Mexican Senate ratifies USMCA

Mexico’s Senate voted June 19 to ratify the USMCA trade agreement, making Mexico the first of the three North American countries to reach this milestone.  The vote of 114 in favor to five against demonstrates the firm support for free trade on the part of Mexican President Andrés Manuel López Obrador (AMLO) and his Morena party, which holds more than twice as many Senate seats as the largest opposition party.  Interestingly, four of the five votes against the USMCA came from members of the president’s own party, further underscoring the broad support for the deal across the political spectrum.  With Canada seemingly moving ahead toward ratification, concern in Mexico appears to be focused on internal political struggles in the United States that could potentially derail ratification in the region’s largest economy. 

With the USMCA, Mexico above all is seeking the certainty that would come from free trade and a clear set of rules for doing business across North America.  With the Mexican economy showing signs of faltering only six months into the AMLO government, the president needs to shore up confidence in order to attract more foreign investment in sectors such as advanced manufacturing and energy.  AMLO, who has shown far greater interest in domestic politics than foreign affairs, would surely be greatly relieved to put the process of replacing NAFTA to rest in order to focus on his pet infrastructure projects.  Meanwhile, various members of the Mexican Congress have urged the president to make a better show of standing up to U.S. President Trump’s pressure tactics and warned about the lingering uncertainty of ad hoc trade sanctions by the Trump administration even if the USMCA is implemented.

Across the business and industry community, concerns are being raised about the lack of guarantees that new tariffs could be threatened at any time to address whatever may concern the U.S. administration. The uncertainty this situation creates is being reflected in weak economic growth and minimal job creation so far this year, with respect to prior years. Mexico needs to create  1.2 million jobs per year to absorb new entrants to the work force.  Analysts suggest that the softening of the economy is likely due in part to the new government’s budget cuts, cancellation of infrastructure projects and closing of various social service institutions. Against this backdrop businesses are very cautious when launching new investments and hiring personnel.

The outlook for agriculture is mixed. Some commercial farmers are complaining about the cancellation of subsidies, while others seem to be doing well. The new administration eliminated subsidies for larger commercial farms and channeled these funds to smaller farmers as guaranteed prices for their products. Imports into Mexico of grains such as feed grains, soybeans, cottonseed and others are expected to reach a record high of 12.4 billion tons in 2019, according to Agriculture Ministry (Sader)’s agriculture information system.  These grains are imported principally from the United States.  Some areas of Mexico, such as the State of Sonora, expect a bountiful crop of white corn in excess of domestic demand. Mexico is looking to sell the excess harvest to markets in South America and Africa.

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