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11 Mar, 2019 08:12

Mexico-US trade deal was Washington’s divide & conquer policy in action – Mexican undersecretary

The new trade agreement between the U.S., Canada and Mexico is under fire as Mexico pledges not to ratify it with Trump’s steel tariffs in place. Will the agreement make it, or will the art of no deal prevail? We asked Jesus Seade, Mexico’s Undersecretary for North America and the country’s chief negotiator in the USMCA talks.

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Sophie Shevardnadze: Ambassador Jesus Seade, Mexico's Undersecretary for North America and the country's chief negotiator in the USMCA talks, welcome to the show. It is really great to have you with us, lots to discuss. Mr. Seade, you are Mexico's key diplomat in the talks over the U.S. - Mexico - Canada deal, the new NAFTA. The process of re-negotiation was started by the Trump administration. Do you think that was the right move, a good thing to do? NAFTA was good enough for President Clinton, President Bush, President Obama. Does it really not work anymore?

Jesus Seade: That's what President Trump was saying, that the treaty was the worst treaty ever, it didn't work anymore. I would say, with time, there are things that happen. You have new sectors, for example, digital trade. There was not no digital trade or labor standards and environmental standards in the original NAFTA 25 years ago, those were kept out because relations were more purely economic. But now the relation is very-very closely intertwined. So I think it's OK to have a new treaty and new negotiation.

SS: So Donald Trump went into the talks with a campaign promise to put America first. Do you feel that Mexico now has to sacrifice some of its interests to appease that policy to stay in some kind of an agreement with the United States, because I wonder if this new deal is favoring America, like Trump promised it would?

JS: No, I don't see that being the outcome. It was the intention, it’s not the outcome. The main part of the trade relationship is manufactures, trading industrial goods, particularly the car industry. And what the agreement does is to make it more difficult to bring parts from the rest of the world, kind of forcing the companies, if they want to continue to sell into the US just because market in the world, forces them to invest, but invest in Mexico, in the United States, in Canada. I think it's a good deal for the investment of all three, and it's a balanced agreement. It's okay. It's good for Mexico.

SS: So when the backlash against the proposed Pacific and Atlantic Free Trade deals eventually killed them, it was as if the free trade dream is over. With this new deal on your hands, do you think it is? And we're back to tariffs game?

JS: No-no-no, it's it's not such a fantastically big change. It's evolution of the NAFTA. It takes the NAFTA and improves the rules in many areas, it improves. Then, it increases what is called the rules of origin, which is what I was talking about, it makes it necessary for the foreign companies to produce more in North America, therefore, to invest. And then, a very interesting part of the treaty is that it has a number of areas that I call social agenda. It has labor rules, environmental rules, anti-corruption rules. It has ways to help small and medium enterprises. It even has culture protection facilities provisions. So it is a very interesting treaty that is more pro-investment than pro-trade, but also a social agenda. It’s good agreement for the second quarter of the century.  

SS: Ok. So, the TPP and the TTIP deals were criticized as being too friendly to the large multinational corporations, but looking at this new deal, for instance, it hands quite a few benefits to the Big Pharma. prolonged patents on drugs, for instance. Can we be sure that the new deal doesn't put the corporations first?

JS: Well, you touched the one area... I mean, what I’m saying, what you think of the deal, it’s 35 chapters, it's a gigantic thing. The one area where I think I would have changed the results a little bit is pharmaceuticals. Yeah, protection to pharmaceutical companies, protection to buy your medicines is a bit higher than I wish it had been. In Mexico, middle income country, we depend a lot on generic medicines, which are non-patent medicines, legal, but not-patent, these are derived from the patent medicines after a number of years of tolerance. This becomes tighter, so it's more difficult to get, it'll be more difficult to get generic meds. So intellectual property in general is the one area that is not good news, but against that, I think it's very good news across manufacturers. So on balance, I like.

SS: A member of Canada's Parliament, Bob Nault, has recently accused Mexico of throwing his country under the bus when it sealed a bilateral trade agreement with the United States while the three countries where renegotiating NAFTA deal last summer. Do you think Canadians, they’re outraged, do you think it's justified?

JS: Yeah, that was a difficult time. The United States managed to, you know, the old dictum, separate and conquer, divide and conquer... And the United States managed to close the negotiations, first Mexico, then Canada. For Mexico it worked well, for Canada, it was difficult in some areas that were negotiated primarily by Mexico. And this is something that Canada quite understandably took against the Mexican authorities, this was the previous government in Mexico negotiating. When the new government came in, and here your friend who is speaking now became the chief negotiator. we really made every effort to bring Canada into the fold fully. I said a million times, this treaty has to be trilateral, or trilateral, or trilateral. This is with Canada, and things with Canada are very good.

SS: Ok, but this treaty, the USMCA deal, has not been ratified while the US Congress was red. And now Democrats won the lower house, and there seems to be some criticism of the new deal, as it allegedly doesn't deliver on what the US workers wanted from it. Can the deal fell prey to the domestic politics in the United States?

JS: You're right, the main area where a number of legislators, Congressmen in the United States are complaining, expressing concern, is related to labour. But I really think this is a misunderstanding, because the labour chapter is extremely powerful. The labour chapter is very strong, very best-practice. What they want is not labour provisions, but trade provisions to enforce the labour commitments. So it's a question of believing that Mexico will do what Mexico has committed, but they don't understand that in Mexico, the top priority of the new centre-left government is to work for the workers. So I think a good communication will go a long way to clarify that our objective and their objective are very much in line. I think communication will be part of this. We have to understand what they want to say and very respectfully deal with it. Reopening the treaty is very complicated, it be a pandemonium for everybody. But I don't think it is necessary. We need to understand each other, and to see what they want, and we want the same.

SS: So before this bilateral deal between the United States and Mexico was forged last summer, you were certain it wouldn't happen. You said back then that Trump's push for the deal was merely a negotiating trick, tactic. And here it is. Are you sure you can read him right?

JS: Well, we are sure we like what came out of it. The dynamics in the politics in the United States is extremely complicated. I believe one reason why President Trump decided to go for this negotiation was that in his approach to trade with other countries, they ended up fighting with the European Union, and with China, and with Japan, Korea, Australia, Canada, Mexico, everybody. Then, all of sudden, in this kind of divided world of trade, they managed to have a trophy and achievement. It's an important achievement! I think, sincerely and honestly, it’s an achievement, but also politically, it’s very important. That's why President Trump is very positive about it, and his government is, and that's why some Democrats are attacking it. Not because it's any bad, but because they don't want to award the triumph to President Trump. I hope politics will be, at one point, compressed into looking at the interest of the United States and recognize that the interests of the United States, like Canada’s and like Mexico’s, are intertwined and supported very well by this forward-looking treaty. That's what it is.

SS: You said that the Trump administration will soon remove the US steel and aluminium tariffs, which it has right now imposed on Mexico. But the discussion of this issue has been dragging on for many months already. What makes you certain that it's going to be solved soon?

JS: Well, I would say, Sophie, that the situation is worse than that. The problem of steel has not been dragging on for months, has been almost abandoned! There has been no progress, no engagement, and... At least Mexico has been dealing with it as if it is a separate question, a separate chapter. But the reality is that they are completely connected. It's impossible to think of USMCA going through without steel being resolved. And the ratification, well, let's see how long it takes, but hopefully, some time this year. But yeah, the steel question will have to be resolved.

SS: So, Mr. Seade, Trump is justifying the steel and aluminium tariffs we've just touched upon by concerns of national security. Is he just using that as pretext, or does Mexico now have to work on not being seen as a threat to the United States?

JS: There is no way Mexican steel can be a threat to the United States. For one thing, the trade in steel products is quite strong in both directions, but bigger the exports from the United States to Mexico, so the US has a surplus with Mexico. How can imports from Mexico be a threat? I really think this was a pretext to create some extra room for the steel industry in accordance with the vision of President Trump, which is support domestic industry rather than thinking of global engagement or trade. So the excuse is not good, but it doesn't matter. Whatever it is, it has to go. And I believe that the United States government and, probably, my information is that even the industry are ready to see this out, as is the Mexican government and the Mexican industry. So we just have to engage and discuss how to do it. But this has to go.

SS: So the Mexican President has said that his country will continue to pursue friendly relations with the US. Now, how easy is it to do that when Trump openly calls Mexicans rapists, people with troubles who bring troubles to the United States? I mean, does it not get under your skin when you are negotiating?

JS: Well, we certainly don't appreciate those expressions. We have on a number of occasions indicated our disappointment to hear certain things. These are things that are said largely with domestic politics in mind, and we don't take them personally. We are just dealing with the actual relations, the actual things that bind us, the negotiations, trying to move forward to a better relationship, to a higher level of relationship. These remarks, all the reference about the wall, and Mexico paying for the wall, is not internal politics in Mexico, it is internal politics in the USA.

SS: Ok, but the wall... You just brought it up, when we're talking about cross-border trade, inevitably, the plans of Trump to construct a border come into play. If it is constructed, what effect will that have on Mexico-US trade relations?

JS: Well, I think it is negative if that wall is constructed. It won’t be so negative on trade relations. Trade doesn't flow through every meter of the 3000 kilometer border, it goes through certain points, and the points have trains, you know, roads for the trucks to cross. That's not going to be affected. The wall we see as something that is not constructive, but it’s not directly impinging, affecting trade as such. So if that’s your question, the answer is no. We don't see that as has being particularly relevant or a problem.

SS: But Mexico, by virtue of geography, is on the way of asylum seekers headed for the United States, and new Trump policies on immigration are creating a backlog. And so those refugees have to stay in Mexico before they can present themselves to the US authorities. How does Mexico deal with the situation, and what kind of problems does that create for your country?

JS: We have an extremely interconnected region. I mean, there's 36 million Mexicans living in the United States, 24 of those are permanent residents with a permanent residence permit or visa, or dual nationality, 24. And then, 12 are only Mexicans, half of them regular, with the appropriate working conditions, and half of them illegal immigrants, but Mexicans, one hundred percent Mexicans, all the same. So the relationship is extremely complex without having to have any walls or anything. The reality is that the migration from Mexico to the United States used to be huge twenty years ago, even ten years ago, and in the last six to eight years, has gone into negative. There are more Mexicans coming back from the US to Mexico than going from Mexico to the US. So that's not the issue. What is irritating now the North American authorities is the fact that there is pressure, there are lots of Central Americans coming through Mexico and trying to go to the United States. So that certainly creates a difficult situation at the Northern border for us. But that's a situation related to people from Honduras, Guatemala, El Salvador coming through Mexico. Relations with Mexico on Mexican people are quite balanced, that's not where the problem is.  

SS: So let's add China to the picture, because that's important. The USMCA deal we’ve discussed earlier includes a provision that forces all signatories to inform each other of talks and trade deals with non-market economies and can be used to freeze them out if these talks result in a deal. How much of a blow would that be for Mexico and Canada's relations with China?

JS: Well, China is, of course, the giant not in the room. I mean, the most important trading partner for each of us outside ourselves. Mexico wants to develop a good relationship with China. Mexico has a huge trade deficit with China, so we want to find ways to export more to China, but also, perhaps, more importantly, to attract investment. The treaty, the USMCA, has a provision that says that if any of our members, the three countries, start negotiations towards a free trade agreement, these will be notified to the others, and the others can get out of the USMCA. But nobody is thinking, at least not in Mexico, of creating a free trade agreement with China anytime soon. We need to develop stronger links, develop stronger investment flows, and we can do that perfectly well. And we intend to do that perfectly well. We are working with China, as well as we are working with Canada and with the United States, within the terms of the treaty.

SS: So China is now reportedly the biggest creditor of Latin America, and there is some talk of Mexico approaching it for help with a railroad infrastructure project. This is viewed with a concern from Washington, which warns that Chinese investment comes with a heavy dose of geostrategic interest. Are you afraid of becoming a pawn in China-US big rivalry game, or can Mexico and other Latin American countries play the two against each other?

JS: Rather than afraid, I would say that we, of course, will be very careful. Dealing with China is complex, the line between the company and the state is, most of the time, not very well drawn, not very clear. So you are working with a partner, investor, whatever, and to some measure, you're working with whole country, with China. So we have to be careful. An important part of developing a relationship must be to develop improved provisions and mechanisms to discuss problems, to create confidence in both directions. The Chinese also have a deficit of confidence with Mexico: how does that country work? It's too distant. So we have to educate our peoples and learn to work together, and, of course, be careful, just as we are careful working with Germany or with the United States. Careful in different ways. China is a country with an investment system very much of its own. And we have to be very clear that we need over-the-table relationships and clarity in our links. But we welcome their investment.

SS: But one of the terms you hear most often when it comes to Chinese investment is the feared debt trap, basically, a situation where they recipient nation bites more than it can chew in terms of loans. Have you considered this scenario, is this a real threat in Mexico's case, or not?

JS: No. I mean that's that's very much something that depends on you, not on China. How much, how far you go, how much are you investing, what is the balance of your macroeconomy. If there is one thing that Mexico has in abundance, it is macroeconomic stability. It is a country that has been extremely well on the stability front for, I don’t know, 30 years, 35 years. So there is... We have all the mechanism, we have the internal checks and balances controls, and we are not going to lose track of where we want to be in dealing with China. We want to welcome their investment, that’s not going to rock the boat in terms of our macroeconomy.

SS: So, the US-China trade war is still on, despite hopes of resolution. In the meantime, in early February the UN released a report saying that Mexico could capture a major deal of the exports lost because of the bilateral tariffs between China and the United States. Do you see a prospect of gain here? Could it overweight the long term damage from the trade war itself?

JS: Well, you can always look at things in contradictory ways at the same time. If there is a trade war between the United States and China, you can think, oh, that’ll spill over into benefits to Mexico, because Chinese exports to the United States will be more complex, exporting from the United States to China will be more complex, Mexico can come in. But I think at the same time you have to understand, if there is a trade war between the United States and China, the American economy is damaged, the Chinese economy's damaged, and each of those is important to Mexico. So I think the balance of preference is that we applaud the fact that the United States and China seem to be coming to a healthy balanced agreement to avoid a trade war, and if they avoid a trade war, that'll be good for growth of the international economy, the world economy, and that'll be good for Mexico. We are not looking at opportunities for small benefits because somebody got far from the other one. We prefer big benefits from a healthy world economy, particularly involving our two main trading partners.  

SS: Ambassador, thank you for this interview. We were talking to Jesus Seade, Mexico's Undersecretary for North America and chief negotiator in the USMCA talks, discussing US-Mexico's economic cooperation amid the border crisis between the two countries. That’s it for this edition of SophieCo, I’ll see you next time.