Mexico could withdraw from NAFTA if Trump fails to offer a good deal

rump is forging ahead with plans to renegotiate the North American Free Trade (NAFTA) agreement after signing an order for the U.S. to withdraw from the Trans-Pacific Partnership trade deal.

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Trump has threatened to withdraw from NAFTA that came into effect in 1994 if he cannot renegotiate it to benefit American interests. However, Mexico and Canada will also be looking to make changes to NAFTA once it is opened again to negotiation. Trump may not be able to convince Mexico and Canada that changes he wants are in their interests. Either country could decide it would rather withdraw from the pact than accept Trump's changes. Trump has complained in particular about Mexico and it may turn out to be the target of Trump changes.

Mexican Economy Minister Ildefonso Guajard warned that his country could pull out of NAFTA if the new terms do not benefit it. Guajard said:"There could be no other option. Go for something that is less than what we already have? It would not make sense to stay. The strategy for this treaty needs to be one in which everyone wins. It's impossible to sell it here at home if there aren't clear benefits for Mexico."

Guajardo and Foreign Minister Luis Videgaray are to hold talks with senior Trump advisers this week about trade, security, and immigration. The Mexican president Enrique Nieto is supposed to meet with Trump at the end of January. Nieto said Monday that he wants to preserve the tariff-free commerce as now exists under NAFTA and called for the competitiveness of North America to be strengthened. Many Americans in areas that were hurt by NAFTA voted for Trump during the November 8 election.

As a Bloomberg article puts it the renegotiating could be a long and potentially messy process. Trump has called NAFTA "the worst trade deal in the history of this country". Canadian Prime Minister Trudeau has expressed his willingness to talk to the Trump administration about NAFTA and many Canadian critics of the deal are suggesting changes that should be made.

White House spokesperson Sean Spicer said that Trump was planning further talks on changing NAFTA in meetings with the Canadian PM and Mexican president within the next 30 days. How these talks unfold will determine whether piecemeal changes will be made or the entire treaty be renegotiated and the process started over. Spicer said if Trudeau and Nieto agreed to negotiate it through the existing structure this could happen but otherwise Trump could pull out and the entire deal would need to be negotiated anew.

Stephen Schwarzman, CEO of the Blackstone Group LP, and a Trump adviser told reporters after speaking to the federal cabinet at a retreat in Calgary that Canada should not be "enormously worried" because it is held in high esteem and two-way trade is balanced.

Mexican president Pena Nieto has already set out ten of his own goals in the upcoming negotiations. These include the free flow of remittances and assurances that any return of Mexican migrants be orderly. He demanded that NAFTA remain free of all tariffs. Chad Brown, a former adviser to President Obama said that there is no formal provision in NAFTA for renegotiation but there is a section that allows one party to withdraw after a six month notice to the other two countries. It could take months or even years to agree on new terms even after all three leaders give their go ahead and negotiating teams are assembled.

Wilbur Ross, nominated as Commerce secretary, said at his confirmation hearing that retooling NAFTA would be an early priority and everything would be on the table. Carlos Vejar, a Mexico city lawyer who had previously worked on NAFTA issue said that updating a trade agreement typically began with an exchange of letters. An agenda of topics was then agreed to and a schedule of negotiating rounds that rotated among the countries involved was set out.

Trump has not said explicitly what changes he wants but given his rhetoric during the campaign it seems that he will want the US to have a bigger share of auto manufacturing. The deal might specify more American content in autos or have rules that require more American content or at the least limit content outside of North America. The big auto makers are multinational who want the freedom to produce parts for autos in places which are best for them. They might react negatively to such changes and lobby against them.

At present NAFTA allows U.S. and Mexican firms to bid on U.S. government contracts. Trump might want to end this to keep more jobs in the U.S. Trump might also want to limit the ability of Mexican or Canadian firms to sue the U.S. government under the investor dispute settlement. This tactic provides an opportunity of critics to argue that the mechanism should be removed altogether. Ross in a written response to questions at his confirmation by Senator Bill Nelson of Florida said that issues of concern about NAFTA included country of origin rules and dispute resolution mechanisms.