Economía 10-10-2017

Renegotiation of NAFTA

An atmosphere of marked nervousness reigns on the eve of the fourth round of the renegotiation of the North American Free Trade Agreement (NAFTA), generating a fall in the Mexican peso.

Meanwhile, there are growing bets on the possibility that dialogue fails primarily because of the United States' intransigence on some specific issues. Although virtually all emerging market currencies have depreciated against the dollar over the last month due to the expectation of a quarter-point interest rate increase in the United States next December 13, the peso has been one of the most devalued currencies.

After Turkey, who has a diplomatic crisis with the United States and South Africa, Mexico ranks third among the countries with the largest devaluations of their currencies against the dollar, with 5.13% in the last 30 days.

The phenomenon became more pronounced this week as the key day drew to a close on Wednesday, when the fourth of seven rounds of the NAFTA renegotiation, in force since 1994, began in Washington, which created a market of nearly 500 million consumers and tripled trade in the North American area to raise it to one trillion dollars.

After three stages, agreement has only been reached on small and medium-sized industries but the parties promise that further progress will be possible from now on, although there are also issues that threaten to slow down the process and even cancel it.

The threat of a rupture "that has been brewing in recent weeks" has been "one of the factors that led to the peso being the most depreciated emerging currencies against the dollar in the last month," said specialist Enrique Quintana.

The resumption of the talks to update NAFTA at the request of US President Donald Trump, who has described this instrument as a "complete disaster", will coincide with a meeting between US and Mexican business leaders in the Aztec capital.

The businessmen of both countries will discuss some of the ways in which they could defend the permanence of the agreement.

Mexico's Economy Minister Ildefonso Guajardo would participate in this meeting after attending the opening ceremony of the fourth round of the renegotiation, as well as the Foreign Ministers, Luis Videgaray, and of Finance, José Antonio Meade.

Mexican businessmen have expressed their rejection of the US intention to include a termination clause that would apply every five years in the agreement.

In addition, they oppose attempts to reverse Canadian and Mexican firms' access to US procurement contracts and raise so-called rules of origin limits to "extreme" levels, said John Murphy, senior vice president of international policy for the United States Chamber of Commerce.

There are also differences in the Mexican export of agri-food products such as "berries".

The other "Gordian knot" is that of the automotive sector, as the US government plans to "tighten rules of origin," which in the opinion of employers in the sector can reduce the competitiveness of the United States.

The fourth round of negotiations to bring NAFTA up to date "appears to be the most complicated one to date, given the open opposition of negotiating countries to several of the mainstreaming positions," he said today the specialized newspaper El Economista.

"The tension in the negotiations is due to the accumulation of proposals that the United States has formally or informally put on the table to amend the agreement and thus achieve its objective of mitigating the trade deficit it maintains with its North American partners, mainly Mexico" , he said.

The negative balance in the trade balance amounts to about 63,000 million dollars, a figure six times lower than that maintained by the United States in its trade with China.