How U.S. political groups employ T-MEC for elections

It is not unusual for the United States to issue threats that they would take retaliatory action. The renegotiation of NAFTA presented an opportunity to exit this kind of arrangement, and it was taken advantage of.

How U.S. political groups employ T-MEC for elections
Political parties and organizations in the United States can use the T-MEC to their advantage during elections. Credit: DGCS-UNAM

The perspectives and threats in the Mexico-United States-Canada Treaty (T-MEC) in light of the controversy presented by US businessmen to demand a "level playing field" for companies in the energy sector in Mexico, could be a watershed for our country, agreed specialists from UNAM's Institute of Economic Research (IIE).

During the round table "Perspectives and threats of T-MEC 2022", researchers Arturo Ortíz Wadgymar and Moritz Alberto Cruz Blanco recalled that last August a series of consultations began regarding possible violations committed in energy matters by our country, in which there is a 45-day deadline for exchanges between both parties.

Given this situation, Cruz Blanco said that in case of losing would reinforce the absence of development through trade, not to mention the financial fragility due to the dependence on other capitals, which is part of the trade agreement.

"If the Mexican government wins it could, in some way, reinstate state support for strategic companies and industries to be a lever for growth and development; in other words, a form of protectionism. We should not forget that all advanced economies were protectionist", he explained.

In turn, the university professor, Wadgymar, explained that in the event of winning, Mexico has never imposed retaliation against its northern neighbor. He recalled the case of sugar, a controversy that he won and for which he had to apply compensatory taxes to fructose because it damaged it.

"But Fox decided that in order not to bother the United States they were not going to do any retaliation. This type of thing has been seen, just like in the case of the trucks on the border that the Army went to remove them, then it was not known if the negotiators were with Mexico or against it. Thinking about the current situation of the T-MEC, I believe that there would be another type of negotiators who should be looking out for Mexico and not for their bosses in the United States", he commented.

In search of reciprocity

Arturo Ortiz emphasized that receiving threats from the U.S. to impose retaliatory tariffs, embargoes or compensatory taxes is nothing new and due to the growing tension caused by the upcoming presidential elections in the United States, problems should be expected between now and November, until the process is over, as this is a highly politicized time where each political group will take what they can and use the T-MEC for what is convenient for them.

The T-MEC is a multilateral trade agreement to form a product exchange zone, it establishes rules and mechanisms for the protection of markets and agreements between countries, freeing or eliminating tariff barriers or taxes, to expand consumer markets.

The expert from the IIE's World Economy Research Unit recalled that the North American Free Trade Agreement (NAFTA), which operated from 1994 to 2020, only benefited the United States, Canada, and Europe with the entry of their companies with unfair contracts that today they want to perpetuate; it was replaced as of July 2020 by the T-MEC.

Ortíz Wadgymar argued that Mexico has 15 free trade agreements in force with 50 nations, in which there are multiple negotiations and calls that in theory seek cooperation, reciprocity, and security among the signatories. In the case of the T-MEC, there are important chapters to protect agriculture, products considered of national origin and that cannot be traded.

Chapter 8 is dedicated to national sovereignty, where it is established that Mexico is a sovereign country and owner of its resources—especially hydrocarbons—which are managed by state-owned companies and can make changes that favor the nation without harming companies that had previously obtained perks.

"Private companies cannot be discriminated against and in that sense, we are right, as long as those companies are in legal terms, because it is not discrimination to tell them that they have to pay taxes, the cost of transporting energy, because they are being given a national treatment," Ortíz Wadgymar emphasized.

Alberto Cruz Blanco recalled that the objective of international trade is to expand markets, to make production more lucrative, as the United Kingdom did in the past with India, including the United States, prohibiting them from exporting products that competed with theirs.

The doctor in economics from the University of Manchester pointed out that today's advanced nations were, at the time, the "queens of protectionism": Great Britain, from the 7th to the 18th century; the United States, throughout the 19th century.

As for Mexico, the problem is that since 1986 the growth rate has been declining, although a significant amount is exported, none of this brings benefits to the population, it has been deindustrializing, which is worrying considering that "this sector has been disconnected from the rest of the economy, as it is dedicated to export and has no links with the interior, as all components are imported and the only thing the country requires is cheap labor".

The renegotiation of NAFTA was an opportunity to take a step back and get out of this type of agreement. It even lost its ability to set its exchange rate, giving up the only way it could stay competitive or change its trade balance.