August 11, 2020

Favorable winds for the Mexican economy with the approval of the T-MEC

The new version of the treaty between Mexico, the United States and Canada, the T-MEC, which after last-minute modifications is expected to be finally ratified by the congresses of the three countries brings favorable winds for the Mexican economy, on the verge of recession .

In an act from the National Palace of Mexico, the negotiating chiefs of the T-MEC sealed a new version of the agreement – initially signed on November 30 of last year – against all odds and after overcoming the pitfalls of US Democrats.

"We are talking about a large-scale economic, commercial agreement. It is an agreement that helps us boost the economic growth of our nations," López Obrador said from the National Palace after the signing of the modified T-MEC.

Although all the details of this appendix that add to the version already approved a year ago are still missing, the parties involved seem satisfied.

The most reluctant group, the US Democrats, supported these changes and the president of the US House of Representatives, Nancy Pelosi, said it was "a victory for American workers," opening the door to final ratification.


For Mexico, the implementation of the T-MEC can give a substantial boost to its battered economy, which contracted 0.1% in each quarter from the October-December 2018 period to the April-June period, and in the third quarter of 2019 the growth was zero, of 0%.

For the experts consulted by Efe, the ratification of the T-MEC – which would enter into force in the first half of 2020 according to Mexican authorities – moves away the ghost of Mexico's recession, especially because it gives certainty and will attract investments.

"Foreign direct investment can give an important boost to Mexico's growth the following year, removing the negative inertia and the freeze on gross fixed investment," the Director of Economic and Financial Analysis of Banco Base, Gabriela, told Efe Siller

According to the expert, if the ratification of the T-MEC is completed, the growth perspective for Mexico in 2020 would go from 0.2% to 0.7%. "It is still low, but it removes or begins to remove the negative inertia due to the uncertainty," he said.

In this same sense, the economist Luis de la Calle, who helped negotiate the still valid North American Free Trade Agreement (NAFTA) in force since 1994, said that the T-MEC gives "certainty about the sense of the direction of the Mexican economy. "

"It will keep it as an open and increasingly integrated economy with North America," he said for Efe.

On the economic future of Mexico, Dr. Aribel Contreras, coordinator of the Bachelor of International Business Administration at the Universidad Iberoamericana, showed more criticism: "There will be no pretext for the Mexican Government if there is no growth."

"The T-MEC is not a magic key that solves all the problems, it will have to be accompanied by public policies. (…) But it helps a lot, of course," said the academic.

Waiting to know if public and private institutions raise the growth forecast, there is a lot of consensus among employers.

"The ratification of the T-MEC is a strong sign of certainty for investors interested in the region," said the Business Coordinating Council, the dome body of Mexican entrepreneurs.


After the signing on November 30, 2018 of the T-MEC, there was only the ratification of the trade agreement by the congresses of each country, something that Mexico already did. But then the agreement began to be renegotiated, in an unforeseen turn of an already complicated script.

"We are seeing something unusual and that nobody could have anticipated us. Today there is an 'addendum' within a text that we thought was definitive," said Contreras.

For the expert, Mexico and her negotiating team – headed in the last year by Jesús Seade – was "the most agriered" and managed to "reach the unthinkable" in the midst of the crisis in the United States by the open political trial against Donald Trump.

Instead, Canada was the "great absentee," he criticized.

"It is important and historical the fact that this treaty is signed by Trump, who was opposed to integration, and also by President Andrés Manuel López Obrador, who historically had doubts" about the commercial relationship, said De la Calle.

He recalled that two and a half years ago the head of the White House wanted to cancel NAFTA because it was the "worst" treaty in the history of his country.

De la Calle indicated that 95% of the new agreement is equal to NAFTA. Favorably, for example, a chapter on digital economy and another on anti-corruption were included in the agreement.

But among the risks, he continued, is that these last-minute changes lead to the implementation of labor disciplines that are out of context or have "protectionist" intentions.


The signing of the new T-MEC has been very well received at the Mexican Stock Exchange (BMV) who has closed the day with a rise of 1.63% (681.84 points) to 42,633.43 points.

"The rise in the Mexican stock market is due to the signing of the T-MEC," Monex Financial Group specialist Fernando Bolaños told Efe.

The Mexican peso has remained immovable and has quoted at 19.25 units per dollar.

However, Siller estimated that if the Mexican currency was finally ratified it would be located above 19 units per greenback, and even slightly below, although December is a month where traditionally the Mexican currency depreciates.

. (tagsToTranslate) Favorable winds (t) (t) economy (t) approval (t) T-MEC

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