The second half of 2017 starts this week with much ado about free trade for Mexico. Just last weekend the presidents of Chile, Peru, Colombia and Mexico met in Cali, Colombia, to announce the continuity of their participation in the Trans Pacific Partnership (TPP) and the continuity of this concept, minus, of course, Trump’s United States.
It was strange not to see Canada Prime Minister Justin Trudeau in the gathering but apparently the affair was a strictly Latin American event.
Also, for Mexico, there’s a rocky road ahead with the already programmed renegotiation of the North American Free Trade Agreement (NAFTA).
The end result of the Latin American side of the TPP was a 17-point declaration in which there is no turning back for the four nations, hence marking a new future for the Pacific Rim region for increased trade and business associations. Negotiations will continue as there’s no doubt that China is interested in joining and definitely, the doors are open for it to do so.
But on the home front NAFTA indeed represents a whole different issue because, unlike TPP, it is more concrete as the issues at hand are not as complex to deal with.
Two key themes, however, have a murky future. They are the negotiations time table and the disparity of wages — hence purchasing power — between Mexico and the United States and Canada. Let’s take them one at a time.
Even if negotiations begin in August there is no saying in how long they will take as many of the issues are complex and unlike during the two year negotiations back in the 1991-1993 period, 23 years of free trade have created a different business environment with approximately $600 billion a year now flowing in the three economies.
Yet the current government administration in Mexico is in a hurry for reasons that more political than financial. President Enrique Peña Nieto wants a rapid deal and has even suggested that it would be just fine if it’s finished by next December.
Yet there are a myriad of prickly issues that admit no rush in negotiating and definitely the United States negotiating team led by U.S. Trade Representative Robert Lightizer and Commerce Secretary Wilbur Ross have shown concern over the fact that 11 months from today Mexico will elect a new president. Both have acknowledged that the pressure for a quick time table is strictly being applied by Mexico.
In fact, Scotiabank’s chief economist Jean-Francois Perrault in a recent visit to Mexico said that the country can achieve a much better deal if negotiations stretch for the duration of 2018 and even into 2019. He sees no sense in rushing through the complexity and number of the chapters which is bound to increment particularly regarding computing and telecommunications issues.
Yet President Peña Nieto wants the NAFTA renegotiation to be his legacy but in the end, as Perrault put it, what if the next President — possibly from a party different than the President’s Institutional Revolutionary Party — undoes negotiations? Definitely, negotiators are in a tough situation regarding time.
In terms of wages, the AFL-CIO is demanding that Mexico homologates wages equally with those paid in the United States. The answer to this demand from the influential Entrepreneurial Coordinating Council (CCE) is a resounding no.
Says Moisés Kalach, director of the Strategic Council for International Negotiations of the CCE that such a proposition “will not be viable” even if the labor theme is opened up for negotiations too. Kalach says that it was included in TPP and under current NAFTA stipulations it was agreed that each nation was committed to respect labor laws of the trading partners as that is considered an internal affair of each nation as it was also negotiated at TPP.
That only great offerings Mexico will bring to the negotiating table will be “cost effective” labor as Mexican businessmen like calling low wages. Yet if the labor issue hits the negotiating table, expect the wheeling and dealing to last a long time.
We’re now waiting for the negotiations plan to be presented by the United States and Canada. Mexico is also working in tandem with the two negotiating teams but the difference is that the northern partners don’t see the rush other than the effect the next presidential election will have in Mexico.
As for the President Peña Nieto Administration, this is one issue in which, in violation of Mexican customs, they can’t say “mañana.”