Tone Down Trade Rhetoric, Tough Tactics, Mexico Says

TRAVERSE CITY, MI – As President Trump sharpens rhetoric around the North American Free Trade Agreement and anxiety within the automotive industry heightens, a key member of the Mexican negotiation team admits communication between those in the room and those outside could be better.

But he also says talks sped up this week after a pause and expresses optimism a deal can be reached with the U.S. before an Aug. 25 deadline, despite Canada reluctantly sitting on the sidelines the past two weeks.

“We have seen some movement on problematic topics,” says Guillermo Malpica Soto, head of the Trade and NAFTA office for Mexico’s Secretaría de Economía in Washington.

Malpica says ministerial and technical talks gained momentum last week. Ministerial negotiators are top-level bargainers, while nitty-gritty details are handled at the technical level. Malpica says Mexico wants to take advantage of the new progress to push through a modernization of the free-trade pact.

The news would come as a relief to the auto industry and to members of the U.S. Congress, both suffering high anxiety over hardball trade tactics out of the White House. Last week, General Motors reported second-quarter financial headwinds and drew back its outlook for the year, blaming higher material costs after Trump reinstated tariffs on key trade partners.

Ford and FCA US also reported sharply higher commodity costs.

This week, the Original Equipment Suppliers Assn., a trade group for parts suppliers, reported a pessimistic outlook among its members due to trade policy uncertainty across the industry.

“Policy uncertainty serves to constrain additional capacity investment and accelerate volatility through the supply chain, adding risk down the tiers,” says Mike Jackson, executive director-Strategy and Research at OESA and author of a quarterly sentiment report.

Underscoring the uncertain mood, GM Chairman and CEO Mary Barra declined last week to share with investors potential strategic responses from the automaker.

“There are almost an infinite number of things that could happen, so I’m not going to hypothesize, she said.

Malpica says the new progress could open communication lines to levels his politicians and key stakeholders in Mexico enjoy.

“It is important to improve our communication abilities in these negotiations,” Malpica tells WardsAuto ahead of his remarks to the CAR Management Briefing Seminars here. “In the case of Mexico, we have always been in communication with our stakeholders. They travel with us to the (negotiating) rounds.

“What I hear often from the U.S. stakeholders and Congress is they don’t feel informed. Perhaps that is one of the issues,” he adds. “We need to be effective communicating when we are negotiating and what we want from the negotiations.”

Malpica echoes the sentiment of stakeholders on each side of the border, calling the 26-year-old agreement obsolete and in need of modernization for the entire region to remain competitive. Mexico also wants provisions added to address labor conditions, the environment and corporate responsibility.

Tariff retaliation also hinders bargaining, he says.

“At the end of the day, they are good for no one,” he says. “They are making higher prices, making companies move from the region (and) creating disturbance in the value chains. You have to build a winning narrative in the three countries. If not, you are going to close the negotiations.”

Nonetheless, Malpica says Mexico will pursue compensatory measures if the U.S. does not lift tariffs imposed on steel, aluminum and other key automotive materials in June through Section 232 of the Trade Expansion Act. The White House cited national security concerns.

Malpica sees it as a NAFTA bargaining tool. His counterpart, Colin Bird, minister and counsellor, Economic and Trade Policy for the Canadian Embassy in Washington, pledges similar countermeasures, adding during the conference’s trade-policies sessions that the steel and aluminum tariffs under Section 232 hit a raw nerve in his country.

“The idea that we could impose a national security threat challenges our very sense of the (U.S.) relationship,” he says, pointing out Canadians have fought alongside Americans dating back to World War I. “Canada is the largest export market for U.S. steel. The U.S. actually has a significant $2 billion annual surplus on iron and steel products with Canada.”

However, Bird says he is optimistic a deal on NAFTA can be reached based on his opinion that opposition to Section 232 is being heard in Washington and on creative ideas from Canada, such as periodic reviews of the trade pact to ensure its relevancy rather than a U.S. preference for a sunset clause that would require full renegotiations once it expires. Positive reception to proposed labor incentives also signals a deal can get done.

“We have a moment this summer…to close a deal,” Bird says.

For the second straight year, a U.S. trade representative is not present on the panel, despite overtures until last week by the Center for Automotive Research, says Kristin Dziczek, vice president-Industry, Labor and Economics at CAR.

She says U.S. officials responded by saying it would be present when its voice should be heard and referred to the appearances by Malpica and Bird at conferences with trade discussions as the Guillermo and Bird Show.