Mexico Girds For Possibility Of World Without NAFTA

Mexico now says it is developing a "Plan B" in case President Trump withdraws from the trade pact.

Mexico is taking U.S. President Donald Trump's threats to leave the North American Free Trade Agreement more seriously as a second round of talks opens Friday in Mexico City on renegotiating the 1994 trade pact.

In the aftermath of Trump's Sunday tweet saying that Mexico and Canada are "both being very difficult, may have to terminate," Mexico now says it is developing a "Plan B" in case Trump withdraws from the trade pact.

"Is there a possibility we could hit an impasse that we can't overcome? That cannot be discounted," Mexico's Economy Secretary Ildefonso Guajardo told the country's Senate. "We have to have an alternative plan perfectly prepared. A scenario without NAFTA is something we have to think about."

Guajardo said key sticking points include U.S. demands to modify NAFTA's dispute resolution process and tighten labor standards. In comments to Mexico's Senate, he said that about 15 of the 25 negotiating groups have run into differences after the first round of talks started on Aug. 16 in Washington.

"There are 10 working groups where we are starting to see difficulties ... the chapter on labor issues, electronic commerce, franchises," Guajardo said in comments to Mexico's Senate this week.

One significant clash is over NAFTA's method of resolving disputes. The current agreement allows binational panels of private experts to decide differences, making it harder for one nation to unilaterally impose tariffs on another. The United States wants to eliminate those panels, but Canada and Mexico fear that would allow the U.S. to throw its greater weight around.

U.S. negotiators also want to tighten enforcement of labor standards, which are currently covered in a largely toothless NAFTA side agreement. A key draw for foreign assembly plants and investment has been Mexico's low wages. While average manufacturing wages in China had risen to $3.60 per hour by 2016, Mexico's had shrunk to $2.10, a level some economists say is artificially low. With many workers unable to afford the vehicles Mexico produces, the country exports about three times as many cars as are purchased domestically. Most of those exports go to the United States.

"The US wishes to codify international labor rights norms — such as the right to collective bargaining and minimum wages — into the NAFTA agreement itself. This could, in theory, limit Mexico's ability to exploit its lax labor laws, low trade union representation, and lower wages that together give it an export advantage in manufacturing sectors like autos," according to a report by BMI Research.

The Washington-based Council on Hemispheric Affairs sees that as a good thing, standardizing labor and environmental standards within the three countries while "guaranteeing a common living wage, worker safety and welfare criteria."

What would happen if the United States doesn't get what it wants, and pulls out of NAFTA?

At greatest risk are U.S. products like corn and high fructose corn syrup, while Mexican-made tomatoes and pickup trucks could suffer higher tariffs.

But about half of Mexico-U.S. commerce is unaffected by NAFTA.

On Wednesday, Trump appeared to leave open the possibility of leaving NAFTA and negotiating new accords with Mexico and Canada to replace it.

"We've got to change this deal, and hopefully we can renegotiate it, but if we can't we'll terminate it and we'll start all over again with a real deal," Trump said.

Mexico says it, too, is ready to leave if necessary.

"If the result of the negotiations isn't beneficial for Mexico, of course, Mexico won't stay," Foreign Relations Secretary Luis Videgaray said Wednesday. He also took a swipe at Trump's use of Twitter to lay out U.S. stands.

"Negotiations aren't carried out on social media," Guajardo said.

More in Global