NAFTA prospects through the lens of Mexico

December 17, 2017

Silently, deadlines linger.

It’s handled in hypothesis, Tony Payan cautioned, but as July’s Mexican presidential election inches closer, the more complicated renegotiations for the North American Free Trade Agreement could become.

Payan, director of the Mexico Center at Rice University’s Baker Institute, is not alone. And the question now is whether the July 1 election will prompt the Trump administration and its NAFTA negotiators to adopt a sense of urgency.

“Should be,” U.S. Rep. Henry Cuellar, D-Laredo, said. “But it doesn’t seem like they are.”

With regard to the agreement that helped transform the Rio Grande Valley economy, NAFTA renegotiation talks have, at least publicly, progressed slowly recently. In November, Canada, Mexico and the United States seemed to come from the fifth round of negotiations in Mexico City with little optimism. This past week, an “intersessional” round of talks took place in Washington, which did not include top trade officials from the three countries. The next round is scheduled for Montreal in January.

As the Montreal session should prove pivotal, a growing group is urging the administration to honor its initial promise of “do no harm” to the trilateral, two-decade-old treaty.

“This is playing with live ammo here,” U.S. Sen. John Cornyn, R-TX, said. “And I hope that the U.S. Trade Representative and Secretary of Commerce understand that.”

The Mexican election, currently in the pre-campaign stages, will begin in earnest March 15. Currently, it appears there are three main candidates, which will eventually be narrowed down to two. One would be favorable for U.S. officials while the other would not, which is why officials believe the Trump administration should want to expedite a deal.

Ricardo Anaya and Jose Antonio Meade would likely give the United States some comfort. Either may be chosen to challenge the candidate leading the early polls — two-time presidential runner-up and former Mexico City Mayor Andrés Manuel López Obrador.

Despite running a moderate government as mayor of Mexico’s capital, rivals describe Obrador, 64, as a dangerous radical similar to the type of socialist governing that has ripped apart Venezuela.

“There’s a very real sense that with two of the candidates, Meade and Anaya, you’d have some continuity,” said Brownsville native Tony Garza, the former U.S. Ambassador to Mexico. “If you go the other direction, Andrés Manuel, you can anticipate him and Trump at the same negotiating table. That moves from uncertainty to downright volatility.”

Depending on the deal, Payan believes it could have significant impact on the more moderate candidates should a deal be reached before the election.

“There is a lot of fear in Mexico,” Payan said, “and public perception that an uneven deal will tilt the number of percentage points in the number of electorate in favor of Mr. Lopez Obrador.”

Payan and Garza differ on Mexico’s handling of the negotiations — with the former believing Mexicans are shielding their hand to avoid revealing certain concessions, and the latter believing Mexico has been direct with its negotiations, pointing to the abundance of NAFTA negotiation attention in Mexico City media.

One thing is certain: Mexico has nearly 50 international trade deals. This is more than double the United States, and Mexico has been engaged around the globe in furthering existing agreements and forging new ones.

Mexico has “been very disciplined and focused on their approaches,” Garza said. “They’ve also been playing more of a strategic game in this sense: Not only are they working on negotiations with the U.S., but working on agreements with the European Union, the Chinese. They’re aggressive pursuing Plan B. And I think that makes plenty of sense.”

Garza added, “They have a cadre of negotiators. They’re very good.”

While trans-Pacific partnerships may seduce Mexico, as opposed to dealing with a turbulent Trump, a shared border brings a convenience that others don’t offer. Texas, especially, flourishes with cross-border trade.

Many in the Texas business community have met with the state’s delegation, and even the administration, urging to enhance trade with Mexico, according to Sen. Ted Cruz, R-TX. What’s in question is whether the White House is listening.

“I don’t know,” Cruz said. “There are a lot of conflicting voices within the administration, but I don’t know where they’re heading.”

While Cruz was unsure if the administration has a specific negotiating deadline, Payan pointed to late winter.

“If they do not finish by March 15,” Payan said, “then they will try to postpone the negotiations until after July and into the fall.”

The United States has its own obstacles, Garza said, beginning that same month. Congressional primary season begins in March, ahead of November’s midterm elections.

J.P. Morgan issued a report Friday researching Latin American emerging markets. It was titled “NAFTA or NoFTA?”

“Given the modest progress made in the previous five rounds,” the report read, “we believe there could be several more rounds than the seven initially envisaged, interspersed with more intersession discussions.”

Not only are there elections to overcome, but the Trade Promotion Authority is set to expire on July 1, the same day as the Mexican presidential election. TPA is the legislative procedure Congress had made available to the president many years ago, most recently re-extended in 2015.

“If a trade agreement negotiated by the president would reduce barriers to trade in ways that require changes in U.S. law, Congress would be responsible for implementing the agreement through legislation,” the Congressional Research Services reads. “If the content of the implementing bill and the process of negotiating and concluding it meet certain requirements, TPA ensures time-limited congressional consideration and an up-or-down vote with no amendments.”

However, there are political gymnastics to extending TPA. Payan said Trump would likely want to conclude the negotiation soon, in order to avoid both the Mexican election and the TPA deadline.

If not, “the president will have to renegotiate TPA with congress, which will be very hard,” Payan said.

Several deadlines may push the three countries — Tamaulipas Gov. Francisco Garcia Cabeza de Vaca reminded that Canada is also “very much involved” — to a quicker deal. But the Trump wildcard remains, officials warned, and in recent months the president has considered completely pulling out of the pact.

The uncertain future of the agreement led four Republican governors to meet last week with Vice President Mike Pence. They were “forceful” over concerns regarding potential changes to NAFTA, Garza said.

In addition, Cornyn and Cruz both strongly urged Trump not to pull out of the agreement. However, with the waffling negotiations, Payan looked not at the U.S. potentially withdrawing, but Mexico.

“There is one scenario, only one single scenario, that would make Mexico pull out of NAFTA,” Payan said. “And that would be if Trump cannot hold his tongue, and uses the opportunity of an agreement concluded to humiliate Mexico. I think if the Trump administration somehow — even after an agreement, however perfect it might be — chooses to portray that accord as a win for the U.S., a loss for Mexico and that Mexico would pay for the wall, I guess spins it in a way that humiliates the Pena Nieto administration.

“I don’t think it will happen,” Payan said. “But with Trump, it’s possible.”