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Mexico could end NAFTA talks if tariffs proposed

Mexico could end NAFTA talks if tariffs proposedMexico's economy minister Ildefonso Guajardo warned that his country will break off negotiations on the North American Free Trade Agreement (NAFTA) if the United States insists on slapping duties or quotas on any products from south of the border, Bloomberg reported on Monday.

“The moment that they say, ‘We’re going to put a 20 percent tariff on cars,’ I get up from the table,” Guajardo told Bloomberg in an interview.

Guajardo emphasized it doesn’t mean that Mexico would be looking to scrap NAFTA. But by saying it refuses to even discuss the kind of tariffs President Donald Trump has long trumpeted, the country is ratcheting up the pressure on U.S. negotiators and effectively daring them to pull out of the 23-year-old pact.

Trump has lambasted the accord, which also includes Canada, as unfair and responsible for a “massive” imbalance favoring Mexico. It last year shipped $294 billion worth of goods north while the U.S. sent $231 billion south.

Mexican officials have said they expect official talks to start in June. And if they fail, it wouldn’t be an absolute crisis, said Guajardo, who headed the NAFTA office of the Mexican embassy in the U.S. in the early 90s, when the pact was being written and implemented.

Without NAFTA, trade between Mexico and the U.S. would be ruled by World Trade Organization strictures limiting tariffs either country can impose on the other, with the average for Mexico at around 3 percent, according to the Mexico City-based political-risk advisory firm Empra. That “would take away some of our margin of competitiveness,” the minister said, but would be manageable.

One thing that could help mitigate the impact is the tumble in the peso. It’s plunged 25 percent against the dollar in the past two years, swelling profit margins for exporters.

As things stand now, most products go back and forth duty free; automobiles, televisions sets and some other goods have to contain a certain amount of content sourced in North America to get full NAFTA benefits. But there’s been a lot of talk in Washington about taxing imports.

White House spokesman Sean Spicer in January floated the idea of a 20 percent levy on goods from Mexico to pay for a border wall. That trial balloon went up after Mexican President Enrique Pena Nieto canceled a trip to the American capital in response to Trump’s repeating a campaign pledge about charging Mexico for the cost of building the wall.

Guajardo said part of the reason his country is unwilling to consider any new NAFTA duties is because of a possible domino effect.

“Opening the door to tariffs is very dangerous, because it’s like opening Pandora’s box - the lines of people asking for protectionism in Washington would reach to Maryland, and in Mexico City they’d reach to Puebla,” he said.

The border-adjustment tax, he said, is something that’s squarely a domestic fiscal matter for the U.S. He also said it would be complicated to implement, and would no doubt result in mirror changes from other nations that would aim to level the playing field. Washington’s going that route “would require a crazy amount of control on the origin of merchandise and inputs.”

The U.S. is by far Mexico’s biggest single trading partner. But Mexico has pacts with more than 40 other countries, and has been accelerating free-trade talks with Brazil and Argentina after changes in those nations’ governments have them looking more favorably on open markets.
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