High Stakes Abound In Negotiating A New NAFTA Deal

Jan 5, 2018

Commentary:  In my last column, I wrote about my visit with Mexican Ambassador Geronimo Gutierrez, during his November 16 trip to the El Paso/Juarez/southern New Mexico region. This is the second part of a two-part series.

During Ambassador Gutierrez’s visit to the El Paso/Juarez/southern New Mexico region, he provided his government’s stance on the North American Free Trade Agreement (NAFTA) renegotiations, which will be entering the next round of talks sometime early this year. The following are the ambassador’s thoughts on the negotiations.

According to Ambassador Gutierrez, there are four major issues that are at the heart of the NAFTA renegotiations. The first is the issue of modernizing the agreement. When NAFTA was implemented in 1994, the internet age was in its first stages. Phenomena such as e-commerce and internet fraud were terms that were barely being understood. Likewise, in 2013, Mexico introduced changes to open up its energy industry, in the major areas of oil, natural gas, and electricity, to foreign participation. Mexico’s energy sector had been nationalized since 1938, and the energy laws were a monumental shift in the direction of the Mexican government. These changes and the foreign participation in this industry were not part of the original NAFTA negotiations, and are being discussed in the renegotiations. According to Gutierrez, this first issue comprises approximately 50 percent of the NAFTA renegotiations.

Issue two deals with what Gutierrez refers to as the “progressive agenda.” This concerns environmental issues and labor rights. It also deals with indigenous people, especially as relates to Canada. While these are all important topics, Gutierrez doesn’t believe any part of the progressive agenda will be a deal-breaker in the renegotiations.

The third issue of the renegotiations focuses on government procurement and changing the process of investor settlement disputes. There has been tough talk bandied about by the Trump administration pertaining to dispute resolution under NAFTA. At times, this seemed to be a major sticking point going into the negotiations. However, according to Ambassador Gutierrez, this issue should also be resolved.

This leads us to what the ambassador deems the fourth and most difficult category of the renegotiations, which is establishing a national component system for the automotive industry, and the proposal by the U.S. that NAFTA will automatically expire every five years and renegotiations will need to take place. As to the automotive component system, Gutierrez believes that imposing a content requirement more stringent than the one that is already in place will be extremely difficult and disruptive for the automotive industry. Automobiles are no longer 100 percent made in any one country. Automotive manufacturers set up production around the globe where it makes sense from cost, supply, and logistics standpoints. Automobiles are also assembled based on these same principles. For the government to step in and mandate a different content than what the companies are subject to at present could cause havoc in supply chains and rising costs of the final product, which would eventually be passed on to the consumer.

As to sunsetting of NAFTA every five years and having to renegotiate the agreement anew, Gutierrez believes that this is a definite deal-breaker. Companies operate on strategic plans in which decisions are based years into the future. Renegotiating NAFTA every five years runs contrary to attracting industrial investment and keeping companies confident that politics will not interfere in their long-term decisions. Constantly renegotiating NAFTA would make the agreement subject to the whims of the politicians who are in office in times of renegotiations, rather than providing the security that the three nations have created a viable agreement, which will carry across political administrations.

As we go into subsequent NAFTA talks in early 2018, these four areas will be discussed in further detail. It behooves all sides to consider that introducing unreasonable demands to try to exact leverage could backfire. The North American Free Trade Bloc, which Canada, the U.S., and Mexico created based on NAFTA, has been one of the most successful trade agreements during the past 20 years. At this point in the renegotiations, “throwing out the baby with the bathwater” would be disastrous to all three partners.  

Jerry Pacheco is President of the Border Industrial Association.  His columns appear in The Albuquerque Journal.