Mexico is open to moving ahead with a bilateral trade pact with the US if Canada cannot reach a deal on the North American Free Trade Agreement with the Trump administration, José Antonio González Anaya, the Mexican finance minister, has said.
In an interview with the Financial Times, Mr González Anaya also said that alongside the deal reached with the US in August, Mexico had insulated its auto industry against any US tariff increase by signing a side agreement that “locked in” the current low 2.5 per cent rate.
His remarks come as US and Canadian negotiators are set to resume talks on their own deal to revamp Nafta. They have failed to make a breakthrough in recent weeks, with divisions on agricultural policy— especially protections for Canadian dairy farmers — and the regimes to settle disputes over anti-dumping duties and investment protections.
Mr González Anaya, who will relinquish the finance ministry in December when the leftwing nationalist Andrés Manuel López Obrador takes over as president, said the Mexican government hoped Canada would be able to resolve its Nafta differences with the US. But if there was no deal, “there would be a decision to be made” because of the fundamental importance of trade to his country’s economy.
“The issue here was that [reaching agreement with the US] was important for us. Trade is important for Mexico and the issues between the three countries are different between Canada and the US and Mexico and the US,” he said.
Last week, Ildefonso Guajardo, economy minister, told reporters: “Mexico prefers a trilateral deal, there’s no doubt, but our principal trade relationship is with the US.” He noted that less than 10 per cent of Mexico’s international trade was with Canada, but added that Mexico and Canada have important ties in the aerospace, automotive and medical equipment sectors.
In its deal with the US, Mexico made significant concessions to the Trump administration on cars. It agreed that 75 per cent of parts used in vehicles assembled in the US and Mexico must come from within North America for them to avoid tariffs, up from 62.5 per cent, making it harder for some Mexican assembled vehicles to qualify. It also agreed that between 40 and 45 per cent of the content that goes into the vehicles must be made by workers earning $16 an hour or more.
Although the Mexican government estimates 70 per cent of its vehicles already comply with these new rules, Mr González Anaya said the side agreement reassured him that non-qualifying Mexican production would still qualify for light tariffs.
“As part of our agreement we signed a side agreement that locks in our tariff rate,” he said. “Part of the Nafta deal is that we’re ensured a very low tariff even if we don’t meet the rules of origin and wage requirements.”
This is important to Mexico because of the Trump administration's threats to impose higher auto tariffs on national security grounds, similar to the steel and aluminium tariffs it imposed earlier this year.
Canadian officials have been particularly irritated that the US has not dropped its national security-related tariffs on steel and aluminium and continues to dangle the possibility that it might impose high tariffs on cars if no deal is reached.
The Nafta negotiators are trying to forge an agreement by the end of the month, which would allow Donald Trump to sign the deal with Enrique Pena Nieto, the Mexican president, before he hands over to Mr López Obrador.
Senior members of Congress — and many large business lobby groups — have warned that if Canada is not included in the deal, it would fail to garner much support on Capitol Hill, leaving it in limbo.
Mr González Anaya also said there was little reason to fear the recent emerging market crises in Argentina and Turkey would spread to Mexico because his government was leaving a fundamentally sound economy.
The outgoing minister declined to give advice to the incoming Mexican administration, but stressed the need for fiscal orthodoxy if Mexico wanted to avoid the turbulence that is engulfing more vulnerable emerging economies.
“Our experience has been to be very watchful of the fiscal numbers,” he said. “We would have had a public finance crisis if we had not done a fiscal reform.”
Additional reporting by Jude Webber in Mexico City
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