After the signing of the free trade agreement between the United States, Mexico and Canada, better known as T-MEC (former NAFTA), the Aztec country, in relation to the disputes caused by aspects not contemplated in the old agreement, committed to the United States country in the creation and application of, among other additions, the Labor Rapid Response Mechanism (MLRR), an unprecedented dispute resolution procedure that, so far this year, has had to be used twice.
In this way, the new T-MEC, among other aspects, reinforced the guarantees regarding quality employment in the Aztec country. To this end, this mechanism, in addition to other related tools, provides the authorities involved in said agreement with greater capacity to report labor abuses and, in the same way, intervene in them. In other words, it guaranteed that, in the event of a possible violation by one of the parties, the counterpart could demand its speedy resolution. All this, in order to sustain an agreement that is so beneficial for the Mexican economy.
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However, since its creation, and as we say, the mechanism contemplated has had to be used by the United States on two occasions. The conflict that occurred at the Tridonex auto parts factory, located in Matamoros, Tamaulipas, as well as the one that occurred at the General Motors plant in Silao, Guanajuato, motivated the United States to, through its commercial representative Katherine Tai activate said mechanism due to possible non-compliance with some aspects of the treaty. Formal complaints that put in the spotlight an agreement that has generated as much controversy as it has reported economic benefit to the Aztec country.
Following the statement by the Joe Biden, Mexico Administration, he tried to resolve this matter so as not to jeopardize said agreement. However, despite the quick response and the attention shown by the Mexican president, some companies in the country, as well as some members of the Government, including the Secretary of Economy Tatiana Clouthier, have shown their dissatisfaction with the United States, as well as with the formal complaints that this country has transmitted to Mexico.
In this way, the new provisions of the free trade agreement between Mexico, the United States and Canada, as we see, are generating new tensions between the countries, bringing them to a very dangerous turning point. The relationship between the United States and Mexico, as we know, subordinates a large part of the Mexican economy, and we can say that this relationship between the two economies has also been the one that has allowed the Mexican economy to recover after the Covid, since Taking into account that foreign trade represents 80% of GDP, and that Mexico’s response to the Covid did not exceed 1% of GDP, little remains to be said about the growth that is registered today.
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Thus, we must know that since Mexico signed the now defunct NAFTA in 1994, the weight of trade in Mexican GDP has not stopped growing. To get an idea of what we are talking about, while in 1994 – the moment in which Mexico signed the agreement -, trade represented 30% of GDP, just two years later, in 1996 and with the agreement working, the weight of this was it increased to 50% of GDP. Today, this trade, as we have said, represents 80% of GDP. However, it is convenient to clarify, also, that the United States buys 80% of everything exported by the southern economy, thus estimating an approximate contribution of 35% of the Mexican GDP, which would be subject to this commercial relationship.
At least, since the outbreak of a trade war put an end to the relationship between China and the United States, making the Mexican economy its main commercial partner and main recipient of North American capital. A situation that, as we said, has had a significant impact on the Mexican economy during the Covid crisis. Trade has not stopped registering highs, despite the fall experienced. And the strong fiscal response of the United States, which has pushed remittances even to highs, has been the containment dam in the decline recorded by the Aztec economy.
In summary, the withdrawal of stimuli, with the rise in interest rates, as well as the scarce fiscal response, the scarcity of health resources and vaccines, and now what has happened with the T-MEC, are some of the Risks presented by the Mexican economy and which, as the IMF shows, condition a recovery that has not yet seen the light at the end of the tunnel. The Mexican economy, taking into account the OECD, expects to recover its previous level in 2023. These risks, as well as the moderation in growth due to the aforementioned, could gradually modify optimistic forecasts, but which, in the face of such a scenario, could suffer variations.
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