Panaceas | Luis Rubio

Luis Rubio

Divergent objectives that aim to solve a common problem. Perhaps in this way one could begin to appreciate the complexity inherent to the new North American trade agreement. Each of the governments involved had its priorities and the result is the new USMCA that was inaugurated this week. Like any instrument, it has its strengths and weaknesses, but it is not a panacea.

According to old Greek mythology, the panacea, named after the goddess of universal remedies, is a cure for all ills. The new trade agreement is certainly not a panacea in the Greek sense, but it is without a doubt the best deal that was possible given the political circumstances. And that is the relevant criterion: 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 Trump, the primary objective was to discourage the emigration of industrial plants from the United States to Mexico and the new treaty reflects that priority. There is no greater contrast between the NAFTA and its successor, the USMCA, than this one. In this change, the number one priority for which Mexico proposed the original negotiation back in the nineties vanished.

The context of that accord is key: the Mexican government proposed the negotiation of a trade and investment agreement as a means of conferring certainty on investors after the conflict-ridden decade of the eighties: in a word, the objective was to use the American government as lever to regain the trust that the Mexican government had lost in the expropriation of the banks. A means was sought to assure investors that the Mexican government would not act capriciously or arbitrarily in the conduct of economic affairs and that any disputes that might arise between the government and investors would be resolved in courts not dependent on the Mexican government.

The American government of that time saw in NAFTA the opportunity to support Mexico to achieve accelerated progress, a key objective of its own definition of its 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 the renegotiation began with the Peña administration, President López Obrador gave it its distinctive character, incorporating his own objectives in the new treaty, which are very different from those that motivated the 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 for Trump the avowed objective is the protection of the American worker, for the Mexican the priority is to attack inequality and reduce poverty. Through the treaty, the Mexican government intends to promote the modernization of the productive plant with a rationality of social inclusion and protection of labor rights. These are not different objectives, but it is not obvious how they will work out in practice. When ambitious purposes are mixed with limited instruments, the result is not always as expected.

The strangest thing is the use (which will undoubtedly be biased and politicized) of American 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. The Mexican government intends a triple somersault: to democratize labor relations, to co-opt the new leaders (or to impose them), and to create new electoral clienteles, all through an international treaty where the government of the country on which all this depends has political and protectionist objectives, which clearly have nothing to do with the political logic of the López Obrador government.

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 that obviousness, 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 services. 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 is not Mr. Trump or the potential (probable) law suits coming from the US, but the lack of an internal compass regarding what makes it possible to attract investment.

https://mexicotoday.com/2020/07/07/opinion-panaceas/