Mexico braces for close trade scrutiny from US President-elect Biden

A new trade war would be devastating for Mexico's economy, now reeling from the fallout from the coronavirus pandemic. PHOTO: REUTERS

MEXICO CITY (AFP) - After years of fiery rhetoric from outgoing US President Donald Trump, Mexico is bracing for more discreet but steadfast pressure from Joe Biden's administration to fulfil its trade obligations to the letter, analysts say.

Mexico and Canada were pressured by Trump to renegotiate the North American Free Trade Agreement (Nafta), the 1994 pact that the Republican branded "the worst trade deal in the history of the country." After more than two years of arduous haggling, it was replaced as of July 1 by the US-Mexico-Canada Agreement (USMCA) - but only after the Democrats demanded US officials renegotiate key elements including labour provisions.

"Biden won't be as hostile as Trump, but he will watch to see that the commitments made in the USMCA are fulfilled, which Trump hasn't done," Kenneth Smith, who was the Mexican chief negotiator, told AFP.

Nafta erased nearly all tariffs across the region and helped turn Mexico into an export powerhouse.

But Trump had long blamed the agreement for the offshoring of American jobs.

He also threatened to slap tariffs on imports from Mexico if it did not stop a wave of Central American migrants heading overland to the United States.

A new trade war would be devastating for Mexico's economy, now reeling from the fallout from the coronavirus pandemic, as the United States buys more than 80 per cent of its exports.

Analysts at the Spanish bank BBVA think Biden's victory will clear the uncertainty hanging over trade between the US, Mexico and Canada, which in 2019 was worth US$1.2 trillion (S$1.3 trillion).

Biden "supported the original free trade agreement and the current one. We would think that he is more committed to this vision," said Carlos Ramos, chief economist at BBVA Mexico.

'Permanent disagreements'

Trump's scorching rhetoric is likely to be replaced by careful monitoring, under Biden, to ensure that Mexico is complying with the fine print of the trade deal, analysts said.

Some fear this could produce cross-border spats.

"It's very clear that President Andres Manuel Lopez Obrador doesn't share the political agendas of the Democrats, and this will lead to permanent disagreements, mainly in energy and labour matters," said Miguel Angel Jimenez, analyst at the Mexican Council on Foreign Relations.

Lopez Obrador managed to maintain cordial relations with Trump even though the Republican branded Mexican migrants as "rapists" and drug dealers during his 2016 election campaign and vowed to build a wall across the southern US border.

The Mexican leader's relations with Biden have got off to a rocky start; the left-wing populist has yet to congratulate the Democrat on his election victory, saying he will wait until all legal disputes are resolved.

Jimenez ruled out the possibility that Biden will seek to renegotiate USMCA, however, saying that the voice of the Democrats "has already been heard and included." Smith thinks that the first disputes could arise over agricultural exports such as blueberries, strawberries and peppers, which Mexico grows year-round thanks to its moderate climate.

"Labour, environmental and agricultural issues are a priority for Biden," he said.

There may be friction in particular over the energy sector; while Biden favours clean energy, Mexican state companies depend heavily on fossil fuels.

"Favouring state companies over private ones that generate wind and solar energy may be the subject of litigation within USMCA. Mexico will have to proceed carefully," Smith said.

The new trade deal also includes rules designed to improve US autoworkers' competitiveness and requires higher salaries for some Mexican autoworkers.

Mexico approved the required labour reforms and accepted supervision by US delegates.

"Due to the Covid-19 pandemic, Mexico hasn't implemented this reform. Trump hasn't said anything, but with Biden it could be a point of disagreement," Jimenez said.

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