Mexican Foreign Minister Luis Videgaray has warned that bilateral cooperation in a variety of spheres could be seriously affected if the United States decides to pull out of the North American Free Trade Agreement (Nafta).
U.S. President Donald Trump’s confrontational negotiating style was once again evident this week during a meeting with Canadian Prime Minister Justin Trudeau, ahead of the fourth round of Nafta talks in Mexico City.
“If we can’t make a deal, it will be terminated and that will be fine,” Trump said, bringing up the possibility that the United States and Canada could then sign a separate treaty without Mexico.
Although trade representatives from all three nations have tried to put a positive spin on talks thus far, saying progress has been made in several areas, Videgaray this week said Mexico needs to “be prepared for the worst,” while stressing that leaving the treaty “would not be the end of the world.”
Without going into specific detail about collaborations that could be affected by a U.S. pull out, Videgaray hinted that joint narcotics fighting operations and policy to stem illegal immigration at the country’s southern border could be revisited.
While the Mexican and Canadian governments are in agreement that 23-year-old trade treaty needs to be updated for the “modern era,” neither are keen to see protectionist provisions written into the deal just to allow Trump to fulfill his campaign promise to reduce the United States’ trade deficit with its neighbors.
A major sticking point is the so-called “sunset clause,” which seeks to dissolve the agreement after four years if U.S. expectations to reduce the trade deficit are not met. Mexico’s negotiators say this would scare off investors requiring long-term certainty in their planning.
More uncertainty would result if mechanisms for trade disputes are weakened, as the United States is proposing, and written into the treaty, they argue.
Another demand Mexico is unlikely to accept is the revision of content rules that, for example, would increase regional vehicle content to 85 percent from 62.5 percent, with 50 percent required from the United States.
Trump has come under mounting pressure from business and agriculture lobbyists who say terminating Nafta is tantamount to economic suicide and that thousands of U.S. jobs would be at risk.
Leading economists point out that his obsession with reducing trade deficits is actually counter productive, and could harm the economy rather than boost it.
Although Trump backtracked from ditching the deal at the outset of his administration, the signs now suggest that the tough talk and entrenched demands are calculated to maneuver Canada and Mexico into a corner, that might provoke one, or both, to walk away from the table. Such a scenario would give the U.S. president the perfect excuse to withdraw from the treaty blamelessly, and seek new exclusive deals with both neighbors.