NAFTA Negotiations Might lead to Mexico Leaving the Treaty: San Diego Impact

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Jan 25, 2017 (San Diego) Mexico will not renegotiate the North American Trade Agreement if it does not benefit Mexico in some way. This was stated by Mexican Economy Minster Lidefonso Guajardo in an interview to Televisa, reported by Muro Politico, “We would have no other option. It would make sense to get less from what we have.”
Leaving the treaty is not that difficult. It is a section within the treaty. Mexico has to inform the two counterparts and the clock starts ticking, with the process ending in six months. This will not close the US border to Mexican imports. According to agreed-upon international treaties, such as the World Trade Organization, or the General Agreement on Tariffs and Trade, the border taxes will go up by 3 percent, which should not affect Mexican exports to the United States that much.

This is not the problem, however. While they Canadian government is signaling that they will leave Mexico behind in their negotiations, to prevent becoming a target of the Donald Trump administration, but the close relationships between the two countries are coming to an end.

It will affect the US economy since 4.5 million jobs in the US are directly tied to NAFTA. Then there are other areas of close cooperation, due to the Plan Merida. which has increased the cooperation between the two militaries, as well as police forces. Mexico could conceivably stop all cooperation with the Drug Enforcement Agency, for example. This could mean no sharing of intelligence, useful for law enforcement on both sides of the border.

In case you are wondering, here are the agreed upon international rates for tariffs across borders. These are rates set by the Word Trade Organization, which we are parties to.

Minerals, such as oil, would be taxed at 2.6 percent. Agricultural goods, which in border cities we know off, would have a border tax of 1.2 percent. Mexicoexportsrts to the United States, since the signing of NAFTA grew by 525 percent, and made the US one of the main export markets for Mexico.

Mexico is the third largest export market for the United States, according to the US Trade Representative, with trade at $531 billion dollars two-way trade. According to the US Trade representative, exports were at $236 billion, with imports at $295 billion. The US trade deficit is $58 billion.

Mexico is the second largest market for US exported goods. They amount to 15.7 percent of all US exports and have gone up 468 percent since NAFTA was signed.

What about the border region? The first thing to understand is that both economies are tightly interwoven, to the point that the building of a border wall will benefit a Mexican company. This is CEMEX.

 The possibility of profit for a south-of-the-border industrial giant, which is the largest cement maker in the Americas, shows the tight interweaving of the U.S. and Mexican economies. The U.S. is Cemex’s biggest market, representing a fifth of its revenue last quarter, and a windfall from the wall would help complete its comeback from near-bankruptcy after the recession.

The county of San Diego depends on Mexico for things like renewable energy, as well as trade. “The region is tightly connected. The border region is interdependent. They need to develop policies and economies that will push forward economic development.” Pulling out of NAFTA will not do that, in fact, will increase the barriers to this. Potentially it could lead to a trade war that will only depress the border regional economy.

The connections between the economies go well beyond the trade of goods and services. There are matters that influence both sides, and impact our quality of life. They range from pollution, which we all are familiar due to the Tijuana river valley, for example, but also pollution and public health.

Moreover, due to the linking of both economies, “Mexico and the United Staes are not just limited to just buying and selling goods among each other. They are manufactured together. As a result, productivity and competitiveness among communities on the border work closely together.”

San Diego and Tijuana are part of a single economic zone, known as the Calibaja region, which we have covered in the past.

In June 2011, six regional economic development organizations (EDOs) signed the Marketing “Rules of Engagement” Memorandum of Understanding. Designed to establish the ground rules for marketing together as CaliBaja, a commitment was made to work on several concrete efforts including participating in marketing and trade shows, updating the CaliBaja website and developing the unique bi-national GIS asset map. This has since evolved into a more formal partnership of the three regions comprised of the following EDOs: Tijuana EDC, Ensenada EDC, Economic Promotion Commission of Tecate or COPRETEC, and Industrial Development Commission of Mexicali or CDIM.

 

In short, the withdrawal of Mexico from NAFTA, since they are signaling they will not negotiating if it affects them negatively, or the US Government insists they are paying for the wall, will implant the San Diego economy in significant ways. Moreover, this will be a negative impact.

The Future

So what is Mexico to do? Mexico and China have elevated their relationship to a strategic alliance. Mexico and China have signed 12 memorandums of understanding, that tighten the relationship in matters of trade. energy, infrastructure, and tourism. These agreements were signed in 2013.

After Trump’s election, there have been increasing moves to further tighten that alliance between the two countries.

In 2015 Mexico signed an agreement with China. This will bring $3,000 million dollars to build the commercial port in Nayarit. This port will be one of the largest in North America, and originally was seen as a point of entry to the American market, avoiding the Teamsters in US ports.

This will be a deep water port, meaning that it could also potentially handle military vessels. This is not stated in the project, but this is always a possibility.
The Chinese ambassador to Mexico said recently regarding the increasingly closer relations: “The cooperation between the two countries benefits both, and is not meant to be against a third actor.”

Moreover, Mexico, New Zealand, Australia, Japan, Malaysia, and Singapore intend to continue negotiations towards the Transpacific Partnership (TTP). This might at some point involve China, which was purposely left outside the treaty since the US was trying to establish leadership in the Western Pacific.

In short, what we are seeing is not just the recalibration of US -Mexico relations, but also of global alliances and the global chessboard. As the US looks inwards, other countries continue to look outwards. These changes will affect, negatively, the CaliBaja region.

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  1. BREAKING NEWS: Mexican President Considers Canceling Trip to DC on 31 – Reporting San Diego
  2. BREAKING NEWS: EPN Cancels Meeting in DC on the 31 – Reporting San Diego

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