(Download our newsletter in PDF: Trading Room -20193105)
This week the process of ratifying USMCA began in the three countries.
In the US, the US Trade Representative, Robert Lighthizer, submitted yesterday to the House of Representatives a draft of Statement of Administrative Action (SSA), which contains the laws that would have to be amended in order to implement the agreement. The submission of this draft will allow Trump President to send within 30 days the USMCA.
On Wednesday Canada initiated the process to ratify the treaty, submitting to the Parliament the laws that would implement the treaty.
Yesterday, USMCA’s text was submitted to the Mexican Senate for its ratification during an extraordinary period.
The day that President of Mexico AMLO announced that USMCA will be submitted to the Senate for its ratification, US president Trump also announced via Twitter that he will establish a 5% tariff on all Mexican goods as of 10th of June.
This increase in tariffs is due to the immigration “disaster” on the border with Mexico. These are the 8 most important points of the statement of the US President:
This event occurs after a week in which the Mexican Secretary of Foreign Affairs visited Washington D.C. to talk with Jared Kushner, an adviser to President Trump on a Development Program for Mexico and Central America, prepared by CEPAL, which requires 10 billion dollars a year. Also, President AMLO announced this month that he had the intention to terminate the Mérida Initiative, a binational policy on security cooperation, and shift the US-Mexico cooperation on “development” policy.
Jesus Seade, Underminister of North American Affairs of the Ministry of Foreign Affairs and USMCA negotiator, commented that “[if tariffs are imposed], in my opinion we should respond decisively, but before that, we should initiate discrete contact to know what we are talking about and make sure that it does not really happen.” Also, Jesus Seade commented that many of Trump’s tweets do not translate into actions, however, precautions will be taken.
During the night, President AMLO published a two paged letter to President Trump that calls for dialogue but also contains a strong and, to some extent, responsive position against Trump’s threats. We highlight the following from AMLO’s letter:
In VTZ we believe that Trump’s announcement will completely paralyze the ratification process of USMCA in the Senate, and his threats should be taken seriously, particularly due to the current trade war between US-China. Furthermore, if tariffs are imposed on Mexican products, the Mexican countermeasures may reach stratospheric figures as noted by Kenneth Smith, the former chief Mexican Negotiator. Will Mexico face a trade war? This announcement only creates uncertainty, and if tariffs are applied it will affect the region.
Yesterday, it was reported in several news outlets, the dismissals of officials of the Ministry of Economy in the north of Mexico. It was reported that the Ministry decided to reduce its staff, which may have as a consequence that international trade related authorizations may be delayed and companies may be affected.
Currently, the vast majority of the procedures are done electronically but said procedures are supported by trained staff.
In this scenario, we consider that companies involved in international trade operations should now be more careful in submitting the relevant information to ensure their authorizations. Of course, in this new scenario, specialized firms will also play a very important role.
(download our newsletter in PDF here: Trading Room -20190426)
This Thursday in his morning press conference, Mexican President, AMLO, declared that the Special Economic Zone policy will disappear.
According to his statements:
“[SEZ] were supposedly going to help, but they never did anything to help. The business was made, the land was bought and the budget was used, which did not benefit anything.”
Though SEZs were officially created, “investment authorizations” (for private parties) were not been granted by the relevant Mexican Authority. It is evident that the results of the SEZ are not tangible since they are still at an “early” stage of their implementation.
The federal government now bets in creating “Development Projects”, which we believe refers to creating a sort of “Free Trade Zone” with industrial parks throughout the Isthmus corridor. The Master Plan of this project will be concluded in October.
The 24th of April the relevant Senate commissions approved the Mexican labor reform. As we have reported, this reform includes the creation of specialized tribunals, union transparency and guaranteeing collective bargaining so that just and competitive conditions prevail in the labor market, changes that seek to fulfill the Mexican obligations under USMCA. Now, it is the turn of the Senate to discuss and approve the reform.
Mexican news outlets, however, reported that the American Federation of Labor and Congress of Industrial Organizations, a major US union, expressed its rejection towards USMCA’s ratification as it considers that Mexico does not have the sufficient instruments to implement the labor reform successfully.
Another step towards USMCA’s ratification was taken on April 18th when the US International Trade Commission of the US issued its report. The report predicts USMCA’s economic impact in industrial and economic sectors; in fact, it predicts that the USMCA will allow the USA to grow less than 1% of its GDP.