New NAFTA talks may help Mexico lock in energy reforms, speaker says

Aug. 15, 2017
North American Free Trade Agreement renegotiations, which are scheduled to begin on Aug. 16, could help Mexico solidify the substantial energy reforms it enacted following the original agreements adopted 23 years ago, a former Mexican Foreign Affairs Ministry official suggested.

North American Free Trade Agreement renegotiations, which are scheduled to begin on Aug. 16, could help Mexico solidify the substantial energy reforms it enacted following the original agreements adopted 23 years ago, a former Mexican Foreign Affairs Ministry official suggested.

“NAFTA 2.0 gives Mexico an important chance to lock in its energy market reforms by integrating North American energy markets further,” Luz Maria de la Mora said during an Aug. 15 discussion of Mexico and the upcoming NAFTA negotiations at the Woodrow Wilson International Center for Scholars.

Energy was one of the biggest political areas the original 1994 NAFTA opened in Mexico, she indicated. “But the Pena Nieto government is near the end of its term and has little political capital left to spend,” said Maria, who now is managing director of LLM Consulting in Mexico City.

“We will have our next presidential and congressional elections next July and that creates uncertainties, especially if the latest NAFTA negotiations haven’t been concluded,” she explained. “But there are no signs yet that anyone in Mexico wants to get rid of NAFTA.”

That is not the case in the US following Donald J. Trump’s becoming president following a campaign in which he disparaged the agreement and called for the US to withdraw from it, other speakers pointed out.

“Failure clearly is a US option,” said Fred Bergsten, a senior fellow and director emeritus at the Peterson Institute for International Economics in Washington. “That makes it critically important for the other two countries to show why this would be such a big mistake for the US.”

Negotiate elsewhere too

What happens in NAFTA negotiations also is affected by the three North American countries’ talks with other parts of the world, he continued. “This is particularly important for Mexico, since it has negotiated with other countries to remove its barriers. My advice to its negotiators is to keep pressure on the US up by reaching agreements with other countries,” Bergsten said.

“If the US and the Trump administration want to improve relations with Mexico, it should work hard to improve Mexico’s economy,” he recommended.

Mexico’s economy depends more on the US than it does on any other country, a third speaker observed. When the government there began to hear what the Trump administration was considering, it grew concerned and began to start discussing how it might help the use, said Christopher Wilson, deputy director at the Wilson Center’s Mexico Institute. “Right now, for instance, it deports a significant number of illegal Central American immigrants instead of letting them slip through to the US,” he said.

“The two countries have many common interests,” Wilson said. “Mexico has said that market access restrictions are a fundamental red line that shouldn’t be crossed. Rules of origin is another, particularly regime requirements. NAFTA’s safeguard mechanisms could be addressed.”

He said that as Mexico heads into the election season in 2018, the current administration will feel heavy pressure to address domestic issues instead of diplomatic questions. “I think NAFTA renegotiations have only a slim chance of being concluded by the end of 2017. But the agreement has imbedded several important relationships that make the three countries more competitive globally with a strong supply chain and manufacturing platform.”

Francisco de Rosenzweig, a former Mexican undersecretary for foreign trade who now is a partner at White & Case LLP in Mexico City, said that border security and infrastructure questions will be important to all three countries if negotiations are to be completed in the next 6 months.

Using a TPP template

“Mexico no longer is afraid to negotiate with the US. We have a great team,” he pointed out. The country should use the Trans-Pacific Partnership as a starting template, even though the US pulled out of that agreement, because Japan now negotiated more with New Zealand than with Mexico, and not enough Mexican companies trade internationally, Rosenzweig said.

Mexico probably will not consider wages—because labor and legal reforms are under way already—and trade deficit during the talks because they matter less now than they did 40 years ago, he continued. “We aren’t willing to consider tariffs or trade barriers in any way,” he said.

“Mexico should look for more, not less, NAFTA now because it opened the door to a new democracy after 23 years of control by one political party,” said Maria. “There’s plenty of room for improvement. There’s also little sentiment in Mexico to responding to Trumps protectionism by closing our markets.”

NAFTA already has shown how key economic sectors were heavily dominated by a few entities, she pointed out. “NAFTA 2.0 will provide opportunities to create a better business environment. Today, our biggest challenge may be to restore the North American idea aid now NAFTA helps us participate better in the world economy.”

Trade settlement mechanisms have been one of the original NAFTA’s most important features, according to Maria. “If the result of this renegotiation is to preserve and improve NAFTA, the three countries still need to consider immigration and other issues,” she said. “Mexico has a bonus: Its population’s average age is 26, making it a potentially important labor source.”

A new NAFTA also could include the next state-of-the-art trading rules, she went on. “The rules and disciplines we adopt will provide a model for future trade agreement elsewhere,” Maria said. “But a new NAFTA also may be required to address Mexico’s internal security challenges.”

Contact Nick Snow at [email protected].

About the Author

Nick Snow

NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.