An interview with Jesús Seade. Undersecretary for North America at the Mexican Ministry of Foreign Affairs, and Chief Trade Negotiator for USMCA, for the administration of Mexico President Andrés Manuel López Obrador.
A new era for business arrives with the United States-Mexico-Canada Agreement (USMCA) signed on November 30, 2018, by the leaders of the three countries. Jesús Seade, Undersecretary for North America at the Ministry of Foreign Affairs of Mexico, and Chief Trade Negotiator for USMCA, participated during negotiations the last two months of the talks when many of the most important issues were resolved.
As a representative of the new Mexican government, he accounts for the more social content of the agreement, clarity for business, new conditions for improvement in labor matters, and greater attractiveness for investment in the automotive sector.
Despite the advantages provided by the North American Free Trade Agreement (NAFTA), which is expected to be replaced by the USMCA, NAFTA needed an update after 25 years of existence. According to Seade, modernization for Mexico was guided by four key principles: promote regional competitiveness; ensure USMCA is more inclusive and sustainable; maximize the opportunities offered by new technologies; and maintain a predictable environment for trade and investment.
Q. What do you think are the main changes between USMCA and NAFTA?
USMCA is a very modern agreement; it adapts to the demands of the current times in social and technology matters. I could divide the changes into two parts: first, I would say that it is an agreement that establishes very specific conditions to do business, to give certainty when it comes to investing—it is a pro-investment agreement.
Secondly, I would highlight that the new agreement has greater content in social matters; it is an agreement symbolic of the times. There is a whole series of new social chapters: labor, environment, small-and medium-sized enterprises (SMEs) and e-commerce. Those are very relevant provisions for the current times, and in which we previously had no rules nor margin to give those safeguards.
Q. What new provisions are important in commercial and industrial matters? Do they represent opportunities for investment and business in Mexico?
Without hesitation I would highlight the changes in the rules of origin (ROO) for the automotive sector, the most important for the three countries, because it is one of the largest volumes of trade in the region.
Currently, in order for a car to leave Mexico to the United States without paying tariffs, 62.5 percent of its content must be from the region, so manufacturers can import the remaining 37.5 percent in auto parts and other expenses, such as engineering, from other regions, including Europe and Asia.
Now this rule is restricted further, since it rises from 62.5 percent to 75 percent. That is to say, the percentage of imported content decreases from 37.5 percent to 25 percent, which means that if the manufacturers installed in Mexico want to continue enjoying zero tariffs to supply the world’s largest market, they will have to import fewer parts and invest more in the countries of the region. This is already contemplated by the automakers and, in Mexico, five major firms have announced increases in their investment in Mexico.
I see incentives for investment in the three countries due to these changes. This implies that Mexico can endorse more actions for competitiveness and labor. With good and non-protectionist policies to support the industry, we can all enjoy greater benefits from the USMCA.
Q. Just in relation to the labor matter, what major changes are there in USMCA? And how is Mexico working to improve in this aspect?
It is one of the main areas of the trade deal where the objectives of the Mexican government’s long-term agenda converge with the provisions of the agreement.
Unlike NAFTA, the USMCA includes a labor chapter that satisfies the main provisions that our government wanted to implement and were included in our legislation as part of the labor reform.
Many of these provisions and changes the Mexican government had already implemented are related to trade unions and are detailed in the annex of Chapter 23: freedom of representation; signing of collective bargaining agreements, and eliminating the figure of protection contracts which hinder the creation of unions and the right to strike; and very importantly, the creation of an independent labor justice system which is under the nation’s judicial system rather than under the executive branch.
Labor provisions were present in NAFTA but they were negotiated as a side agreement. Therefore, there was not an enforcement mechanism and they generated complaints from production sectors in the United States and Canada concerning unequal working conditions to compete for investment.
The USMCA addresses these concerns by including an enforcement mechanism. Independent of the agreement, the Mexican government, after approving the reform last April, is concentrating its efforts for its implementation through an action plan with goals, budgets and dates for its compliance.
Q. What do you think were the most important conditions negotiated by the new government team that were integrated into USMCA negotiations in the last two months?
We believe that one of the biggest contributions was the acceptance of a single-page chapter about the respect for the sovereignty of Mexico over its energy resources. This is already in our constitution, but the fact that it is in the agreement means that we have the United States and Canada recognizing Mexico’s energy sovereignty.
Another of the contributions resulting from our participation in the negotiations was the fundamental change “sunset clause” proposed by the United States, which stipulated that the agreement should end every five years unless the three countries agree to continue.
With President López Obrador’s authorization, I proposed that, instead of ending the agreement every five years
by not signing its renewal, the base duration would be 16 years with revisions every six years. If all three countries decide to continue, the agreement will last another 16 years. These are important reviews that were not included in NAFTA.
If one of the countries decides to leave the USMCA after six years, it must notify the other parties and will then enter into a special status, and the following year it will have to reiterate this intention. In order to leave the deal, a party will have to reiterate its decision to leave for 11 consecutive years. For example, in the case of the United States, it would be at least three presidential terms within which it would have to reiterate its departure, and not be a decision during the time of any single president. I think that gives durability to the agreement that was never expected.
Q. At the beginning of the interview, you pointed out that the new agreement has great social content. Which changes would you highlight?
Society is not the same as it was 25 years ago when NAFTA came into effect. Cultural changes can no longer be excluded. We see those societal effects with Brexit in the United Kingdom and with the current social unrest in Hong Kong. These are just a couple of examples of general complaints about the economy, economic disparity and the political atmosphere expressed by people around the world. In this sense, USMCA leads the way by advancing provisions of unprecedented social concern, expanded in scope and depth in a direction that begins to be outlined in TPP11.
Finally, in addition to the labor and environmental chapters of the USMCA, there is an anti-corruption chapter, conditions to support the cultural industry, and also a chapter to develop and support SMEs.
There is no doubt that with these new stipulations, trade and industry at the regional level will continue to grow with reinforced social conditions and will mean improvements for the competitiveness, economy and investment in Mexico.
Jesús Seade earned a B.S. in chemical engineering from Universidad Nacional Autónoma de México (UNAM) and a Ph.D. in economics from Oxford University in England. He developed a distinguished academic career at the Universities of Warwick in Great Britain, CEPREMAP in Paris and the College of Mexico; and served as chief economist at the World Bank (1986-89).
He served as an ambassador from Mexico to the General Agreement on Tariffs and Customs (GATT) and concurrently chief negotiator in the creation of the World Trade Organization (WTO) and in the addition of Mexico to the Organization for Economic Co-operation and Development (OECD).
After ten years as Mexican Ambassador and international diplomat in the GATT and the WTO, was invited to the International Monetary Fund (IMF). In 2007, Dr. Seade returned to the academic world, first as vice president of the Lingnan University of Hong Kong.
In January 2017, he joined the Chinese University of Hong Kong-Shenzhen, the technological capital of China, as vice president of Global Affairs. Dr. Seade returned to his duties as an international negotiator on July 1, 2018, representing the elected president in the renegotiation of NAFTA and the creation of the United States-Mexico-Canada Agreement (USMCA).
He currently serves as Undersecretary for North America at the Mexican Ministry of Foreign Affairs. He is Chief Trade Negotiator of USMCA, appointed by the President Andrés Manuel López Obrador.
