasing cohesiveness of North America, he said, suggests that we are going to have a pretty good future in North America, a reliably solid North America, and a good place to continue to expand investments.