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Mexico Suggests Solution to U.S. Trade Deficit: More Cross-Border Commerce

22 Jul 2017 5:10 pm
By Santiago Pérez 

MEXICO CITY -- Mexican authorities are willing to discuss ways for the U.S. to reduce its trade deficits under the North American Free Trade Agreement as long as they don't threaten to curb Mexico's ability to export, the country's economy minister said.

The Trump administration made no mention of tariffs or other trade barriers when it set out its objectives for renegotiating Nafta. But topping the wish list was cutting U.S. trade deficits with Mexico and Canada, an approach that has been criticized on grounds that trade policy isn't the cause of the deficits.

"I'm not going to go and argue about whether it's right or wrong to define trade deficits as a goal, that's not my role in the U.S.," Mexico's Economy Minister Ildefonso Guajardo said in an interview.

"We don't rule out the possibility of reviewing the trade balance among the partners of North America as long as any solution we propose is through expanded trade, not restrictions on trade," he added.

The U.S.-trained economist said Mexico's recent opening of its energy industry to foreign investment is a case in point. Pipelines are being built across the U.S.-Mexico border and Mexico is buying increasing amounts of U.S. natural gas. Foreign oil firms arriving in Mexico will need to buy imported equipment and machinery.

Carla Hills, the former U.S. trade representative who signed the original Nafta in the mid-1990s, said the broad U.S. objective to update the treaty were reasonable. John Melle, the assistant U.S. trade representative for the Western Hemisphere who will serve as chief negotiator for the Nafta talks, will have to balance the economics and politics involved in trade deals. "I have a trade deficit with my grocer, and a surplus with my company, which pays me," Ms. Hills said. "I'd like to keep it that way."

The U.S. had a $63 billion deficit with Mexico in goods trade last year. But the services sector, where Mexico runs a $10 billion deficit, must also be considered, Mr. Guajardo said.

Adding e-commerce and energy provisions to the pact could help the U.S. narrow its trade gap, Mr. Guajardo added. Their inclusion, along with an update to intellectual-property rules, could bolster U.S. private-sector support for the Trump administration's efforts to overhaul Nafta, said Jaime Zabludovsky, a member of the Mexican team that negotiated the original trade deal.

Concerns that renegotiation could hurt Mexico's export-dependent industries have eased in recent months, helping the peso reach a 14-month high against the U.S. dollar, as bilateral relations have warmed after a rocky start under the Trump administration.

A compromise agreement in June on Mexican sugar exports to the U.S. showed the two sides understand Nafta's complexity and commercial dynamics, Mr. Guajardo said.

"It was the first agreement that the Trump administration closed with a foreign government regarding a conflict over trade practices," he said. The sugar talks helped officials such as himself and U.S. Commerce Secretary Wilbur Ross to get to know each other.

"The most important capital in a negotiation is the credibility of the negotiators," Mr. Guajardo said. "In the case of sugar we found that."

Mexico's private sector has also been lobbying U.S. policymakers to convince them of the benefits of Nafta, seeking support among U.S. governors, lawmakers and mayors, particularly in states that rely on trade with Mexico.

"We have made progress in countering some points of the protectionist rhetoric," said Moisés Kalach, a businessman who leads the effort. He put together a team of some 50 experts to prepare possible responses to different scenarios the U.S. might pursue.

Mexico is open to reviewing rules of origin, which determine how much content of goods has to come from within the region to enjoy tariff-free benefits of the pact, Mr. Guajardo said.

But revising rules of origin for thousands of products is detailed work. "We need to see what's happened in regional trade over the past 20 years. China and Vietnam weren't players back then, and some goods are no longer made in North America," said Mr. Zabludovsky, who is currently advising Mexican companies over Nafta's renegotiation.

The timing of the talks -- which officials on both sides hope to complete by year-end -- is a challenge, with Mexico holding presidential elections and the U.S. midterm elections next year.

"In a way, incentives have aligned," Mr. Guajardo said. The first round of negotiations will take place in mid-August in Washington.

A bone of contention could be the U.S. goal of eliminating Chapter 19 of Nafta, a mechanism for challenging antidumping duties imposed by governments to protect domestic industries or sectors.

The removal of dispute-settlement mechanisms could affect U.S., Mexican and Canadians exporters alike, Mr Guajardo said. "We need to take care to preserve something that has been positive," he added.

--Juan Montes and Robbie Whelan contributed to this article.

(END) Dow Jones Newswires

July 22, 2017 13:10 ET (17:10 GMT)

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