APLA ’17: Mexico to prosper with or without NAFTA – execs

RIO DE JANEIRO, Brazil (ICIS)–A free-trade agreement among Mexico, the US and Canada should survive the current round of renegotiations, an executive said.

But even if these talks fall apart and the three nations abandon the North American Free Trade Agreement (NAFTA), Mexico should still be able to prosper, another market participant said.

NAFTA was signed nearly 25 years ago. US President Donald Trump has expressed much antipathy about the agreement during his campaign, and he started renegotiations upon becoming the head of state.

Trump has blamed NAFTA on his country’s trade deficit with Mexico, most of which is attributed to automobiles.

Despite Trump’s misgivings about the agreement, all three members of NAFTA have benefited from the deal, said Jose Uriegas, CEO of Grupo Idesa. He made his comments on the eve of the annual meeting of the Latin American Petrochemical Association (APLA), which began on Sunday.

For chemicals alone, Mexico imports $27bn/year, of which 70% comes from the US, he said. Mexico exports $8bn/year of chemicals, half of which goes to the US.

“I have to say that the industry in the US is very much interested in NAFTA to continue,” he said.

This is not just limited to chemicals but to other sectors in the economy.

Mexico is also a major export market for US grains and other food staples, said Eugenio Manzano, executive director of Pochteca, a Mexican chemical distributor.

Given the importance of NAFTA to many key parts of the US economy, Uriegas expects that renegotiations will preserve the agreement.

The talks even provide the three countries with a chance to update the agreement, he said. When NAFTA was first signed, Mexico’s energy market was still closed and restricted to state producer Pemex.

An updated NAFTA could reflect Mexico’s new energy reforms, which allow companies other than Pemex to produce oil, natural gas and fuel in the country.

A modernised agreement could also address e-commerce, Uriegas said.

But if the countries allow NAFTA to expire, Mexico should still prosper, Manzano said.

Were this to happen, tariffs between Mexico, the US and Canada would fall under rates dictated by the World Trade Organization (WTO), Manzano said. These set tariffs of 2-6% for most products.

These rates are too small to be significantly disruptive, Manzano said, especially given the degree of integration among the supply chains of the three countries.

“Whatever happens with NAFTA, we are optimistic that it will not have a significantly negative effect on our economy,” he said.

The APLA annual meeting runs through Tuesday.

Focus article by Al Greenwood

Pictured are Minister of Foreign Affairs of Canada Chrystia Freeland, Mexico’s Secretary of Economy Ildefonso Guajardo Villarreal and United States Trade Representative Robert Lighthizer during a meeting in September (Credit: Carlos Tischler/REX/Shutterstock).