2022, key for the USMCA

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2022, key for the USMCA

By Monica Lugo, Institutional Relations Director of Prodensa.

 

Undoubtedly 2020 and 2021 will be remembered as the years in which the global economy faced one of the most important challenges in recent years. The pandemic not only brought contraction in the global economy but also fragilized international trade and highlighted the need to rethink economic nationalism or self-sufficiency. Although there is already progress in the recovery, fostered by the reopening and progress in vaccination in COVID, there are still important sequels to consider that will be the threats we will face this year, such as inflationary pressures, energy supply, disruption in global value chains and the continuation of the pandemic by new variants of the virus.

In this regard, the free trade agreements to which Mexico is a party has been a fundamental element in the country’s economic recovery, particularly the Mexico-United States-Canada Agreement. This was evident in the recovery process, as external demand for Mexican exports was one of the main economic drivers, unlike, for example, domestic private consumption, whose recovery has been more moderate. Mexican exports originate mainly from the U.S. (80%), so the demand for our exports to that country will have a stronger effect if they continue to grow. The importance of the USMCA for Mexico is fundamental. Therefore, it is necessary to evaluate its implementation as of July 2020, as well as to know what we could expect for this year.

2021 was a year of uncertainty for the USMCA: while implementation at the institutional level was successfully carried out (the first meeting of the Free Trade Commission, chaired for the first time by women, was held, as well as several meetings of the various committees within the treaty), the differences and trade concerns of the three parties were also evident. Most notable were labor cases (at the G.M. plant in Silao, Guanajuato, and at Tridomex in Tamaulipas), and disagreements have been voiced over the U.S. interpretation of the automotive rules of origin, as well as Mexican and Canadian concerns over the Biden Administration’s initiative to grant tax credits to buyers of U.S.-made electric cars. On the other hand, there are serious concerns on the part of the U.S. and Canada regarding Mexico’s proposed constitutional electricity reform, as it would violate the Agreement in several respects. Other important concerns were expressed in the agricultural sector by the U.S. to Canada over access to dairy and genetically modified products from the U.S. to Mexico.

This year, we will see similar cases that may escalate and even reach Dispute Settlement panels. The U.S. will continue to press Mexico on labor cases (new cases will be filed). We could also see serious concerns about implementing the Environment chapter (both issues are priorities for the Biden Administration). Likewise, if the constitutional reform on electricity is approved as is, we can expect several Investor-State or State-State cases.

On the other hand, Mexico and Canada could retaliate (i.e., impose tariffs) on major U.S. export products because of the Build Back Better Act, which is intended to give tax credits to buyers of electric cars, particularly those produced in the U.S. unionized plants. The safety net provided by the USMCA is undeniable and has been key to the economic recovery. It is expected that by 2022 the growth trend will continue, but political decisions in both Mexico and the U.S. will put the treaty to the test because of the importance and structural changes that such decisions and policies will bring. Undoubtedly, this year the USMCA will be put to the test.

 

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About the Author

Monica Lugo has experience in both the private and public sectors. She has worked for companies such as BMT Consulting and Euromonitor International coordinating projects, elaborating sectorial analysis, market studies, among others. In the public sector, she has worked in the international areas of the Ministry of Agriculture, Office of the President, and the Ministry of Public Function.

In 2012, she joined the Ministry of Economy in the Undersecretariat of Foreign Trade, where she led negotiations on Sanitary and Phytosanitary Measures, Competition, Trade Remedies, State-Owned Enterprises, Technical Barriers to Trade and Sectoral Annexes of several trade agreements such as the Comprehensive and Progressive Trans-Pacific Agreement (CPTPP), Pacific Alliance, USMCA, Mexico-European Union Free Trade Agreement, among others. She subsequently joined the Ministry of Foreign Affairs in April 2019 as Deputy General Director for Competitiveness and Innovation in the Under-Secretariat for North America, advising on the process of ratification of the USMCA and trade negotiations with the United States, also collaborating on trade promotion and innovation issues.

She has also collaborated giving courses and conferences on international trade negotiations in different institutions, organizations, and associations. She wrote as co-author an article regarding Mexico’s strategy in the negotiation of the T-MEC with the United States and Trump’s policy which was published in February of this year, at the Journal of International Economic Law.

In January 2020 she joined Prodensa as Director of Institutional Relations. In June of this year, Forbes magazine included her in its list of the 100 most powerful women in Mexico. Ms. Lugo graduated from ITAM with a degree in International Relations.

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