Garza: Texas, RGV lose if U.S. departs NAFTA

Talks to renegotiate NAFTA have stalled, and for those in favor of the United States’ continued participation in the U.S.-Mexico-Canada trade agreement, maybe that’s a good thing.

Talks to renegotiate NAFTA have stalled, and for those in favor of the United States’ continued participation in the U.S.-Mexico-Canada trade agreement, maybe that’s a good thing.

Antonio Garza, former U.S ambassador to Mexico and now counsel to White & Case law firm in Mexico City, said the negotiating parties have pressed the pause button after four rounds of negotiations in which the United States has insisted on changes the other countries consider nonstarters.

These “poison pill” proposals include a sunset clause that would let the North American Free Trade Agreement expire in five years unless all three countries vote to continue it, a move U.S. business leaders argue would torpedo companies’ ability to make long-term foreign-investment decisions.

Also, U.S. automakers are worried about the administration’s demand that 85 percent of each automobile produced be manufactured in North America, up from 62.5 percent currently. Another concern is the administration’s proposal that 50 percent of the parts for cars manufactured in Mexico or Canada be sourced from the United States.

Critics inside the industry argue that such “rules of origin” restrictions probably would compel automakers to move production out of the United States, then pay a tariff to import their own products — essentially a tax on the industry that would decrease its global competitiveness.

Garza said the U.S. agricultural industry also fears a withdrawal from NAFTA since Canada and Mexico are huge markets for U.S. agriculture exports. Texas is the largest U.S. exporter of agricultural products to Mexico, with more than $3.7 billion worth exported in 2016.

An Oct. 25 letter to U.S. Commerce Secretary Wilbur Ross signed by 87 food and agricultural organizations spelled out the impact of pulling out of NAFTA, including the loss of 50,000 jobs in food and agriculture and a $13 billion decrease in gross domestic product in the farm sector alone.

The letter also disputed Ross’ assertion that the predicted blow to U.S. agriculture from a NAFTA pullout constitutes an “empty threat.” Garza, who writes regularly about U.S.-Mexico relations, wrote recently that after four rounds of talks among the three countries, “the hopes of bringing the 25-year-old agreement into the 21st century are looking increasingly slim.”

“I’m not terribly encouraged right now,” he said. “I’m glad to see the parties have taken a pause. This pause can act as a bit of a cooling period.”

The fifth round of negotiations is scheduled to start Nov. 17. Before that date, the U.S. private sector — including the energy sector — needs to step up and convincingly make the case for America’s continued involvement in NAFTA, Garza said.

“If a broad coalition of U.S. interests don’t step up aggressively and set the table for ‘18, then I think it’s going to be tough to get an agreement,” he said. “It’s got to come from the U.S. private sector.”

On Oct. 24, according to the New York Times, more than 130 representatives from an array of industries met with lawmakers on Capitol Hill to try to preclude a pullout. Historically, Republicans and pro-trade groups like the U.S. Chamber of Commerce see eye-to-eye — not so with President Donald Trump, who has labeled the trade pact the “worst deal ever” for the United States.

“Essentially, the administration has made their sole metric of success the reduction of (trade) deficit, but trade agreements are a lot more than a single metric,” Garza said. “It’s like flying a plane and looking at only one gauge on your dashboard.”

Most economists and trade analysts agree that NAFTA should be updated, but also tout the agreement’s positives, including higher U.S. exports, lower prices for consumers and the 14 million jobs NAFTA supports, he said. Recent surveys show Americans strongly support trade, Garza said.

“The administration’s position on this is a bit of an outlier in the sense that it seems to be directed at a very modest-sized constituency within the Republican base,” he said.

If Trump does pull out of NAFTA, Texas and the Rio GrandeValley have plenty to lose, Garza said, citing the fact that the state trades $178 billion worth of goods per year with Mexico, more than the United States trades with any single European country.

Texas exports $92 billion per year to Mexico, which constitutes nearly 40 percent of all the state’s international exports, with computers and electronics, transportation equipment and petroleum products accounting for the lion’s share.

“The single biggest beneficiary in terms of trade with Mexico has been Texas and the border, not only in terms of economic impact,” Garza said. “It would have a detrimental impact, more generally, on the nature of the relationship and cooperation we have with Mexico on issues as disparate as immigration, counternarcotics efforts and counterterrorism efforts.

“We talk about NAFTA as an economic platform and that’s true, but the relation we enjoy with Mexico is far broader than simply economic,” he said. “No doubt we’d feel it on trade first, but I think we’d start to feel it in our relationship generally.”