Mexico open to NAFTA changes but calls border tax "counterproductive"

Mexico open to NAFTA changes but calls border tax "counterproductive"

Mexico Economy & Policy Corporate & Sovereign Strategy US

Mexico is open to discussing changes in the North American Trade Agreement (NAFTA) to include digital commerce, energy, environmental and labor issues but it considers a tax on Mexican imports to be counterproductive, the economy minister has told LatinFinance. 

"Mexico clearly understands that we can include new areas," Economy Minister Ildefonso Guajardo said.

"When NAFTA was negotiated 23 years ago, issues like digital commerce, intellectual property, the participation of small and medium-sized businesses in international commerce were not priorities," he said in an email. 

"Environmental and labor issues were also excluded from NAFTA because our country didn’t believe it was the right time to implement those changes," Guajardo added. "Today these issues are indispensable."

US President Donald Trump has pledged to overhaul NAFTA, claiming it has encouraged companies to move factories to Mexico and undermined job creation in the US. The US president’s threats to deport millions of illegal immigrants and build a wall along the US-Mexico border have raised diplomatic tensions between the two countries. Last month, President Enrique Peña Nieto cancelled a White House meeting with Trump over renewed tensions over the border wall.

Since then, Trump officials have floated the idea of a 20% tax on Mexican imports as a way to make Mexico pay for the wall. Guajardo dismissed the proposed tax as "counterproductive."

Asked how the tax could affect the Mexican economy, he said, "It would be a serious problem, but not only for Mexico. The exports of other economies would also be affected, including the United States. You have to remember, on average, Mexican exports include 40% of supplies from the United States. So this would only deepen the uncertainty that we’re seeing now."

He also said a 20% tax on Mexican imports would violate the rules of the World Trade Organization (WTO).

As it gears up for talks over revising NAFTA, the Mexican government recently opened a formal 90-day consultation period with the country’s business leaders. The government has reached out to representatives from the agriculture, auto manufacturing and textile industries for their feedback on NAFTA’s impact.

"We’re focused on the process of consulting with the productive sectors and will continue to do so throughout any negotiation," Guajardo said.

With the future of US-Mexican trade up in the air, Guajardo pointed to forecasts that show Mexico’s economy will likely grow 1.7% this year.

"However, given the uncertainty in the markets about Britain’s exit from the European Union and the lack of clarity in the Trump administration’s policies, we should react cautiously to those forecasts. Uncertainty will be the only certainty over the next few months," he said.