Economics: Positive Signs from Nafta Round 5
The fifth round of the Nafta renegotiations proved to be something of an improvement over the stalemate of the previous round, which had heightened pessimism about the pact’s fate. Negotiators made progress on technical details that are the bedrock of the trade pact. Canada and especially Mexico offered concrete options to imprecise Washington demands for “rebalancing” the accord to benefit the US, including ways to accommodate its insistence on dramatically changing rules of origin for the automotive industry. But only minutes after lead negotiators from the three countries issued an upbeat final statement on the fifth round, US Trade Representative Robert Lighthizer complained that he had “seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement”.
Despite the risks and uncertainty inherent in this situation, the Mexican economy continues to perform well, and the Mexican government and private sector have a deeper understanding of their options for continuing to develop the country’s presence in the world economy in the event the US government were to abandon Nafta.
In addition to a steady monetary policy and a peso that has been rebounding in recent days, Mexico is on its way to a stellar year in terms of FDI, with almost a fourth of such inflows directed at the automotive sector, and non petroleum exports outside of North America showing robust growth.
All TPP countries remain engaged even after Trump withdrew the US from the partnership, and Mexico has intensified its high-level diplomatic contacts with an eye toward deepening trade and investment relations with other countries.
Industry associations and other Mexican private sector organizations have concurred that a US withdrawal from Nafta would not be catastrophic for the Mexican economy, as most exports would continue to receive WTO treatment, and those that encounter higher tariffs could find a certain compensatory factor in peso depreciation. Underscoring the already manifest competitiveness of the country’s manufactured and agricultural goods, industry associations have been developing alternative development strategies for capitalizing on Mexico’s experience and competitive advantages.
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