Negotiations to update NAFTA gained a new momentum in July following the election of Andrés Manuel López Obrador (AMLO) to be the next president of Mexico. President Trump’s initial warm reaction to AMLO’s victory certainly helped, but Mexico’s willingness to negotiate bilaterally with the United States, with Canadian support, has been the main driver behind recent progress.
Two July developments reinforced this positive U.S. attitude about AMLO: (1) the cordial visit of a high-level U.S. delegation that traveled to Mexico City on July 13 (the earliest that such a delegation has met with the Mexican president-elect after his election), and (2) the ensuing exchange of letters between the two presidents. Both the AMLO and the Trump letters spoke of an opportunity for good relations and called for a quick resolution to the NAFTA talks.
It appears that the two sides are very close to resolving one of the main sticking points between them—issues related to auto rules of origin. While several more months of negotiations remains the most probable scenario, both the Americans and the Mexicans are talking about a resolution by the end of August. Nevertheless, we have our doubts that this apparent honeymoon in U.S.-Mexico relations will last.
It is unclear if the United States is willing to make real concessions in the NAFTA talks that would get both Mexico and Canada on board.
For starters, it is unclear if the United States is willing to make real concessions in the NAFTA talks that would get both Mexico and Canada on board, and then there is the open question of whether President Trump is truly prepared to make a deal with Mexico, giving up his favorite political "piñata" in advance of a bruising midterm election, for which he will want every available red meat issue to turn out his base. In addition, even as Mexico and the United States get closer on the economic issues raised in NAFTA, the two countries continue to hold conflicting policy preferences and national interests related to migration and security.
U.S. Trade Representative Robert Lighthizer described NAFTA talks as being in their final phase, moving at an unprecedented speed, and apt to be concluded shortly. Both the outgoing and incoming Mexican governments are keen to conclude negotiations by the end of August, a date that will allow President Peña Nieto to sign the pact before he leaves office on December 1.
U.S. Commerce Secretary Wilbur Ross started the week by declaring the bilateral talks "near completion," members of the Mexican technical team, in a meeting with Monarch, then described the talks as 90 percent done, and media reports suggested that the two sides were getting near an agreement on the trickiest bilateral issue—auto rules of origin. Progress was palpable, even though many of the most difficult trilateral issues—such as a sunset clause and investor dispute settlement mechanisms—remained unaddressed.
We see no plausible scenario for two bilateral agreements, and we are confident this position is firmly held by both Mexico and Canada.
But the apparent advances in these bilateral talks, coming after repeated suggestions by Trump that the United States might negotiate a treaty first with Mexico and later with Canada, led some to wonder if Mexico was angling for a bilateral accord to meet their self-imposed late-August deadline. Such concerns were raised despite a July 25 visit by Canadian Foreign Minister Chrystia Freeland to Mexico during which both the current government and AMLO’s team assured Freeland that any agreement would be trilateral.
This message was reinforced on August 3, according to Inside U.S. Trade (subscription only), by AMLO’s trade representative, Jesús Seade (an old friend of Lighthizer), who stated it was time to bring Canada back into the mix to take on the sunset clause. To be clear, we see no plausible scenario for two bilateral agreements, and we are confident this position is firmly held by both Mexico and Canada.
Trump’s attitude toward AMLO and the advances in the NAFTA negotiations could suggest a honeymoon in U.S.-Mexico relations, were it not for lingering questions about the willingness of the United States to make the real concessions needed to seal a deal in the NAFTA talks. In addition, there are the persistently prickly issues of migration and security, and President Trump’s apparent inability to stop bashing Mexicans at the campaign-style rallies he so enjoys.
There is a sense that Mexico has two presidents—a nearly invisible incumbent and a hyperactive president-elect.
Meanwhile, in Mexico the post-election context has been dominated by AMLO. Indeed, there is a sense that the country has two presidents—a nearly invisible incumbent and a hyperactive president-elect. AMLO uses his nearly daily press conferences to announce cabinet and sub-cabinet appointments when these have historically been made in November. He announced his legislative agenda for the fall despite not taking office until December 1. And he has already announced his austerity and anti-corruption platforms and presented some of his governing programs.
These announcements have been met by near silence from a political opposition that was crushed in the July election, leaving it to civil society, the private sector, and the media to raise questions about the wisdom of some of AMLO’s personnel choices and policy promises.
In the economy, the election results overshadowed slow growth to push consumer confidence to its highest level in a decade. Markets also continued to express confidence in AMLO’s moderate post-election persona, driving the peso to highs not seen since before the election of Donald Trump. Still, investment banks and ratings agencies are flying a yellow flag, concerned about the future of economic reform and macroeconomic stability under an AMLO government. And concern persists about the security situation in a country that saw record high homicides during the first half of 2018.
Michael Camuñez is a Pacific Council Director, chair of the board’s Audit Committee, and president and CEO of Monarch Global Strategies.
A version of this article was originally published by Monarch Global Strategies.
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The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the Pacific Council.