Economy"Let's never negotiate from fear, but let's never be...

"Let's never negotiate from fear, but let's never be afraid to negotiate." The T-MEC disputes

(Expansión) – Recently, at the request of the United States (EU) and due to the policies implemented in the Mexican energy sector, the T-MEC dispute resolution mechanism was activated.

This has generated a stir and concern among analysts. Certainly, we will see a back and forth of negotiations, from which, in a negative scenario, Mexico may come out badly. However, pessimism aside, the activation of this process should not generate excessive fear, since it also has a clearly positive interpretation.

That is why the title of this column recalls the phrase from John F. Kennedy’s inaugural speech: “Never negotiate from fear, but never be afraid to negotiate.”

On July 20, the office of the US Trade Representative requested to start the Consultation process with Mexico, under the protection of the T-MEC. The reason for this is the implementation in the Mexican energy sector of various measures as of December 2018 that, it is argued, favor state-owned companies (Pemex, CFE) and harm US companies and products.

Specifically, Mexico is being accused of failing to comply with the following articles of the T-MEC: 2.3 and 14.4, which seek to guarantee national treatment for goods and investors of the other parties; 2.11, on restrictions on foreign trade; 22.5.2 and 29.3, which address the impartiality with which regulators and administrative processes must be conducted. Subsequently, to these claims, Canada was added.

What is the consultation period? It is the first step within the dispute resolution mechanism offered by the T-MEC, stipulated in Chapter 31. Consultations must begin no later than 30 days (15 days in the case of perishable goods) after submitting the request. In this step, the parties are encouraged to exchange all the information necessary to assess whether the Treaty has been violated and to reach an agreement.

If an agreement is not reached within 75 days (30 days in the case of perishables) after the request for consultations, the formation of a panel may be requested, which will be composed of five national experts from both parties. This panel will issue a report, in which it will be ruled whether the accused party actually breached its obligations. After that, the partners may agree to withdraw the measures that contravene the treaty and/or a remedy or compensation.

If they do not agree on the latter within 45 days of the panel’s report, the complaining party will be empowered to suspend benefits to the accused party within the disputed sector, that is, implement restrictions or tariffs on imports. In the event that the complaining party considers that it is not feasible to suspend the benefits in the same sector, it may go over others.

Precisely, it seems to me that the latter would be the worst scenario for Mexico. First, it would imply that the Mexican government has no intention of recalibrating these policies that generate uncertainty and inefficiencies, not only in the energy sector, but throughout the economy.

Second, the door would be opened for Canada and the US to apply tariffs to Mexican exports, which would translate into a serious blow to industries that are so important to the country, such as the automotive industry.

On the other hand, I consider that the simple fact that it has activated the dispute resolution mechanism is a reminder that the T-MEC is a safety net against decisions that are adverse to economic growth, taken internally.

Even an agreement in the early stages of the dispute resolution process would imply a commitment to withdraw the policies in question and discourage similar actions in the future, without the need to allow our North American partners to penalize Mexican exports.

The latter can give a certain minimum degree of certainty to potential investors, mainly in the current situation, with all the opportunities that the regrouping of global value chains after the pandemic implies, and in the midst of the commercial distance and political tensions between China and EU.

That is why I think that we should be attentive to this latest development in the commercial relationship with our neighbors to the North and, although the negotiations can be tough, we should not be excessively afraid.

Editor’s note: Alejandro J. Saldaña Brito, Chief Economist of Grupo Financiero B×+. “I am a believer that success and dignity, both personally and professionally, are achieved on a day-to-day basis. Discipline is essential to fulfill the previous point, but that does not mean that we should relegate to the background the pleasures of this life (very short for those of us who are ambitious!): living with family and friends, sports, travel, food, music and art… and some mezcal, always with measure”. Follow him on Twitter as and at . The opinions published in this column correspond exclusively to the author.

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