NAFTA questioned by its masters, or does it matter anymore?

In the end, the question is: where does the Mexican national interest lie in the face of all that? Does it exist?

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Article 2202 of the North American Free Trade Agreement (NAFTA) stipulates that “the Parties may agree on any modification of or addition to this Agreement”, so it is more exact to speak of discussions rather than renegotiation. Nevertheless, the so-called fourth round of renegotiation of NAFTA met in Washington during the second week of October, 2017. To date, the previous discussions on NAFTA have not found any important point of agreement, rather the contrary. The confrontations between the political class, the transnational corporations and national enterprises have only grown, particularly between Canada and Mexico. The Prime Minister of Canada, Justin Trudeau, said in Washington, the day before this round of discussion began, that the problem of NAFTA has been Mexico; Trump replied that they might reach a bilateral agreement with Canada.


His position is based on the fact that the wages in the automotive sector in Mexico are but a fraction of those in Canada. It should be true that for equal products, equal wages, but it is equally true that lower wages are the mother of export growth. Those who gain with the wage differentials between Canada and Mexico in the automobile industry are the automobile manufacturers established in Mexico and the companies that provide them with parts made nationally. On the Mexican side it is small but significant; on the Canadian side it is hardly significant.


This old discussion, which could break up successive meetings on NAFTA, hides from view the situation of the substitution of hand labor by the new robotized schemes in the auto industry that will make electric cars without drivers. This could be the return of the US as the technological leader and the basis of global economic redeployment. The new American automotive investments have been taking place, since 2011, in the United States (Google, Tesla, Ford). This was happening several years before this polemic over NAFTA. This is one of the reasons that the United States could do without Mexico in the auto industry. The other is that Mexico makes light automobiles and the demand in the US is for pickups. Thus the Mexican factories will provide, increasingly, to the rest of the world but not to the US. The Canadian bet is to come in as a partner in this new robotized auto industry, just as in 1965 they achieved an auto pact (the father of NAFTA), long before Mexico.


The first three rounds of discussion have resulted in two different levels: one outside the meeting room, where Trump has constructed a false discussion with local elected officials and decision makers, through “good” media and his Twitter account; and the other level within the meeting room, which has been very reserved about communicating advances and results of the sessions. Much of what is known on the ambiance, agreements and issues has been the product of rumours, opinions and external declarations, rather than official communications.


From these results, from an optimistic angle, one could see an agreement on the chapters on Small and Medium Enterprises (SME) and on Competition, although these do not represent a significant advancement, a political victory nor a greater degree of certitude on what is happening in these discussions. From a pessimistic viewpoint, one has to recall the complexity of an agreement in the chapters on rules of origin of commercial products and the one dedicated to resolution of commercial controversies. The US wants 85% of North American content and 50% of this from the US itself; at present the regional content is 62% and the parts for American automobiles come, to a great extent, from China. Seen from this angle there is a conflict between companies and the State, and it would be logical that the companies win their argument and the State loses, according to the new prevailing global political economy.


As for the question of whether the North American companies can live without NAFTA if they do not export autos to the US, the answer is yes, once they find new markets. It is here where the chapters on SME fit in. The consensus on small and medium industries in the discussions is because, although the SMEs in the long run can live without NAFTA, they will hardly be able to support the technological transition of the next five years. One should recall that in accord with the proposals of the US, five years is the time foreseen for the next “renegotiation” of NAFTA.


The above is seen from the angle of the interests of the US auto industries. In the end, the question is: where does the Mexican national interest lie in the face of all that? Does it exist? In the US, on the one hand, there are many forces against or in favour of a “renegotiation” of NAFTA, but they all must face the “satrapia[1]” and the uncontrollable verbiage of the President. Trump, with decimated institutional support and slim executive achievements, continues with his campaign promise of protectionism and his previous warning of leaving NAFTA if he cannot achieve an agreement favorable to the US – in order to facilitate the technological transition of the auto industry and find the desired but nonexistent economic redeployment.


(Translated for ALAI by Jordan Bishop)


- Oscar Ugarteche is a researcher with IIEc-UNAM / SNI. Coordinator of the OBELA Project.

- Armando Negrete is a member of the Obela Project.
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