By: Álvaro Santos and Mariano Gomezperalta C.
The renegotiation of NAFTA has begun. Since he was on the campaign trail, President Trump has openly criticized the agreement calling it the “single worst trade deal ever” signed by the US and one through which the US has been ripped off by Mexico. A few months ago, the press reported that President Trump even considered withdrawing from NAFTA by invoking article 2205 of the agreement. After the first round of negotiations, President Trump stated in Arizona that he personally does not think NAFTA can be renegotiated and that he may need to “kill” the agreement.
The Mexican government was initially in a state of negation about renegotiating NAFTA but now declares that NAFTA needs to be “modernized” and proposes that all issues of the bilateral agenda be put on the table. Mexico has been active in explaining to the US government why NAFTA is good for the US. It has also reached out to inform US producers that benefit from NAFTA of the costs of terminating the agreement. In short, Mexico is working with its allies in the US to put pressure on the Trump administration to preserve NAFTA.
In addition to emphasizing NAFTA’s benefits for the US, Mexico needs to determine what its agenda for the renegotiation process should be. To determine what to renegotiate, Mexico first needs an assessment of the positive and negative effects of NAFTA. While it is true that NAFTA can be modernized, since new commercial practices have emerged since it was signed over 23 years ago, updating NAFTA cannot constitute “the” agenda for Mexico. By relying on the premise that leaving NAFTA essentially unchanged is preferable to an unfavorable renegotiation, Mexico would give up the possibility of improving the agreement and its trade position with the US.
Mexico should take advantage of President Trump’s initiative to reopen the agreement to act firmly and address two substantive issues. The first one is a matter of principle: a country that accepts the other country’s breach of an agreement is bound to suffer new breaches. Mexico should request that unresolved disputes, particularly sugar and trucking, be resolved and that Chapter 20 on State to State disputes be improved. The second is to incorporate trade in labor which, remarkably, was left out of the original agreement.
Who has taken advantage of whom? Sugar and cross-border trucking services
Disputes about sugar and trucking services constitute two of the most frustrating episodes of the trade relationship between Mexico and the US under NAFTA. The sugar dispute arose in 2000 when the US blocked Mexican exports of excess sugar inventories despite the provisions of NAFTA Annex 7 which allowed Mexico to export them to the US in accordance with an agreed formula. This caused one of the most serious crises that the Mexican sugar industry (or any other Mexican industry) has suffered. When Mexico requested the establishment of a NAFTA Chapter 20 panel to resolve its claim, the US utilized the deficiencies of the dispute settlement provisions to block the selection of panelists and avoid the establishment of a panel and review of its measures. In an attempt to alleviate the Mexican sugar industry’s plight and increase its domestic sales, Mexico adopted an ill-advised tax against US high-fructose corn syrup. US companies challenged the Mexican tax under NAFTA’s Chapter 11 investment dispute settlement provisions and obtained multi-million dollar awards in their favor. It was disconcerting to Mexico that investors of the original breaching party (the US) could obtain multi-million-dollar award payments while the initially affected party (Mexico) had no access to an effective remedy. As a result, Mexico had to pay the awards and deal with a resulting sugar industry crisis, which had harmful effects on numerous communities of impoverished sugar producers. Had Chapter 20 worked properly, the outcome of this episode would have very likely been different.
The story in the trucking case is equally sad for Mexico. NAFTA provides that Mexican trucking companies are allowed to carry cargo, point-to-point, from Mexico to the US and back to Mexico. Given the Mexican truckers’ cost structure, this represented a real opportunity to assume an important part of the North American market of cross-border trucking services. Despite the NAFTA provisions and a panel ruling confirming Mexico’s rights, Mexican trucking companies have not been able to access the US market yet as the Department of Transportation will not grant them the required operating authority. For 20 years, they have been deprived of a US$400 million-a-year market which they were legally entitled to access. Despite the favorable general export terms that NAFTA countries enjoy vis-à-vis the rest of the world, this trade barrier deprives Mexico of that important competitive advantage.
Prospective Agenda: Trade in Labor
Although in the original negotiations the Mexican government stated that NAFTA would reduce the flow of Mexican workers to the US due to job creation, the number of people migrating to the US substantially increased during the first years of NAFTA. As with trade in goods, the expanded North American market altered labor demand and supply patterns. As one would expect in an integrated market, Mexican workers who lost their jobs (notably those in the agricultural sector) migrated to the US to work in farms (many of which export products to Mexico) and other sectors. Since this migration dynamic was not anticipated in the original agreement and there was later no political will to regulate it, this trade in labor occurred in an undocumented and disorganized manner with the acquiescence of US companies and of both governments.
Today, almost 5.6 million undocumented, immigrant Mexicans live in the United States. Mexico should include trade in labor as part of its NAFTA renegotiation agenda to ensure that Mexican labor receives non-discriminatory treatment consistent with the national treatment principles that apply to investors and trade in all other matters under NAFTA. An ambitious agenda would include an agreement for seasonal and temporary migration, broadening the existing visa programs to sectors in which there is a high demand for labor in the US. Incorporating it into NAFTA would allow parties to agree to mutually acceptable commitments on cooperation, monitoring and repatriation. It would help reduce the illegal trafficking of persons at the border and the human rights violations associated with it. It would also allow US enforcement agencies to register, monitor and better control border crossings. It would eliminate the need for a new border wall and would remove this issue from the political swings and the offensive rhetoric that is so damaging to the US-Mexico relationship.
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