June 05, 2018 ILN Winter 2018

NAFTA Renegotiation and the Mexican Economy

By Eduardo Sánchez Madrigal

The North American Free Trade Agreement (NAFTA) has become the most relevant international treaty for the Mexican economy since it came into force on January 1, 1994. The tri-country free trade zone among the United States, Canada, and Mexico created by NAFTA has resulted in an unprecedented net benefit for Mexico’s manufacturing and agricultural sectors and boosted the share of exports from Mexico to its commercial partners. Moreover, despite being passed during a time of recession in Mexico, NAFTA was one of the main factors that contributed to the country’s transition into a real democracy and that pushed its economy into the global marketplace.

North of Mexico’s border, NAFTA represents a cornerstone for the U.S. economy. By eliminating tariff quotas in certain key exports, NAFTA reduced the overall costs of commerce among the three countries and boosted their economic growth. Lower tariffs have also resulted in lower prices in agriculture and oil imports, resulting in a significant political advantage for the United States when dealing with other exporters.

As in any multilateral relationship, the effects of NAFTA have several nuances. Concerns that the benefits are not as reciprocal as they should for all the parties involved is spurring the Trump administration to seek a renegotiation of the 24-year-old trilateral pact. The Trump administration’s current trade agenda includes renegotiating the agreement; however, the United States could potentially withdraw if more beneficial conditions are not achieved.

The U.S. trade policy goal to renegotiate NAFTA with better terms for the United States does not come as a surprise. During a 2016 U.S. presidential election debate, Donald Trump described NAFTA as “the single worst trade deal ever approved in this country.” Full Transcript: First 2016 Presidential Debate, Politico (Sept. 27, 2016). Then, on July 17, 2017, as a legal requirement to commence the renegotiation of NAFTA, the Office of the U.S. Trade Representative (USTR) issued a Summary of Objectives for the NAFTA Renegotiation and subsequently updated the objectives in November 2017. See Office of the U.S. Trade Representative, Summary of Objectives for the NAFTA Renegotiation (Nov. 2017).

President Trump’s determination to renegotiate NAFTA has not faded and has led so far to seven rounds of renegotiation between representatives of the three North American countries. They are expected to return for an eighth round in early April to speed up the process as Mexico’s presidential elections approach.

So far, the negotiators have not struggled to find common ground in proposed changes to digital trade, energy, and regional manufacturing regulations, but, as could be expected, negotiating key issues, such as dispute resolution mechanisms and the inclusion of a so-called sunset clause, have proven to be quite challenging. In Mexico, the overall stance towards the NAFTA renegotiation is that it must be adapted to modern realities rather than repealed.

One criticism of NAFTA has been directed towards the migration of U.S.-owned factories into Mexico, or “maquiladoras,” and the adverse effects that the search for cheap labor force has had on U.S. jobs and wages. Some within the U.S. business community view modernizing the conditions of the agreement as a necessary step, as well as an opportunity to address changes to labor standards and the operation of maquiladoras. See, e.g., Lorne Matalon, U.S.-owned factories in Mexico Welcome the Prospect of NAFTA Changes, Marketplace (June 27, 2017).

As the NAFTA renegotiation proceeds, uncertainty remains. NAFTA is not a perfect agreement, but its flaws call for an update and not for its end. Hopefully, the NAFTA renegotiation will result in a more balanced free trade pact where the trilateral relationship’s potential can be directed towards a more fruitful future.

Panel Series on NAFTA-The Next Generation

The Section’s Mexico, Canada, International Trade, and International Energy and Environment Committees are sponsoring a series of three panels on NAFTA in advance of a jointly sponsored panel program at the Annual Conference in New York.

The first panel, focusing on agricultural provisions, was held at the law firm of Faegre Baker Daniels in Chicago in January, featuring Chair-Elect Robert Brown, John Cruickshank, Consul General of Canada in Chicago, and Luis Martinez, Counselor for Agricultural Affairs in the Agricultural Office at the Embassy of Mexico in Washington D.C.

The second panel to explore industry and market perspectives will be held at Bennett Jones in Toronto on February 27, 2018, and will be held in collaboration with the Canadian Bar Association. Jesse Goldman, a Partner at Bennet Jones, will lead a moderated discussion with Alex Dewar, Senior Manager of Boston Consulting Group, Daniela Flores, an Associate Attorney with Ec Legal Rubio Villegas in Mexico, Sacha Kathuria, Manager of Regulatory and Industry Analysis at the Association of Oil Pipe Lines (AOPL), John Langrish, President of the Canadian Energy Round Table, and Andy Shoyer, a Partner in the Washington, D.C. office of Sidley Austin LLP and co-lead of the firm’s International Trade Practice.

The third panel focused on the automotive industry will be held in April in Mexico City, in advance of the Annual Conference. Additional details will be announced on the committee listservs.

International trade lawyer Dunniela Kaufman will moderate the capstone program on “NAFTA-The Next Generation” at the Section’s Annual Conference in New York City on April 19 at 9 a.m. Speakers will include Marney Cheek, a Partner at Covington and co-chair of the firm’s Arbitration Practice Group, Fernando Holguin-Casa a Partner at Ec Legal Rubio Villegas in Mexico, and Matthew Kronby, a Partner in the Toronto office of Bennett Jones. The discussion will explore the industry, political, and social influences shaping the negotiations and whether the agreement might be expanded to include new sectors. It also will look at the potential influence of commitments made in the Trans-Pacific Partnership Agreement and Canada’s Agreement with the European Union.

Conference on International Trade and Investment

Mexico City, November 6-9, 2018

Free trade agreements, including the future of NAFTA or NAFTA 2.0, will be a key topic at the Section’s upcoming specialty conference in Mexico. On November 6–9, the Section will be hosting the 2018 edition of its Conference on International Trade and Investment at the Presidente InterContinental Hotel in Mexico City. The conference will feature twenty-six programs led by distinguished legal professionals, addressing hot topics such as anti-corruption, energy, immigration, and international trade and investment. The conference also will include a home hospitality night for small-group networking, two offsite receptions in venues chosen to highlight Mexico’s cultural heritage and history, a special tour of Mexico City, and the opportunity to earn up to twelve continuing legal education (CLE) credits. Moreover, the conference agenda will be enriched by networking events and luncheons where attendees will have opportunities to interact with world-class speakers and colleagues with diverse professional backgrounds. Interested members are encouraged to register early to enjoy the special reduced rates.

The Planning Co-Chairs for Mexico Conference include Luis Perez, René Mauricio Alva, Robert Brown, Mario Piana, and Carlos Velásquez.

Visit the Section’s website for additional information about the Mexico Conference on International Trade and Investment, November 6–9, 2018.