Moodys: Mexico should not look to Nafta renegotiation for growth boost

11 Aug 17

Mexico cannot solve its growth problems simply by renegotiating the North American Free Trade Agreement (Nafta), Moody’s Investors Service has said ahead of the start of next week’s negotiations.

Moodys vice president Madhavi Bokil said Nafta had improved Mexico's export competitiveness and increased its integration with the US economy but the country had not seen “the stellar growth rates that were anticipated from liberalising its economy, and wage and productivity gaps with the US have widened rather than shrunk”.

Mexico's low productivity, low wages and low growth over the last three decades – which had persisted even outside periods of recession – were not being remedied by its model of export-focused growth to the US market with a comparative advantage based on negative real wage growth.

Reducing the informal economy and regional disparities in productivity should be key objectives of structural reforms, Moodys said.

The American and Mexican governments last month agreed to start negotiations on revising Nafta on 16 August.

US trade representative Robert Lighthizer has said that the Trump administration will use this process to seek to reduce the US trade deficit and improve market access in Mexico for American manufacturing, agriculture and services.

He said that since Nafta began in 1994, the US bilateral goods trade balance with Mexico had gone from a $1.3bn surplus to a $64bn deficit.

Lighthizer set out American objectives, which also included adding a digital economy chapter to Nafta and eliminating what he called “unfair subsidies, market-distorting practices by state owned enterprises and burdensome restrictions on intellectual property”.

There were also market access issues between the US and Nafta’s third partner Canada, mainly in respect of dairy, wine and grain products.

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