Getting Mexico to the NAFTA Negotiating Table
U.S. diplomats who helped lay the groundwork for the North American Free Trade Agreement (NAFTA) first had to overcome entrenched Mexican skepticism. The United States, Canada, and Mexico decided in mid-1990 to start negotiating a free trade agreement. Discussions began in earnest early the following year. By mid-1993 the parties were fine-turning a draft agreement. After vigorous debate in the U.S. Senate, the United States ratified NAFTA later in the year and the agreement went into effect on January 1, 1994. But the path to implementation was also difficult in Mexico. Prior to the early 1990s, Mexico maintained high tariffs — which many U.S. exporters sought to lower. During negotiations Mexicans were skeptical, and worried about the impact of a free trade agreement on a plethora of state-run companies seen as vital to Mexican industry. Julius L. Katz, the Deputy Director to Special Trade Representative (1990-93) recalls events leading up the NAFTA talks, including Mexico’s recalcitrance. William E. Primosch of the National Security Council Economic Office (1992-93) notes that Mexico had much to lose in the form of reduced tariffs, and that U.S. participants did not fully grasp the political ramifications of the agreement.
“Reagan had a meeting with the President of Mexico, and there was some discussion about closer economic collaboration.”
Julius L. Katz, Deputy Director to Special Trade Representative (1990-1993)
KATZ: O.K., why don’t we do NAFTA. Let me begin by saying that Mexico had a long history of antipathy, if not antagonism, toward the United States, going back to the last century. After the revolution in 1928, there was a long period of very inward-looking economic policies. So Mexico was not a member of the GATT, for example. We had a pre-war trade agreement with them, which was more honored in the breach. Beginning in the 1970s there was some effort to reform their economy. Their economy was highly statist, with a great deal of nationalized property, beginning of course, with the oil industry, the hydrocarbon industry, and energy generally. Metals and minerals were partially state-owned, transportation of course, and telecommunications, as in most places 103 in the world. Their trade was highly restricted, with very restrictive quotas. There was an effort in the ’70s to begin to break out of this, and an effort was made to enter the GATT. But that was viewed as treason by some people in Mexico, especially among some industrialists. So that effort was pretty well scotched. But clearly things were beginning to rumble there. There was at the end of the Carter administration a group of private American citizens, Henry Kissinger being one of them, who were involved in a dialogue with the Mexicans. And just before the Reagan presidency, I believe it was in the transition, Reagan had a meeting with the President of Mexico, and there was some discussion about closer economic collaboration. Then, of course, came the collapse in oil prices and the debt crisis. The Mexican economy really went into the tank.
“I was skeptical about the Mexicans, and about how far they were really prepared to go.”
We had the precedent of the Canadian agreement, which was a pretty good agreement, but which fell short in a number of ways. No, we hadn’t really gotten to that point. In fact, there was still a certain amount of tension between the view of some people, particularly some people in the Administration, Jim Baker, Bob Zoellick and Bob Mosbacher, who thought that we ought to do bilateral free trade agreements wherever we could. And then there were the old multilateralists, like myself, who thought that our primary interest was in fostering the multilateral system. So 105 that was certainly in the back of my mind when I was confronted with this issue by Carla Hills. I did have the concern about the diversion of attention away from the Uruguay Round, but more than anything I was skeptical about the Mexicans, and about how far they were really prepared to go. When they said a free-trade agreement, did they mean a true free-trade agreement in the sense of a reciprocal comprehensive free trade agreement, or were they looking for a special, preferential arrangement, really kind of a one-way free-trade agreement.
There was one other question that bothered me. And that is, we had a major interest in Mexico, but we had other interests in the region, particularly in the Caribbean region. And would an agreement with Mexico result in the diversion of trade away from the Caribbean countries? So we discussed this, and decided we had to do a little bit of work before we came to a decision. The first question we looked at was this question of diversion, and we put our economists to work on that.
… We had an Office of the Chief Economist with an excellent economist, David Walters, with an assistant, who was borrowed from the International Trade Commission. And we had the equivalent of a country desk. We had some people who were working on the Caribbean area. In any event, we put the economist to work, and he came up with a report that concluded that the diversionary effects would be minimal. Something which, incidentally, is still being argued.
“The Mexicans did a lot of squirming. First they said “sure, the agreement would be comprehensive.” “On all four points?” “
Then we began some discussions with the Mexicans. We had a series of conversations. We tried first to negotiate a statement, and what we wanted was a comprehensive agreement, covering trade and goods and services, investment, and intellectual property. Those were the four basic pillars. The Mexicans did a lot of squirming. First they said “sure, the agreement would be comprehensive.” “On all four points?” ” Well, yeah, on all four points.” Of course, that didn’t mean that there wouldn’t problems in each of these areas. So we got past that, and sometime in the spring of 1990 it was decided that the two Presidents — and I think they met somewhere, on the edge of some other event — should ask their Trade Ministers to make a recommendation to them as to the feasibility of the 107 negotiation and the terms of reference, and so forth. That’s when we began having very active negotiations about the shape of the table, as it were. That is, what would the nature of this negotiation be.
William E. Primosch, National Security Council Economic Office (1992-1993)
“The issue of having Mexican truckers being able to drive into the United States was also prominent in the negotiations. That was something that was handled rather late in the negotiations.”
Primosch: …The Bush administration was winding up and Brent Scowcroft was the National Security Advisor at that time. I worked for Eric Melby, who was the senior director for International Economic Affairs. There were a few issues that were still percolating. We were trying to wrap up NAFTA as an agreement. President Bush had launched the initiative for the Free Trade Area of the Americas [FTAA]. That was back in ’92 and President Bush had hoped to follow that up in the second administration. We had some difficult trade problems with the Japanese and with the European Union that we were dealing with at the time. So, there was a fair amount of activity during the final year of the administration.
Still in ’92 the United States was just wrapping up the negotiations, a very complicated set of negotiations. Part of the complications involved issues like labor rights and the environment that are still active issues. The issue of having Mexican truckers being able to drive into the United States was also prominent in the negotiations. That was something that was handled rather late in the negotiations. The agricultural negotiations were very complicated as well. There is a very complicated system of controls to limit the importation of Mexican fruits and vegetables. California and Florida farmers were concerned. I think the Republican administration and President Bush were just convinced that NAFTA was a good deal for the U.S. and that this would be obvious 35 to everyone. Mexican tariffs were very high. Our markets were relatively open. This large tariff differential continues to be a reality in almost all our negotiations with developing countries. Our markets are already open. When the U.S. negotiates a free trade area, it is basically lowering the other country’s tariffs and providing only a marginal lowering on our part. But still there was a sense among the labor unions that, well, this is going to open the flood gates to cheap foreign manufactured products. I don’t think the Bush administration fully grasped how sensitive the issue was. Officials were just convinced that this was a good deal, that when you lay it on the table and you point out some of the obvious benefits like lowering these very high Mexican tariffs, that people will see that this is in our interests. Of course, the unions looked at it from a different perspective and saw more risk and threat.