Via Financial Times

A deal to implement the new North American free-trade pact, the USMCA, threatened to unravel after Mexico reacted angrily to details in the law to be debated in the US Congress this week.

Mexico’s trade negotiator, Jesús Seade, flew to the US on Sunday for urgent talks over what he said was an attempt to sneak changes into the agreement by the back door, as concern mounted in Mexico that the government had made dangerous concessions to Washington. 

US ratification of the USMCA, which updates the quarter century-old Nafta, appeared close following a deal between House Speaker Nancy Pelosi and President Donald Trump that would allow it to be passed by the US Congress after months of wrangling. A House vote is expected as early as Thursday.

Mexican president Andrés Manuel López Obrador hosted Robert Lighthizer, the US trade representative (USTR), and Chrystia Freeland, Canada’s deputy prime minister, on December 10 for a congratulatory signing ceremony of the tweaked version.

But Mr Seade complained that the USMCA implementing bill sent to Congress on Friday included a provision he had not agreed to: the appointment of up to five US labour attachés in Mexico to monitor its adherence to labour rules.

Mexico’s compliance with provisions to guarantee rights of union membership and collective bargaining had been one of the most intractable demands of US Democrats in the negotiations. Mexico had ruled out agreeing to inspectors and pushed for panels to resolve disputes.

In a letter to Mr Lighthizer, Mr Seade criticised the inclusion in the bill of “additional and redundant mechanisms to what was carefully agreed and incorporated in the Modifying Protocol signed on December 10”. 

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He told reporters on Saturday that the labour attaché provision reflected “political decisions by the US Congress and administration” and “was not, for obvious reasons, consulted with Mexico. And of course, we do not agree.” 

It was not immediately clear when Mr Seade and Mr Lighthizer would meet. The Mexican trade negotiator was also expected to hold talks with Richard Neal, the influential Democratic chairman of the House Ways and Means committee. The USTR declined to comment.

Mexico has been waiting on US approval of the USMCA, hoping that investment delayed because of trade uncertainty will be unblocked. That could provide a lifeline for its moribund economy, which is on course for zero growth this year after 2 per cent in 2018. 

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Mexico’s Senate has approved last week’s USMCA amendments, but doubts about exactly what Mexico had signed up to were multiplying even before the new crisis erupted over the weekend. 

Trade lawyers and businesses feared Mr López Obrador’s policy of avoiding confrontation with Mr Trump at all costs had resulted in dangerous modifications to the USMCA that could imperil access to the US market for Mexican goods in the event of a dispute.

Mr Seade did not immediately respond to a request to comment on those provisions, but they could impact Mexico’s vital car industry because they appeared to put “no limitation” on how they could be applied, according to Juan Francisco Torres Landa, a partner at Hogan Lovells. 

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Mexico yielded to US demands in the main USMCA negotiations for 40-45 per cent of automotive components to be made by workers earning $16 an hour, and for stricter rules on the amount of raw materials that must come from North America. Mr Trump has made clear that the auto industry is a key focus of his drive to repatriate jobs. 

“We were desperate to get this done at whatever cost,” said Mr Torres Landa. “In a negotiation, the other side will ask for a lot if they know you will yield on everything and it appears they did ask for a lot.”

Gustavo de Hoyos, head of the Coparmex labour confederation, which has been a fierce critic of the government, said Mexico had “acted with inexperience in negotiating changes” to the pact.

Additional reporting by James Politi