MEXICO CITY — From his office in a nondescript building in one of this capital’s most fashionable neighborhoods, Juan Pablo Castañón Castañón spoke candidly about the quiet rallying underway since the realization the new U.S. president could pull the rug out from under Mexico’s trade-based economy.

“Evidently, Mexico has to have a different strategy of international business,” said Castañón, who’s president of the Consejo Coordinador Empresarial (CCE), or Mexican Business Council. “We can no longer rely just on the United States.”

The council is Mexico’s leading private-sector business association.

Since the North American Free Trade Agreement went into effect in 1994, U.S. direct foreign investment in Mexico has exploded, climbing from about $15 billion to $107.8 billion by 2014.

The money has gone largely to build factories that have evolved from making toys and blue jeans to high-tech components for cars and airplanes, along with a host of other goods like electronics, processed foods and premium beers.

More than 80 percent of Mexico’s exports go to the United States.

But for now, the emphasis is on salvaging a pact that’s been good for businessmen like Castañón, who started out with a chain of furniture stores and went on to found factories of his own.

Since President Donald Trump’s call to renegotiate, if not pull out of NAFTA, it’s been all hands on deck for CCE and the sub-agencies under its umbrella.

Mexican President Enrique Peña Nieto on Feb. 1 called for a 90-day assessment of the treaty to prepare for negotiations and gather the tools for a renegotiation, and Mexico’s private sector is helping develop the strategy.

They’re identifying all the U.S. investors with a stake, where they come from and the economic benefits their factories in Mexico, known as maquiladoras, bring to their towns and cities in the U.S. heartland.

Armed with that data, the investors can pressure their governors and members of Congress to defend their interests against the Trump administration.

Then there’s the $236 billion in U.S. exports going to Mexico, including the enormous amount of U.S. agricultural goods like corn, soybeans, meats and dairy now flowing directly from Trump’s rural voting base.

While there are murmurings in Mexico of buying Mexican, shifting alliances toward more trade with Europe, Asia, and South America, and shunning U.S. tourist destinations, that’s not what’s important for Castañón right now.

“Our principal focus is to maintain the treaty,” he said. “If the United States decides to cancel it, there’s nothing we can do.”

Things may be even more dire for Claudia Avila Connelly, executive director of the Mexican Association of Industrial Parks, representing some 150 parks with some 2,000 businesses in 25 Mexican states.

Trump’s talk of abandoning the treaty and putting taxes on Mexican exports to the U.S. to help pay for a border wall has put a standstill on lease negotiations for real estate in the parks, which manage the infrastructure and security for factories.

“Uncertainty is the factor that is affecting us because people cannot plan,” she said. “Certain projects … are on hold.”

Avila finds it difficult to comprehend an unraveling of the business ties between the U.S., Canada and Mexico that have been built up in the decades since NAFTA’s duty-free benefits went into place.

“If the U.S. market grows even 1 percent, it impacts (Mexico) positively, because most of the manufacturing companies supply to the U.S. either end products or supply products,” she said. “I think the name of the game is supply chains.”

“What’s happening now is that the certainty that has been created for more than 20 years is being destructed,” she said. “The most valuable advantage of a country is the certainty that if you’re going to invest in that country, your money will be safe according to the rules.”

Jobs shift according to economies, she said, and like the U.S., Mexico lost lower-skilled jobs when cheaper labor markets emerged overseas.

“Everything is deeply integrated and this successful integration that has made the three countries competitive is not something that has been constructed in the short term,” she said. “I don’t know how feasible it is to put a tax only for a country, maybe it would be discrimination, I don’t know.”

Francisco de Rosenzweig, a partner for global trade law firm White & Case who served as Mexico’s deputy minister of foreign trade, is leading Mexico’s negotiations for the Trans-Pacific Partnership, a 12-nation Pacific Rim pact aimed at strengthening competition against China. Trump withdrew the U.S. from the TPP on his fourth day in office, making good on his promise to kill a “potential disaster” for U.S. interests.

A discriminatory tax on Mexico neither is legal nor feasible, he said.

“Every day is a a new story, a moving target,” he said of various ways Trump has proposed punishing companies that offshore jobs to Mexico. “What is clear is that any kind of import tax will have to be across the board, you cannot only establish a tariff only on Mexican imports. It goes against any kind of international trade accord, and at the end imagine how hard it would be to manage at Customs, those goods that are coming from Mexico and those ones coming from third parties.”

Tax-writers in Congress who are drafting the “border adjustment tax” legislation have said it would apply to all imports, not just those from Mexico.

Bigger deficit with China

While there’s been a lot of talk about the U.S. trade deficit with Mexico, the U.S. trade deficit with China is 10 times bigger, de Rosenzweig said.

“Rules of origin” defining from where trade products are sourced, are expected to weigh heavy in any NAFTA renegotiation.

“I understand that one of his goals is to increase original content, rule of origin, in order to reduce the imports coming from China,” he said. “You will reduce the deficit with China, but I’m not convinced that you will remain competitive.”

White & Case, meanwhile, has advised clients that Trump’s vow to move away from a free trade approach has China ready to pounce on Mexico.

“Since TPP is no longer a priority for the U.S., it’s clear that China is going to try to take advantage of this room that seems to be empty,” he said.

There’s also been discussion of World Trade Organization default terms should the U.S. withdraw from NAFTA, which de Rosenzweig noted tilt dramatically in favor of less-developed countries. Levies would be about 25 percent for pickups assembled in Mexico for the U.S. market or for U.S. agricultural products bound for Mexico.

Should Trump take the U.S. out of the WTO, the U.S. and Mexico would be in unexplored territory, he said.

“Then there wouldn’t be any kind of international trade framework under which we would have predictability,” he said. “But what you cannot do is leave WTO, apply your own rules, and expect that other countries will follow.”

Antonio Garza, a White & Case counsel who served as U.S. ambassador to Mexico during the George W. Bush administration, said the end result of a renegotiation may be an appreciation “that this is actually a pretty good deal for the United States.”

“We have a rule of Trump and we have a rule of trade and we have a rule of law, but we also have a kind of ironclad rule of politics,” he said. “At some point, the reality of jobs at stake in places like Michigan and Pennsylvania and Ohio will come home to roost, and at some point the realization that Mexico is the primary destination for corn and soy and all those are all Midwest, largely Republican states.”

Low-hanging fruit

Agustín Barrios Gómez, a former Mexican congressman who’s now head of the Mexico Image Foundation, said agriculture is the low-hanging fruit for Mexico, with both exports of fruits and vegetables that keep prices low for the U.S. consumer and imports that make Mexico the United States’ third largest agricultural export market.

But there already have been glimpses of Mexico’s power, in 2011 over U.S. resistance to the NAFTA allowance for Mexican trucks from crossing into the U.S. interior, and the more recent debate over country-of-origin labeling for meat.

To win the trucking debate, former Mexican President Felipe Calderón unleashed $2.4 billion in punitive tariffs on some 140 U.S. products. During the country-of-origin debate, Mexico and Canada threatened $1 billion in retaliatory tariffs, with Canada identifying a list of U.S. products that included maple syrup from Vermont and California grapes.

“Traditionally, the U.S.-Mexico relationship has always been about the aggregate, it’s always been about overriding interests,” Barrios said. “What’s happening now then is we have to go down to the details. So the detail level is the big stuff, corn … milk, dairy, natural gas. Those are all billion-dollar stuff.”

Barrios sees the relationship chilling already, with Mexicans canceling visits to the U.S. due to both the peso decline since Trump’s election and social media reports of boorish treatment by U.S. Customs agents.

Mexico would suffer under decreased investment by the U.S., he said, but over the years the country has gotten used to upheaval.

“Mexico at the end of the day is in many ways a country that knows how to suffer,” he said.

At the Zocálo, Mexico City’s historic central square, and outside the office of Mexico’s attorney general along the stately Paseo de la Reforma, Mexicans spoke of anger not against Trump but against their own government for failing to stand up for their interests.

“My president unfortunately has been submissive to your president,” said Ignacio Prieto Valencia, who was supporting a protest by families of 43 students who went missing in 2014 amid the ongoing Mexican drug war. “I think Donald Trump just cares for his people. … We don’t have a good president. The Mexican people are angry against the Mexican government because he’s a coward.”

lbrezosky@express-news.net



