Since our independence from colonial rule, our nations have always had complex and asymmetric relations. We have gone through wars and conspiracies, geographic reconfigurations, alliances in favor of our republics, and a common front in World War II.
During the Cold War, our countries experienced a period of growth in an environment of relatively closed and distant economies; however, the globalization of the past three decades created the need to explore new and more competitive forms of production in order to compete in international markets.
Over the last four years, international relations have come to a profound transformation particularly on trade and investment. Clearly Mexico and the United States started a new chapter in their relation. New rules of the game have been agreed to and decisive steps need to be taken now to move forward.
The challenge we faced has not been the first since the North American Free Trade Agreement (NAFTA) was inaugurated in 1994, but certainly the most significant.
When NAFTA was ratified, it was the most sophisticated trade and investment structure of its time. The agreement created the foundation for regional integration and sophisticated supply chains. A strategic relation emerged between the U.S. and Mexico and grew strong and stable, effectively identifying and advancing common interests as never before. The two countries have been key partners since then, establishing a global strategic alliance that allows them to develop production capacities collaboratively.
The establishment of a common economic space over the past 25 years has allowed our economies to become more interrelated and compete successfully in global markets with trade growing from $81 billion in 1993 to $612 billion in 2018.
NAFTA matured to become the United States’ most important international market. Intra-NAFTA trade in 2018 was valued at over $1.2 trillion; an estimated 14 million jobs in the U.S. alone depended on trade and investment with Mexico and Canada.
Furthermore, foreign direct investment (FDI) in the region has expanded to support an integrated supply chain where Mexican exports now have 40 percent U.S. content and Canadian exports have 25 percent U.S. content.
Trade and Investment Modernization
The platform upon which these economic relations flourished clearly needed change after 25 years, and a modernized world economy required updates in telecom, energy, good governance, labor, customs, environment, anti-corruption, e-commerce, inclusion, SMEs (small- and medium-size enterprises), IP, rules of origin and so on.
Immersed in a sea of protectionism, reshoring and fair trade, NAFTA teetered between modernization and collapse.
The risk of losing so many opportunities created a firm alliance of North American supporters. For months, representatives from government, the private sector, and advocacy organizations engaged in a campaign to raise awareness and support of the need for change through public education about the merits and benefits achieved through NAFTA—and the potential ahead. Concern was voiced about the high risks of losing competitiveness to overseas markets and, more distressing, weakening cooperation and shared values in our region.
As a Mexican diplomat heading the section for economic affairs in Washington, D.C. at the time, I had the privilege of participating in the broad effort undertaken by our gov- ernments to find common ground and to overcome a very challenging environment.
A powerful yet simple tool we constantly used in Washing- ton, D.C.—one that still today is frequently overlooked—is
to explain the relevance of trade with Mexico for the U.S. economy, state by state. Again and again, people were often surprised to learn that, for more than half of the states in the U.S., Mexico is either the first or second export market, and that five million jobs in the U.S. rely on trade with Mexico.
USMCA:The New Tri-National Trade Deal
Our leaders then and now realized that the world is facing many challenges beyond trade. Poverty, security and cybersecurity, migration, rule of law, environment, energy and food security. Beyond a protectionist rhetoric, it has been clear for a long time that the significance of the consolidation and integration of the North American economy goes well beyond free and fair trade. It is strategic and critical to meeting the great challenges of our time.
One of the actions that needed to occur was a new trade deal for the three nations. After months of hard negotiations, the governments of the U.S., Mexico and Canada, drafted a trade deal that would meet current and future needs. The result of their efforts is the United States-Mexico-Canada Agreement (USMCA) that will replace NAFTA.
USMCA was officially approved at a signing ceremony at the G20 Leadership Summit in Buenos Aires on November 30, 2018. It is no exaggeration to declare that this agreement represents an important geopolitical opportunity for our region and for generations to come. The region emerged stronger and more able to compete in global markets.Disagreement and stress gave way to renewed trust and cooperation.
The agreement reached is the best possible outcome. USMCA includes new disciplines and technologies, advanced environment and labor legislation, and revised dispute settlement arrangements. Some extremely restrictive clauses were avoided and, in their places, stronger North American rules of origin (ROO), protections against non-competitive trade, and currency manipulation prevention were introduced.
Since then Mexico has done its part. When Mexico’s President-Elect Andrés Manuel López Obrador and his National Regeneration Movement party (Movimiento Regeneración Nacional or MORENA) won the July 2018 elections with an historic majority, one of his first actions was to appoint a negotiating team to introduce and advocate for his priorities, and to work in tandem with the outgoing administration. This was a wise decision that secured a smooth transition in Mexico. The Mexican Senate approved the agreement in June 2019.
On the other hand, the Canadian Parliament is still waiting for the U.S. House of Representatives to make a move. Canadian elections on October 21, 2019, and the U.S. electoral cycle for 2020, still represent open questions for the future of USMCA. Free trade has always been controversial and election cycles have a significant influence.
The USMCA has been waiting 10 months for the vote of the U.S. Congress. More and more people agree on the merits of USMCA and the necessity to approve it and move forward. The negative effects of further delays or deviation from the agreement may combine with an already complicated global economy and trade distress. Like 25 years ago, 2019 is a time for North America to set the course on trade policy and set it right.
It is time that all the people, organizations and other stakeholders that support USMCA raise their voices in favor of its ratification once and for all. The U.S.-Mexico Chamber of Commerce will continue to actively advocate for USMCA passage. We need to get to the task of deepening the integration of the economies of North America. The challenges of the 21st century are here. We must open a new chapter of cooperation, integration and economic development for generations to come. The time is now!
Sergio García Gómez is an independent consultant and a senior advisor for the U.S.-Mexico Chamber of Commerce in Washington, D.C. Previously, he was head of the Economic Affairs Section, Mexican Embassy in the United States.