La Jornada: Ensuring the validity of the T-MEC will attract more investment

Once the uncertainty surrounding the Treaty between Mexico, the United States and Canada (T-MEC) and its continuity for the next 10 years has dissipated, investment flows to the country are expected to increase, agreed President Claudia Sheinbaum and the Secretary of Economy, Marcelo Ebrard.

In her morning press conference, the president explained that the treaty remains in force until 2036, but “it is not that it is already 10 years and it is over; at any time it can also be extended” for another 16 years if the three governments agree to it. He added that the review that begins now responds to the vision of greater protectionism of the Donald Trump administration, which has impacted not only Mexico and Canada, but global trade.

Sheinbaum maintained that “there is certainty, so there is certainty that investment is being made” in the country, and recalled that the United States’ position did not imply a withdrawal from the treaty, a scenario that would have represented the greatest risk for the Mexican economy. He added that Washington’s response was already anticipated by the markets, so it did not represent a relevant adjustment for the exchange rate.

Regarding trade diversification, he expressed that the updated agreement with the European Union, together with the interest shown by governments such as those of Switzerland, Spain, South Korea and Japan, allows reducing trade dependence on the United States. He mentioned that in recent days he has held meetings with representatives of those nations (the Prime Minister of Japan, among them) and the interest of foreign and Mexican businessmen in investing in the country continues.

Preferential position

Ebrard indicated that he does not expect substantive modifications to the T-MEC in the upcoming talks and that Mexico maintains a preferential trade position compared to other countries, by maintaining one of the lowest effective tariffs among the United States’ trading partners. He pointed out that more than 80 percent of Mexican exports to that country do not pay tariffs.

The official related international uncertainty to the fact that the United States, as the largest economy in the world, is rethinking its trade relations with the rest of the world. “We have an advantage over other countries,” he stated, stating that the validity of the treaty until 2036 places Mexico in a different position compared to nations that do not yet know the terms under which they will trade with Washington.

Ebrard reiterated that on July 20, the Mexican delegation will receive the United States delegation to formally begin the first annual review of the treaty, in which the 14 points raised by Washington will be addressed, including the evolution of the rules of origin in the automotive industry. He explained that this scheme seeks to increase regional content, although without affecting the competitiveness of companies already established in the country.

The secretary highlighted that the validity of the treaty represents good news for the automotive industry, since companies in the sector established in Mexico now pay lower tariffs than those set a year ago, thanks to a discount system linked to the regional content of each vehicle. He asserted that the government hopes to continue reducing them as talks with Washington progress.

The official stated that the private sector supports this reading. He mentioned that the Business Coordinating Council described the result as positive and agreed that the biggest concern prior to the meeting was the risk that the United States would withdraw from the treaty, which ultimately did not happen.

The secretary reiterated that if the United States had chosen to leave the treaty, “it would have been very bad news,” and he announced that his forecast “is that the treaty will be renewed at some point in the next few years for another 16 years.”

The official asserted that the largest foreign investment will continue to come from the United States, which concentrates just over 40 percent of it in the country, although he also anticipated greater flow from the European Union, with Spain among the main investors, as well as Canada, South Korea and Japan.

Ebrard also ruled out that the government seeks a free trade agreement with China or other countries while the review of the T-MEC progresses. He explained that Mexico maintains trade with that nation, mainly as a supplier of goods, but the priority is to defend the country’s position in its main market, which is the United States.