US approval of T-MEC gives certainty to investments in Mexico

The approval of the new trade agreement (T-MEC) by the U.S. House of Representatives gives certainty and confidence that in the first half of 2020 it will enter into force.

In the process of ratifying the agreement, all that is missing is the approval of the US Senate and the Canadian Parliament: T-MEC.
In the process of ratifying the agreement, all that is missing is the approval of the US Senate and the Canadian Parliament: T-MEC.

The Treaty between Mexico, the United States and Canada (T-MEC) will open possibilities for many Mexican companies to market their products with their northern neighbors.

The president of the Confederation of National Chambers of Commerce, Services and Tourism (Concanaco-Servytur), Jose Manuel Lopez Campos, said that the approval of the Implementation Act in the U.S. Lower House is a major step towards the ratification of the trade agreement.

Now, he said, all that remains is for the U.S. Senate and the Canadian Parliament to ratify it.

In addition to the ratification of the T-MEC, investment agreements involving private initiative in our country are the factors that will influence the generation of conditions for higher growth of domestic product (gross domestic product (GDP)) by 2020 in Mexico," said Lopez Campos.

This trade agreement is very positive for the three nations that make up the most competitive region with the highest volume of trade and services in the world, which is North America.

For Mexico, in particular, it will represent a significant change in the trend of investment and growth due to the domestic and foreign business opportunities it will attract, as well as for the employment they generate.

In that sense, the head of Concanaco-Servytur said that the ratification of T-MEC would have positive effects on the country's economy, as it would help to have growth between 1.5 and 2.5 percent, by encouraging private investment both Mexican and foreign.

The agreement, he said, will be an economic trigger for Mexico, because it will be the main trading partner of the United States, which will boost the flow of goods with that country, mainly in the agricultural and industrial sectors.

He said that according to official figures, in 2016 Mexico had exports for $374 billion dollars and imported inputs totaling $387 billion dollars.

He said that to North America were sent products equivalent to 313 billion dollars, 84 percent, while imports from the United States and Canada to Mexico were 189 billion dollars, representing 49 percent of purchases.

This means that, for every $100 of trade in Mexico, $66 corresponds to business with Canada and the United States, which is equivalent to 48 percent of GDP.

Now, he said, it only remains to wait for the approval by the U.S. Senate and the Canadian Parliament for next year the T-MEC, in which the business sector of the three countries has many expectations and confidence for the benefit of the regional economy.

José Manuel López Campos reiterated that the approval by the United States of the T-MEC puts an end to the uncertainty in economic matters that had generated in the country, due to the differences that, at times, in the negotiations of the agreement seemed unacceptable and that the interests of the three nations would not be reconciled.

Today we can say that when the agreement is concluded, the country that will benefit most will be Mexico, because of the attraction of new and greater investment, the creation of new jobs, the rooting of the population in our territory in better conditions, which will be reflected in a better environment that will contribute to peace," he noted.

He considered that this is a great step. What remains now is to see the areas of opportunity that it generates, and that new opportunity will be opened for Mexican companies in various sectors, he added.

What changes were made to the T-MEC?

Although Mexico had already approved the treaty, it will have to vote on it again after the modifications.

Labor Standards

U.S. unions accused NAFTA of stealing manufacturing jobs because Mexican labor is cheaper. Democrat Nancy Pelosi, Speaker of the House of Representatives, had warned that she would not admit the new agreement unless they provided guarantees that Mexico would meet labor standards.

After months of negotiations, Pelosi said Tuesday that the agreement was "infinitely better" than the original. The new text was also welcomed by the powerful AFL-CIO union whose president, Richard Trunka, said that for the first time there will be labor standards whose compliance can be monitored.

The new provisions will force Mexico to comply with labor reforms it has already approved and to allow verification of its labor standards for goods and services, under penalty of sanctions.

The verification will be carried out by "independent labor experts. Mexico did not allow factory inspections.

Environmental regulations

The Democrats insisted on including strict environmental standards and mechanisms to monitor compliance.

As with labor, the agreement creates "environmental aggregates" in Mexico City that will oversee its laws and regulations.

Medicines

The revision of the text included the chapter on medicines.

The changes removed rules requiring the three partners to grant at least 10 years of exclusivity for biological drugs, which will facilitate the rapid entry of generics into the market and thus reduce prices.

Economic impact

From its entry into force, NAFTA boosted U.S. trade, helped stabilize Mexico's economy, and restructured the manufacturing sector into a tri-national production chain.

Some, including Trump, accuse NAFTA of destroying U.S. jobs, but more jobs were lost to technology.

And NAFTA gave a big boost to GDP that surpassed the jobs lost by the treaty, according to the Peterson Institute of Economics.

An analysis by the U.S. International Trade Commission said that in six years, the T-MEC will raise U.S. real GDP by 0.35 percent and generate 176,000 jobs, especially in the manufacturing sector.

Increased trade

The Commission believes that the new pact will increase U.S. imports from Canada and Mexico, and equally so exports to those markets.

In 2017 Canada and Mexico were among the United States' largest partners.

The United States exported goods worth 292 billion dollars to Canada and 243 billion dollars to Mexico in 2017.

In comparison, the United States exported to China, its third largest customer, goods for only $130 million dollars.

Meanwhile, the leading global economy received products from Canada for $314 million dollars in 2017 and $299 million from Mexico.

Cars: higher wages

Car manufacturing was a key element. To be traded duty-free, T-Mec will require that 75 percent of the composition of the vehicles originate in the region, when under NAFTA the rate was 62.5 percent. Also, between 40 and 45 percent of it must be manufactured by operators who earn at least 16 dollars per hour.

Mexico has admitted to respecting the safety standards established by the United States, unless the Mexican authorities conclude that they are inferior to theirs.

Dispute Resolution

At Canada's insistence, the United States agreed to maintain the system of dispute settlement among partners; formerly known as Chapter 19.

But some changes were made to the mechanism known as "Investor-State Dispute Settlement. Critics say this allows powerful companies and investors to override local laws or judgments through a mechanism that is not subject to arbitrations demanding accountability.

Digital Commerce

When NAFTA was born in 1994, digital trade hardly existed at all, but 25 years later it became a key negotiating factor for a new agreement. The T-MEC prohibits the application of customs duties to digitally distributed goods such as software, games, books, music and films.

It also restricts the power of governments to force companies to reveal ownership of source code or impose restrictions on where data can be stored.

Chinese clause

Included in the agreement is a provision that seems designed to prevent Mexico or Canada from seeking a better agreement with Beijing.

If a signatory seeks a free trade agreement with an economy not considered as "market" - read China - the other parties can cancel the trilateral agreement and establish a bilateral one.

Twilight clause

The new agreement will be in force for 16 years, but will be reviewed every six years. If the parties decide to renew it, it will be in force for another 16 years. But if a problem arises, a period of 10 years is opened to negotiate a solution and if it is not reached, the T-MEC will expire.

By Mexicanist