Nafta Has Room for Improvement, Mexico's Economy Minister Says

(Bloomberg) -- Mexico's top trade negotiator will grant President Donald Trump this: Nafta is in need of updating. He doesn't agree, however, that the U.S. auto industry has gotten the short end of the stick.

The North American Free Trade Agreement has served the U.S., Canada and Mexico well, Economy Minister Ildefonso Guajardo said Friday at a luncheon hosted by the Detroit Economic Club. But when he was negotiating the original agreement in the 1990s, he didn't have a cell phone, there was no such thing as e-commerce and Mexico's energy and telecommunications sector lacked competition.

“Nafta is 23-year old agreement -- we need to bring it up to modernity,” Guajardo said.

Trump has been determined to wring more favorable terms from Nafta, though he hasn't been explicit on what he wants to change. The president has criticized automakers including Ford Motor Co., Toyota Motor Corp. and BMW AG for building vehicles south of the border and has threatened to tax imported vehicles.

It's necessary to recognize what's worked well with Nafta and push back against the notion that the rapidly expanding Mexican auto industry has taken the lion's share of growth, Guajardo said. He visited Detroit ahead of planned discussions around the possible renegotiation of the free trade agreement. 

Capital Investment

“Of the 100 percent of investments that have been made in the auto sector in the last five years, 72 percent have been in the U.S.,” he said.

While in Michigan, Guajardo was scheduled to meet with Joe Hinrichs, Ford's head of the Americas, and Mustafa Mohatarem, General Motors Co.'s chief economist, according to company representatives. He also visited with auto-parts company executives that have factories in Detroit and Mexico, he said during his speech at the MotorCity Casino Hotel.

In an interview last Friday, Guajardo said he would break off talks if the U.S. proposes the kind of big border tax suggested by President Trump. 

“The moment that they say, ‘We're going to put a 20 percent tariff on cars,' I
get up from the table,” he said in the interview. “Bye-bye.”

Trump has called Nafta unfair and responsible for a “massive” imbalance favoring Mexico. The country shipped $294 billion worth of goods north last year while the U.S. sent $231 billion south.

Without Nafta, trade between Mexico and the U.S. would be ruled by World Trade Organization strictures limiting tariffs either country can impose on the other. That means an import tax like the one Trump has suggested could result in a WTO challenge, Guajardo said.

--With assistance from Nacha Cattan and Eric Martin

To contact the reporter on this story: Jamie Butters in Southfield, Michigan, at jbutters@bloomberg.net.

To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, Anne Riley Moffat