A set of disparate purposes aimed at solving a common problem. Perhaps that is the best way to begin to appreciate the complexities inherent to the new North American trade agreement (USMCA). Each of the governments involved had its own priorities and the result is the new USMCA which entered into force last week. Like any instrument, the treaty has its strengths and weaknesses, but it is not a panacea.
According to old Greek mythology, Panacea was the goddess of universal remedy. The new trade agreement is certainly not a panacea -in the Greek sense of being a cure for all ills- but it is without a doubt the best deal that was possible given the political circumstances. This is the relevant criteria of measurement. Negotiations among nations, like all negotiations, reflect both the purposes of the parties involved as well as of the correlation of forces at the time.
For President Donald Trump, the primary objective of seeking a new treaty was to discourage the emigration of industrial plants from the United States to Mexico and the new treaty reflects that priority. This is the greatest difference between the original NAFTA and its successor, the USMCA. With this change, Mexico’s number one priority back in the 1990’s -when the country proposed the original treaty- simply vanished.
The context of the original NAFTA accord is key. In the early 1990’s, the Mexican government proposed the negotiation of a trade and investment agreement with the U.S. as a means of providing certainty to investors after the conflict-ridden decade of the 1980’s. In one single phrase, Mexico’s objective was to use the U.S. government as a lever to regain the trust that was lost when the Mexican government expropriated the banks in 1982. The Mexican government sought through the negotiation of NAFTA a means to assure investors that it would not act capriciously or arbitrarily in the conduct of economic affairs. Mexico also sought to show investors that any disputes that might arise between both would be resolved by courts not subservient to itself.
The U.S. government at the time saw in NAFTA the opportunity to support Mexico to achieve accelerated progress, a key objective in its own definition of U.S. national interest. Behind it dwelt the premise and expectation that Mexico would carry out deep reforms to turn the treaty into a transformative lever that would allow achieving the hoped-for development, something that evidently did not happen.
Although renegotiation of NAFTA began with the Enrique Peña Nieto administration, President Andrés Manuel López Obrador (AMLO) gave its distinctive character to USMCA. The López Obrador administration incorporating his own objectives in the new treaty, a very different set of priorities than those that motivated NAFTA, especially in labor and social matters. Many of the USMCA’s most controversial and potentially onerous provisions stem from this vision, in which, for very different reasons, the two governments converge. While Trump’s avowed purpose is the protection of the American worker, the Mexican priority is to address inequality and reduce poverty. Through the treaty, the Mexican government intends to promote the modernization of the country’s production plant through a rationality of social inclusion and protection of labor rights. The U.S. and Mexican goals are not necessarily opposite objectives, but it is not obvious how they will work out in practice. When ambitious purposes are mixed with limited tools, the result is not always as expected.
The odd thing in USMCA is the use of U.S. institutions to force a change in the way of operating of Mexican companies, especially in the organization of unions and the election of their leaderships. This is something which will undoubtedly be biased and politicized. The Mexican government intends a triple somersault: to democratize labor relations, to co-opt the new labor leaders, and to create new political clienteles. The López Obrador government is trying to achieve this through an international treaty where the US government itself has political and protectionist objectives of its own that clearly have nothing to do with the Mexican government’s political logic.
Throughout the last quarter century, NAFTA became the main engine of growth of the Mexican economy through exports. When these collapsed due to the 2009 US financial crisis, the Mexican economy fell dramatically, evidencing both the enormous importance of the export sector, as well as the lack of a strategy to accelerate the transformation of the domestic market, to turn it into another powerful engine of development in its own right. However, nothing was done to respond to this patent weakness and this is one thing the new treaty aims to achieve, at least in spirit.
What has not changed on the Mexican side is the need to provide certainty to investors, something that the new treaty no longer guarantees, except for some sectors. Certainty will now have to be provided by the Mexican government itself, which has not distinguished itself by its willingness or ability to secure it. Without private investment, the new treaty -and any other strategy- will be irrelevant. The real challenge for Mexico is not Trump -or the potential lawsuits coming from the U.S- but the lack of a government compass of what is necessary to attract investment.
* Luis Rubio is chairman of the Mexican Council on Foreign Relations and of México Evalúa-CIDAC. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @lrubiof