Mexico Says E-Commerce Provisions, Rules of Origin Changes to NAFTA May Help US Trade Deficit

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The threat to slap tariffs on imports from Mexico wasn’t part of the Trump Administration’s recently outlined objectives for renegotiating the North American Free Trade Agreement, but dealing with the trade deficit, of course, was.

Mexico, its jets cooled from the heated months earlier this year surrounding those threats of imposed tariffs, has said it’s willing to work on ways to reduce its trade deficit with the U.S., provided nothing gets in the way of its exports.

“We won’t rule out the possibility of reviewing the trade balance among the partners of North America as long as any solution we propose is through expanded trade, not restrictions on trade,” Mexico’s economy minister Ildefonso Guajardo told The Wall Street Journal.

Mexico is the third largest trading partner to the U.S. and it exports goods to the U.S. worth roughly $63 billion more than what it imports.

The solution to narrowing that deficit, Guajardo told the Journal, could be found in adding e-commerce and energy provisions that would allow for more cross-border commerce. He also said Mexico would be willing to review rules of origin determining how much content has to come from within North America for the product to still be eligible for duty-free benefits.

President Trump has regularly blamed NAFTA for the loss of American factories and jobs, and said so-called “unfair” trade deals like this one have further led to unfair trade imbalances, which the Administration is duty-bound to correct under the America First doctrine.

The outline of negotiation objectives, which to some is just TPP dressed in new clothes, includes removing barriers to U.S. exports and similar provisions as were in the TPP on labor and environmental protections.

[Read more on what’s in the NAFTA renegotiation plan: Trump Rolls Out NAFTA Renegotiation Objectives to Support, Criticism]

In assessing the outlook for the agreement, should things move forth as the outlined, Moody’s Investors Service said Mexico may stand to benefit over time.

“The environmental and labor provisions would lead to stricter regulations in the Mexican labor market and stronger environmental protection oversight, which could decrease Mexican competitiveness and result in lower investment flows to Mexico. Although the magnitude of increased regulation is uncertain and will depend on the outcome of the negotiations, the negative effect would be offset by…requiring a greater percentage of components produced within the region…that Mexico has the lowest labor costs among the three trade partners, it would be the largest beneficiary of new investment.”

Tariff talks might be off the table, too.

Without a proposal to modify tariffs outlined in the renegotiation objectives, Moody’s said, “this suggests that the document will form the basis of a new agreement that could increase trade flows within North America with only a small loss of competitiveness. This contrasts with the uncertainty from earlier in the year that led to heightened volatility in investment flows to Mexico and its exchange rate when the extent of the U.S. authorities’ renegotiation objectives were not clear and markets feared a negative outcome for Mexico’s economy.”

The first round of NAFTA renegotiation talks is slated for Aug. 16 and a deal is expected to be reached quickly as Mexico doesn’t want the talks tied up in its presidential election taking place next July. Six to nine rounds of talks, with no more than three weeks between each, are what Mexico wants to see so that talks can wrap by year-end.

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