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Mexico and the United States: a new beginning

Consejo Mexicano de Asuntos Internacionales Sierra Mojada 620-502, Lomas de Chapultepec, 11000 Ciudad de México. Tel. (55) 5202-3776 consejomexicano.org

comexiac @comexi comexiac comexiac

The Mexican Council on Foreign Relations, COMEXI (by its acronym in Spanish— Consejo Mexicano de Asuntos Internacionales), is a non-profit Civil Association dedicated to the study, analysis, and dialogue on international relations. Its goal is to generate proposals that contribute to decision-making and that —strategically— influence the definition and implementation of the public policies that affect Mexico. It also seeks to contribute effectively to Mexico’s impact and positioning in the world. The wealth of COMEXI lies in the talent of its constituency, consisting of more than 500 associates who are experts in various sectors and disciplines (scholars, members of the business community, public officials, diplomats, and opinion leaders). We also have participation of embassies, international organizations, and research centers dedicated to the study of the political, social, and economic life of the country.

Disclaimer

This document was prepared by independent authors and reflects only the position of those who participated directly in its drafting. The contents of this document in no way represent the institutional views of COMEXI, whose position is neutral, non-partisan, and independent.

Mexican Council on Foreign Relations (COMEXI)

Board of Directors

Chairman Luis Rubio

Former Chairmen Enrique Berruga Andrés Rozental Fernando Solana (†) Jaime Zabludovsky

Vice Presidents Sergio Alcocer Solange Márquez

Board Members Agustín Barrios Gómez Cecilia Bilesio Carlos Camacho Magdalena Carral Eduardo Guerrero Eduardo Ibarrola Beatriz Leycegui Martha Mejía Lourdes Melgar Gustavo Mohar Mauricio Reyes Vanessa Zárate

Treasurer Timothy Heyman

Technical Secretary and General Counsel Miguel Jáuregui

Executive Director Verónica Ortiz Ortega

Contents

North America in 2020 Agustín Barrios Gómez

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USMCA is Bigger, Better than NAFTA Congressman Henry Cuellar

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The future of Mexico-U.S. trade relations under the USMCA Juan Carlos Baker y Kenneth Smith

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About the authors →37

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North America in 202001

North America started 2020 as a bloc of three democratic countries with shared values that trade freely in the context of regional peace and cooperation. We are nearly 500 million North American citizens who came together to sign the North American Free Trade Agreement (NAFTA) of 1994 and its successor, the United States- Mexico-Canada Agreement (USMCA) of 2018, providing a legal framework for commercial freedom on our continent.

The world often conducts its affairs with a zero-sum game mentality, meaning that one country’s gain is another’s loss. This is why agreements like NAFTA, in 1994, and the USMCA, today, are particularly valuable. It is also the reason that we must not take them for granted.

The effort invested in creating the USMCA was born precisely from the understanding of a fundamental idea: restricting the liberty of our people to trade freely is a mistake. It was not an easy case to make. The current U.S. president based his political campaign on animosity towards Mexico, in particular, and against exchange with the world, in general. However, he was led to a position of saving

free trade in North America by the millions of his fellow citizens who saw their economic livelihood threatened by protectionism and the possibility of severing close economic ties with their neighbors.

At the same time, a sector of Mexican society that has always been antagonistic to two pillars of trade in our continent: integration with the United States, and economic freedom, came to power in Mexico.

This raised the specter of a challenge to free trade from Mexican socialists. However, the overwhelmingly positive results and obvious benefits of NAFTA for Mexico were of such magnitude, that protectionism was not an issue in the return to power of the nationalist Left. It now looks like a given, but both in the case of the U.S. and in the case of Mexico, the survival of the framework of openness born on January 1, 1994, is a testament to enormous political and economic success. In a world that increasingly favors the Pyrrhic victories of political symbolism, the triumph of reason over nativist fervor is well worth highlighting.

Agustín Barrios Gómez, COMEXI AdvisorForeword

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For each of the three countries, the USMCA was the way to protect these gains, but each country placed its own emphasis on their priorities. Canada, currently the most politically stable country of the three, clearly sought to uphold a system that provides the country with access to its main market, as well as to another market (Mexico) in which it has fewer interests, but which is still important. The United States, the former architect of the world order that promoted economic freedoms for 71 years (1945-2016), was set to become its spoiler. Fortunately for the general interest, despite the rhetoric, with the USMCA it was possible to find a compromise that safeguarded the gains made from economic integration since 1994. Sectors of society, such as farmers and border communities which had never organized to defend their markets, got together to successfully make their case directly to the Administration.

Mexico’s interests were clearer: manufactured exports are the most dynamic and competitive part of its economy. They not only provide a major source of hard currency, but in conjunction with the imports made possible by income from exports, they support the internal market, as well. For Mexico, even more than for Canada, protecting free trade of North America was imperative.

The result was an Agreement that protected the benefits of North American commercial freedom, at the same time as it brought certain aspects up to date. It also addressed a number of the concerns that had been raised by blue collar workers in the United States, particularly pertaining to the automotive sector.

This document helps us understand these changes and provides perspective from three authors who were directly involved in making the USMCA a reality.

The USMCA – The Mexican view

The Working Group on the future of the relationship between Mexico and the United States asked Juan Carlos Baker and Kenneth Smith, the two main Mexican negotiators for the USMCA, to give us the Mexican view of the negotiation carried out in 2017 and 2018.

The result is a document that represents the first paper to be co-written by these two experts. It describes the challenges of a Mexican team that was often forced to conduct themselves with equanimity and maturity in the face of the constant efforts of a new U.S. Administration that often sought to restrict trade.

On the positive side, the negotiations were used to modernize NAFTA, with the first-ever clauses on technology and gender issues.

The USMCA – The U.S. view

Much is known about how the incoming Republican government sought to renegotiate the 1994 trade agreement. For the purpose of this document, we sought out the point of view of a legislator whose district includes the most important inland port in the world, where Laredo, Texas, meets Nuevo Laredo, Tamaulipas. Writing for the first time for a Mexican think tank, United States Congressman Henry Cuellar gives us his view regarding the importance of this Agreement, sharing ideas that resonate with his constituency: shared prosperity and complementary economies.

Here, Representative Henry Cuellar (D-TX) pledges his support for free trade in North America, while giving us an overview of the all- important process for its approval by a House of Representatives that is run by an opposition party.

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USMCA is Bigger, Better than NAFTA

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Members of Congress had over a year to read, review, and negotiate the ins and outs of the United States-Mexico- Canada Agreement (USMCA) before voting on it. The successor to the North American Free Trade Agreement (NAFTA) includes changes to the rules of origin for automotive trade, intellectual property rights protections, labor enforcements, and digital and agricultural trade. This deliberation has resulted in one of the most bi-partisan, near unanimous support of a free-trade agreement to ever be ratified by the United States Congress.

NAFTA, signed in San Antonio by the United States, Canada, and Mexico 27 years ago, was the genesis of a treaty that has played a central role in economic growth for all three countries.

In 2018, our state’s largest market was Mexico. Texas exported $109.7 billion in goods to Mexico, representing 35 percent of the state’s total goods exports. Laredo- Nuevo Laredo competes with Long Beach-Los Angeles for the #1 spot in the hemisphere in terms of trade volume, with over 14,000 containers crossing over its 4 bridges every day. There is currently more trade between Mexico and Texas than the one between the rest of Latin America with the world.

Large and small businesses across the country have leveraged NAFTA to remain competitive in an ever-increasing global market. We have sought to enhance freer trade between our three nations, and we can continue to build on this prosperity by ratifying the USMCA.

In late 2019, Mexican President Andrés Manuel López Obrador sent a letter to Democrats in Congress saying he has agreed to budget enough funding to enact the labor reforms in the agreement, taking a historic step to pass the USMCA.

NAFTA eliminated harmful tariffs and allowed our economy to flourish. It strengthened the bond between our three nations, culturally and economically. We’ve since seen annual trade between the U.S., Canada, and Mexico reach $1.3 trillion and support 14 million American jobs, while creating jobs in Mexico and Canada.

Agricultural trade has benefited farmers and ranchers in all three countries, totaling $143 billion in 2018. This greater access to the global market provides an essential revenue stream for our agricultural producers, who often rely on shoestring budgets. By passing the USMCA, we can assure our trade workers and agricultural producers not only in Texas, but in all three countries, that we are committed

Congressman Henry Cuellar (D-TX)Presentation

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to creating a free and open market where businesses of all sizes have access to prosperity.

The new agreement keeps many of the same provisions that benefited Texas, especially my district, for over 20 years. Changes dictate that 75 percent of automobile parts must originate in the U.S. and Mexico, an increase from NAFTA’s 62.5 percent standard. Negotiators in the U.S. also worked to ensure 40 percent of new cars must come from workers who earn $16 an hour or more. These changes ensure that auto workers in both countries can have safe and stable jobs that support their families.

In Congress, I worked with both Democrats and Republicans to ensure that we create a deal for farmers, ranchers, manufacturers, and consumers across the country. These modifications to the NAFTA Agreement will only strengthen the economy, workforce, and investments in all three North American countries and its citizens. Despite all the recent controversy in Washington, I committed to working across party lines in order to pass the USMCA and created a new North American Trade Agreement as we enter into the next decade.

Regarding the ratification of the agreement, I greatly credit Speaker Nancy Pelosi and Chairman Richard Neal for working tirelessly to manage varying opinions from all corners of our party during negotiations. In order to hear and consider diverse opinions from different members of the Democratic Caucus, Speaker Pelosi established the Trade Working Group, headed by Ways & Means Committee Chairman Richard Neal, to negotiate with the Trump Administration, specifically Ambassador Robert Lighthizer of the Office of United States Trade Representative. I would also like to thank Jesus Seade, Mexican undersecretary to North America, as well as Mexican negotiators Juan Carlos Baker and Kenneth Smith (co-authors in this COMEXI working paper), for their tireless efforts in making this agreement a reality.

This January, the United States Senate passed the USMCA Trade Agreement by a margin of 89-10. Furthermore, in December of 2019, the House of Representatives also overwhelmingly approved the deal by a margin of 385-41. The near unanimous passage of this trade deal underscores its bipartisan approach and widespread economic benefits for the United States, Mexico, and Canada. While the USMCA provides a necessary update to NAFTA, this agreement sets a standard for future free-trade agreements and will be the gold-standard henceforth.

After a year of review, modification, and negotiating the agreement has finally been ratified by the United States Congress. While not an easy process, all sides negotiated in good faith and I am confident that this trade agreement is better than the status quo.

Ratification of this agreement ensures that we will continue to capitalize on the economic benefits NAFTA has provided for more than two decades. I will continue to do all that I can to increase cooperation between nations, strengthen partnerships, and pass common- sense economic policies that will continue to make the North American economy boom.

February 2020

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The future of the U.S.-Mexico trade relations under the USMCA

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Why was the United States- Mexico-Canada Agreement (USMCA) negotiated?

From the moment Donald Trump began his campaign for the U.S. presidency in 2016, with his rhetoric against Mexico, it was expected that, if elected, his words would translate into specific actions. Few believed that Trump would be able to reach the White House after that speech in which he said that the Mexicans who crossed the border were mostly thieves and rapists.

However, he managed to strike a chord with a considerable sector of the U.S. electorate that felt aggrieved by economic insecurity, caused largely by the transformation of the world economy in the last twenty years. Donald Trump managed to put a face and a name to those who were “guilty” of technological advances, automation and, in general, of globalization.

In his simplistic view of foreign policy, China and Mexico were two of the main contributors to the alleged decline of the U.S. economy; in his campaign speeches, the candidate promised “drastic” measures to have the U.S. “regain” its greatness. In the specific case of Mexico, his attacks focused on the North American Free Trade

Agreement (NAFTA) and the need to build a border wall that, as an electoral promise, would be paid by Mexico. Despite these clear signs regarding Trump’s radicalism throughout his campaign, there were emerging voices that believed that he would become more moderate once he served from the White House. Almost four years after his election, and with the benefit of hindsight, we know that it was not so.

To be fair, many of these criticisms of Mexico and NAFTA are not an exclusive idea developed by President Trump, nor were they conceived in 2016. After its entry into force, NAFTA quickly became an infectious focus of public debate in the United States, despite the enormous economic success it represented. There were few economic agents —and even fewer political actors— willing to go out to publicly defend the agreement and its benefits. Other regions of the world, notably Asian countries, began to populate the collective imaginary of the business world in the U.S., downplaying Mexico as a key actor. The events of September 11, 2001 caused the U.S. to focus on security issues, above trade and economic issues, exerting much more control over its borders and its supply chains.

Juan Carlos Baker and Kenneth Smith

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It is also fair to recognize that Mexico identified this quite on time and, encouraged by these factors, was determined to convince its North American partners about the importance of deepening economic integration through other initiatives, many of them quite novel and innovative for the time. The integration efforts that began in the first decade of the 21st century, were aimed at reviving the regional integration process, once all tariffs in the region were eliminated in 2008. As opposed to what President Trump would promote almost twenty years later, these initiatives promoted mechanisms that would allow the economies of the three countries to converge as much as possible.

Among the initiatives that were promoted between 2000 and 2017 are the Partnership for Prosperity, or P4P, between Mexico and the United States during the six-year term in office of President Vicente Fox and the corresponding Canada–Mexico Partnership; as well as the Security and Prosperity Partnership of North America (SPP) during the administration of President Felipe Calderón. Even Mexico’s participation in the negotiation of the so-called Trans-Pacific Partnership Agreement (TPP), already at the dawn of the administration of President Enrique Peña Nieto, should be seen as part of that imperative need to take the next step in the economic strengthening of North America.

In view of all the foregoing, it is very ironic that the motivation of the United States to recalibrate its regional integration in North America arose from a player like Donald Trump, whose original objective was to destroy this relationship. Trump’s attacks on Mexico were reflected in his constant statements, where he would point out that NAFTA was “the worst treaty in history”, in which U.S. negotiators had been less intelligent and competent than their Mexican and Canadian counterparts.

In the mind of President Trump, NAFTA allowed Mexico to “steal” the U.S. industry and to generate “billions and billions of dollars” for our country through trade surplus.

As previously documented4, as soon as President Trump took over the White House, they initiated the exertion of pressure for Mexico to accept an ”express” agreement, with extremely favorable concessions for the U.S. and unacceptable to Mexico (such as the establishment of annual targets to reduce the existing trade deficit or the imposition of salaries in the Mexican automotive sector) but which also included other truly irrational points; for example, requiring that all goods requesting preferential tariff treatment be produced 100% in the region. The “concession” for Mexico would be that the U.S. would not impose tariffs against Mexican exports, whose collection —according to President Trump— would also serve to pay for the construction of the wall at the border.

Mexico refused to accept these conditions and the visit by the then-President Peña Nieto to Washington, scheduled for late January 2017 and where the hypothetical agreement would be announced, was cancelled. Instead, President Peña Nieto delivered a speech on January 23, 20175, where he established the guidelines for the new stage of the bilateral relationship we were inevitably entering into.

In terms of trade, the Mexican president said that in a potential renegotiation of NAFTA — which was very clear that would initiate—, Mexico would do everything possible to avoid the imposition of tariffs and/or quotas on Mexican exports. Secondly, there would be an assessment of the areas where it was necessary to modernize NAFTA, considering that Mexico had previously-negotiated trade commitments; and thirdly, they would prevent the most radical ideas of the U.S. (the so-called “poison pills”)

4The book “Fear: Trump in the White House” details how President Trump was about to sign the letter that would make the U.S. withdraw from NAFTA. Thanks to the intervention of the then-Director of the National Economic Council, Gary Cohn, this action was avoided. Similarly, in the case of the call between President Trump and President Peña, the former insists that everything would be resolved if Mexico agreed to pay a tariff on exports sent to the U.S., despite the fact that said tariff would be in violation of NAFTA itself. 5Available at https://www.youtube.com/watch?v=QVtA3qJd8T4.

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from being incorporated into the negotiation. These pillars were subsequently developed in a document of objectives for the negotiation, which was delivered to the Mexican Senate before the process was formally initiated in August 20176.

While President Trump’s demands led to the renegotiation of NAFTA —which possibly would have never occurred under different circumstances—, the truth is that the Treaty urgently required renewal, to adjust it to the commercial reality of the 21st century and to protect it from criticisms received in the U.S., for political reasons, from Republicans and Democrats. In fact, the three countries of North America had already begun a process of modernization of NAFTA through the negotiation of the Trans-Pacific Partnership agreement (TPP) during the presidency of Barack Obama in order to open six new markets in Asia-Pacific. Since the three NAFTA partners participated in this process, we had the opportunity to introduce new chapters that reflected the new reality of the international economy that would also apply in the NAFTA region. Of course, the renewal of this agreement never materialized; on the contrary, one of President Trump’s first official acts was precisely to withdraw from the TPP.

The renegotiation of NAFTA was inevitable, both because of Trump’s radical stance, in which he stated that he was willing to leave the Treaty unilaterally if it was not renegotiated, and because the world was moving forward in the negotiation of cutting-edge Free Trade Agreements. Refusing to renegotiate would imply a huge risk for the validity of NAFTA and, in addition, it would close the door to the modernization of our main commercial instrument.

The great challenge we faced was that, unlike the original negotiation of NAFTA where the

three North American countries shared the vision that a free trade zone would greatly strengthen the regional economy, this time we were dealing with a scenario where the starting premise was that free trade had not worked and that the U.S. economy had suffered exorbitant damage. Although all the empirical evidence showed that NAFTA had benefited all three countries, that fact was of little importance in the world of Donald Trump, and it was precisely in that world that the negotiation would take place. Given Trump’s animosity towards Mexico and his constant attacks on social media, the outcome was not guaranteed.

Mexico’s strategy in the negotiation

As previously mentioned, Mexico had very clear objectives in the negotiation. To validate them, an unprecedented consultation effort was undertaken with civil society actors, the business community, the Legislative Branch of the government, and the general public.

Opinion forums and public events were held at the Ministry of Economy and, for the first time in the history of Mexico, an online consultation was held, in order to gather as many opinions and suggestions as possible on the main elements of NAFTA that should be improved or modernized.

Based on all these inputs, the Mexican government articulated its negotiation strategy, following the parameters established by President Peña Nieto. In retrospect, the Mexican negotiation strategy was very pragmatic: from early in the process it was decided on which issues there was flexibility to accommodate U.S. interests; in which issues the final objective with the U.S. and Canada was shared, but it was necessary to work in the process to reach that result; and in which issues Mexico would not yield.

6The document sent to the Mexican Senate is available at: http://www.senado.gob.mx/comisiones/desarrollo_rural/docs/tlcan/Prioridades_Mexico.pdf

“Refusing to renegotiate would imply a huge risk for the validity of NAFTA and, in addition, it would close the door to the modernization of our main commercial instrument.”

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It was clear to the Mexican negotiators that the main interest of the United States was to incorporate disciplines that would make it more expensive to invest in Mexico and increase the uncertainty to do business in our country. This helps us understand why the U.S. proposed, throughout the negotiation, issues that seemed to go against their natural interests, for example, the elimination of Investor-State dispute resolution mechanisms, or the introduction of the sunset clause. For the U.S., the most important thing was that this negotiation would lead to greater investment in their country, not in Mexico and, preferably, that these investments would generate manufacturing jobs in the U.S.

Under the same logic, the U.S. tried to withdraw the market access privileges that Mexico enjoyed under NAFTA with proposals such as the seasonality clause for agricultural trade, the reduction of the government purchasing market, or the tightening of the rules of origin for certain products.

It is highly indicative that in the issues where the U.S. was extremely disruptive, and where Mexico decided to set red lines, the Mexican strategy was strongly supported by the private interests of U.S. businessmen. That is, given the economic implications of the most radical proposals of the U.S., American businessmen themselves lobbied the Trump administration to try to qualify their negotiating positions. This internal pressure was fundamental to modify the initial positions of the U.S.; for example, at the end of the process, the dispute resolution mechanisms that the U.S. wanted to eliminate remained in place.

Likewise, the lobbying work by the Mexican business community (“the room next door”), and also by the Mexican Government, before U.S. businessmen was of great relevance. During each round of negotiations, meetings were held with the U.S. highest business leaders

to make them understand the magnitude and implications of what their own government was putting on the table. One of the most interesting aspects of this negotiation was that, often, the U.S. businessmen learned more about their government’s proposals at the negotiating table during the meetings with the Mexican government, than in their own meetings with the United States Trade Representative (USTR).

It is important to note that, although the objective of this paper is to talk about the Mexico–United States relationship, we cannot fail to mention Canada and its role in the negotiation. Without a doubt, Canada would have preferred that the modernization of NAFTA took place through the TPP, since it knew that the U.S. would press on two of the most sensitive issues of its trade policy: Chapter 19 and access to dairy and poultry products.

Additionally, just like its Mexican counterpart, Canada decided on the issues where it could play its negotiating capital —the automotive sector was not on that list, by the way— holding on to concessions as long as possible.

Despite speculation regarding an alleged breakup between Mexico and Canada during the negotiation process, and that both countries fell into the trap of negotiating bilaterally with the U.S., the reality could not be more different. In fact, the Mexican and Canadian teams were in constant contact at all levels, sharing information, analyzing issues where joint proposals could be made, and designing containment strategies for difficult issues. While it cannot be said that they negotiated together, the truth is that the strategies and the objectives coincided in a large number of points.

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In summary, the elements that made Mexico successful in this process were:

1. Prior to the negotiation, a clear definition of the objectives, which was widely supported by the relevant actors and players in the country;

2.Once the negotiation process had begun, a pragmatic attitude towards the issues, discriminating between those where there was flexibility and those that would be part of the final package;

3. The presence and permanent lobbying of the business communities of both countries;

4. In terms of coverage and scope of the negotiation, the fact that Mexico decided to stay in what is now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) implied that many commitments had already been made;

5. As opposed to what could have been anticipated, Mexico and Canada found areas of agreement in the negotiation, effectively dividing the difficult issues on which each one of them would focus.

Results obtained

The Agreement was signed on November 30, 2018, in conjunction with the G20 meetings in Buenos Aires, Argentina. The final result was a balanced Treaty, in which the three members were able to go back to their countries and present it as a strengthened NAFTA that will contribute to strengthening regional competitiveness.

The most important achievements for Mexico are:

1. Free trade is maintained in North America: it may seem easy to say, and even for the uninitiated, that maintaining something that we already had is not a great achievement.

However, we need to understand that, in its initial positions, the United States sought to establish mechanisms that allowed the imposition of trade restrictions and managed trade. For example, it suggested that there would be “triggers” that automatically reduced exports in the most successful sectors for Mexico when the U.S. trade deficit exceeded certain levels. This would have had dire consequences for sectors such as the textile, automotive, and agricultural sectors, among others. Not only did we avoid a setback in market access, but we got the guarantee that the U.S. would exclude Mexico from any measure on account of national security in the automotive sector, a fact that makes our country and Canada two “oases” should measures of this nature be imposed worldwide.

2. NAFTA is modernized: the USMCA adds twelve new chapters that insert disciplines that did not exist in the original Treaty and that are fundamental to the functioning of today’s global economy. A chapter is established to support the insertion of SMEs into the exporting train, so they can take advantage of the Free Trade Agreements that Mexico has in force; the chapter on digital commerce brings to the forefront what the private sector already knew: digital transactions are the future of commerce, and it is essential to define clear rules to facilitate it; a chapter on good regulatory practices to reduce paperwork and unnecessary bureaucracy is included, thus generating significant cost reduction for exporters; an important anti-corruption chapter is included, which seeks to capture international commitments that support and reinforce the efforts that Mexico is making at the domestic level. This is not an exhaustive list of the twelve new chapters of the USMCA, but it shows that the intention of the negotiators was to ensure that, just as it happened in 1994 with NAFTA, the new agreement became the most advanced Treaty worldwide, and an example to follow.

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3. A more inclusive and socially responsible Treaty is created: throughout the negotiation, Canada designated itself as the progressive North American partner, but in reality, Mexico had, as part of its priorities, the mandate to introduce disciplines to strengthen the rights of workers, protect and preserve the environment, and take into consideration –for the first time in the history of trade agreements– gender issues.

Mexico actively promoted the inclusion of parallel agreements in labor and environmental matters as a fundamental part of the Treaty, with strengthened disciplines, and subject to the same dispute resolution mechanism as the other chapters of the Agreement; colloquially speaking, we gave “teeth” to them. Likewise, Mexico proposed innovative disciplines in labor matters with a gender perspective to combat discrimination and violence in the workplace; mechanisms were also included to promote female entrepreneurs as part of the chapter on SMEs. Mexico was convinced that one of the main failures of the original Treaty was the lack of participation of society in the life of NAFTA.

The purpose of these inclusive measures, together with the new mechanism of periodic reviews of the Treaty, are intended to ensure that social issues, which impact the functioning of the economy, are taking into consideration; and, at the same time, that society has institutional mechanisms to influence and modify the Agreement when necessary.

4. Legal certainty is guaranteed: the initial position of the United States was to eliminate the dispute resolution mechanisms of NAFTA under the argument that they violated U.S. sovereignty. This, of course, was unacceptable to Mexico and Canada, as these instruments provide certainty to investors and exporters of the region, who must make their business decisions with a long-term horizon and, therefore, need certainty regarding the fulfillment of the commitments embodied in

the Treaty. Thanks to the insistence of Mexico and Canada, and to the intense lobbying before the U.S. private sector, the United States yielded and agreed to maintain the existing mechanisms in the Treaty. Said mechanisms are still pending improvement, and we hope that once an administration in the U.S. arrives with a more positive vision regarding the importance of economic integration in the region, the improvement of the resolution of disputes through the first comprehensive review of the USMCA will be possible at last.

What shape can the trade relationship between Mexico and the United States take in the years to come?

By way of conclusion, it is appropriate to propose several theses on where North American integration can go towards, once the USMCA enters into force.

a) The economies of the U.S. and Mexico will be further integrated

Although the reason President Trump decided to renegotiate NAFTA was precisely to compensate for an alleged damage that Mexico inflicted on the U.S., we can speculate that the results of the USMCA will cause the economies of both countries to integrate even more.

If we analyze their bilateral trade, we see that it is mainly concentrated in a few sectors. The automotive sector (light vehicles, heavy vehicles, and auto parts) concentrates 23.9% of trade, followed by electronics with 14%, and agriculture with 8.3%. Together, these sectors account for almost half of the U.S.-Mexico bilateral trade.

The modification of the rules of origin in the automotive sector to make them stricter will necessarily imply greater investments in the

“ In retrospect, the Mexican negotiation strategy was very pragmatic(...)”

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region, if the manufacturers want to enter the U.S. market with preferential terms. By increasing the value of regional content to obtain tariff preferences, and by establishing very strict requirements regarding the use of steel and aluminum —the specific content of essential, main and complementary auto parts—, the message to global investors is: to enter North America, it is necessary to invest in North America.

For many reasons, Mexico remains the most attractive country to invest in the region, as long as we continue to implement domestic policies that facilitate —and not hinder— investment, whether domestic or foreign. If we make the right moves as a country, Mexico should be able to attract large amounts of investment in the automotive sector.

With the prospects that the U.S. impose tariffs on the European Union and Japan, the appeal of investing in Mexico will increase. Additionally, the demand generated by the automotive sector will expand to other products (steel, aluminum, plastics, electrical and electronic products).

In fact, part of the original idea of the negotiation was the value chains, that have long ceased to exist in our countries, were developed in North America. This is consistent with the nearshoring phenomenon, where value chains are shortened, strengthening their presence in locations that are geographically near to the main consumer markets.

b) The USMCA will become the model of international trade negotiations

It would be a mistake to think that the USMCA responds solely to the fact that Donald Trump was elected president of the United States. The criticisms made worldwide to the economic and

commercial liberation model are demanding that trade instruments incorporate disciplines that allow trade to be more fair, inclusive, and progressive. Therefore, the development of chapters that address issues such as labor, environment, SMEs, capacity building, and anti-corruption make the USMCA the most modern treaty in these fields.

Similarly, the USMCA responds to the criticisms that the trade system has recently received, regarding the absence of modern and agile tools to combat unfair trade practices, the participation of the State in the economy, or exchange rate manipulation. The USMCA has taken up these concerns and has shaped them in the most ambitious disciplines in the recent history of international trade.

It is expected that this model will be replicated in other latitudes. The United States, once the USMCA has entered into force, will want to reproduce this framework in its relations with Latin American countries. In fact, the expansion of a trade discipline model would make it easier for the U.S. to return to the CPTPP, given the shared DNA of both agreements.

c) The constant review of the USMCA will make the region more adaptable to future conditions

It took almost twenty-five years, and a huge amount of uncertain moments, for NAFTA to be renegotiated. Over the years, no doubt, both countries took their relationship as something fixed that needed no maintenance and that was an intrinsic part of the bilateral context. The lesson learned from these years should be that this situation should never occur again. Mexico cannot afford to neglect its main relationship in the world: the one with the United States.

“The lesson learned from these years should be that this situation should never occur again. Mexico cannot afford to neglect its main relationship in the world: the one with the United States.”

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Fortunately, the review process that was incorporated into the USMCA guarantees that an analysis of the Agreement will be carried out every six years, to see what has worked and what has not, and what has to be modified. It is understandable that this process generates nervousness in some actors, since it could be interpreted as a permanent window for U.S. protectionist intentions or open harassment against Mexican companies.

However, we believe that Mexico should take this review process as an opportunity to ensure that the trade relationship between North American partners is always up to date, with the most modern disciplines, and incorporating the latest technological advances into their disciplines.

Trade by sector Mexico - U.S. 2018

Trade

Table 1: Mexico-U.S. trade by sector (2018)

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About the authors04

Agustín Barrios Gómez

Agustín Barrios Gómez is an entrepreneur and opinion leader who heads the International Capital Partners (ICP) fund, and Fundación Imagen de México (FIM). On Saturdays, he hosts ADN40 News on TV Azteca.

He grew up as the son of a Mexican ambassador in Canada, Switzerland, and the United States. He graduated from Georgetown University and began his professional career at Procter & Gamble. He studied his Master’s degree at the Madrid Bar Association (Ilustre Colegio de Abogados de Madrid).

Barrios Gómez was a Federal Representative during the LXII Legislature of the Mexican Congress; he is a founding member of the Mexican Council on International Affairs (COMEXI), and throughout his career he has taken part in radio, television, and print media.

His opinions and editorials have been disseminated in multiple national and international media outlets, including The Economist, Financial Times, The New York Times, Los Angeles Times, CNN, CBC News Canada, National Public Radio (NPR), among many others.

A frequent speaker on issues and topics related to Mexico, he has conducted conferences in most of the institutions with influence on international issues in Mexico,

as well as in the United States and Canada, including the Woodrow Wilson Center, the Council on Foreign Relations (CFR), Canada2020, Universidad Iberoamericana, ITAM, Tecnológico de Monterrey, etc. As of 2016, he leads the COMEXI Working Group on the future of the U.S.-Mexico bilateral relationship.

In addition to his business and journalistic role, Agustín is President of Fundación Imagen de México, an organization dedicated to the implementation of a State policy on public image issues for Mexico. His efforts to communicate TheTruthAboutUs.org, included the most watched video on the US-Mexico bilateral relationship.

Juan Carlos Baker

He has a career of almost 20 years in Federal Public Administration, during which he specialized in trade negotiations, international trade, regional economic integration, and foreign affairs.

In the Ministry of Economy, he held senior management positions, as Director General for North America; Deputy Chief Negotiator for the Trans-Pacific Partnership Agreement (TPP), Head of the Office of the Secretary and Undersecretary of Foreign Trade (September 2016-November 2018).

As Undersecretary, he was directly responsible for coordinating and implementing the agenda of trade negotiations in North America, Europe, Asia,

Mexico and the United States: A New Beginning

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and Latin America, in which his participation in the trade negotiations for the Modernization of the United States-Mexico-Canada Agreement (USMCA, formerly NAFTA) and of the Free Trade Agreement between Mexico and the European Union (FTA EU-MX), and of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), among others.

At the multilateral level, he represented Mexico before various regional and multilateral organizations, such as the World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the Group of Twenty (G20), and the Asia-Pacific Economic Cooperation Forum (APEC).

He studied the Bachelor of International Trade at the Monterrey Institute of Technology and Higher Education (Instituto Tecnológico y de Estudios Superiores de Monterrey - ITESM), and the Master of International Political Economy at the University of Warwick.

Henry Cuellar

Serving his eighth term in the U.S. House of Representatives, Congressman Henry Cuellar proudly represents Texas’ 28th congressional district, which includes the cities of Laredo, Mission, Rio Grande City, and San Antonio. Congressman Cuellar supports equal opportunity for men and women of all backgrounds. His legislative principles are based on the belief that education, family values and hard work should open doors to new opportunities for all Americans.

Congressman Cuellar serves as the only Texas Democrat on the powerful U.S. House Appropriations Committee. He is the Vice Chair of the House Appropriations Subcommittee on Homeland Security, while also serving on the Defense Subcommittee and the Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies.

Congressman Cuellar was named Chief Deputy Whip for the 116th Congress, where he works in a bipartisan manner to serve the American people.

As one of eight children born to migrant farm workers in Laredo, Texas, Congressman Cuellar was raised with a passion for education and an unwavering work ethic, as he sought to attain his educational goals. As the most degreed member of Congress, he credits his education with informing his public service to Texas.

After earning his associate degree from Laredo Community College Summa Cum Laude, he enrolled in Georgetown University in Washington, D.C. Here, while working part- time jobs to accord his graduate degree, the Congressman still managed to graduate Cum Laude, a reflection to his academic commitment. When he returned to Texas, Congressman Cuellar completed a master’s degree in International Trade at Texas A&M International University (TAMIU) and earned both a Juris Doctor and Ph.D. in Government from the University of Texas at Austin. Recently, Dr. Cuellar received a Professional Certificate in Budget and Finance from Georgetown University.

In 1981, Congressman Cuellar started practicing law and later became a licensed customs broker in 1983 and taught at Laredo State University (TAMIU) as an Adjunct Professor for International Commercial Law from 1984 to 1986. The following year, Congressman Cuellar decided to fully dedicate his life to public service and served as a Texas State Representative, Texas Secretary of State and now as a U.S. Congressman. Dr. Cuellar has been an educator, lawyer and small business owner.

Congressman Cuellar and his wife, Imelda, reside in Laredo, Texas with their two daughters, Christy and Catie.

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Mexican Council on Foreign Relations

Kenneth Smith Ramos

Ken specializes in international trade and advises clients on aspects related to the implementation of the various Free Trade Agreements (FTAs) of which Mexico is member. Specifically, he focuses on supporting clients to identify opportunities for export, import, or foreign direct investment offered by the new generation FTAs such as the CPTPP, the FTA EU-MX, and the United States-Mexico-Canada Agreement (USMCA). He also advises clients that face tariff barriers or technical barriers to trade, either in Mexico or abroad, in order to develop strategies that allow them to enter the various international markets where Mexico enjoy preferential access.

Kenneth recently served as Head of Mexico’s Technical Negotiation for the North American Free Trade Agreement (NAFTA). He has been an integral part of Mexico’s negotiation team from different government institutions and began his career as part of the team that negotiated NAFTA.

He received his Bachelor’s Degree in International Relations and Economics from Georgetown University, and his Master’s Degree in International Economics from Johns Hopkins University, School of Advanced International Studies (SAIS).