Will 2018 Bring More ‘Sound and Fury’ Over NAFTA?

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Julio-César Chávez for the Rivard Report

Loaded trucks coming in from Mexico wait in line at the bridge near the U.S. Customs and Border Protection station in El Paso.

By almost every metric, 2017 was a year of sound and fury. Each time we opened a newspaper or turned on the news, we were hit with another breaking story, new outrage, or tectonic shift in the global norms and frameworks.

Yet looking back, it doesn’t yet seem too clear what it all signifies or how it will all shake out. As we come to the year’s end, we are still amid an ongoing fog of uncertainty. But for 2018, there may be some upcoming spots of clarity on the horizon.

For North America, the NAFTA renegotiations are the biggest cloud hanging over the region’s economies. The inter-session round of negotiations recently wrapped up in Washington, D.C., and after three months of negotiations there still aren’t many results to show.

The teams have concluded only two of the proposed 22 chapters, and many of the most controversial issues – such as a sunset clause for eliminating NAFTA or requirements for U.S. automotive content – still remain on the table.

The next negotiating round will be in Montreal in January, but without any serious commitment from the U.S. team to negotiate the stickiest points in good faith, the negotiations’ future is looking increasingly precarious.

The NAFTA negotiations will get even more complicated as they approach Mexico’s presidential campaigns, which kick off in late March. After a year of political jockeying among presidential contenders, the candidates are now lined up in front of their parties, with José Antonio Meade leading for the PRI, Ricardo Anaya representing the coalition El Frente por México (which includes the PAN, PRD, and the Movimiento Ciudadano), and Andrés Manuel López Obrador presenting himself as the candidate for MORENA.

As they solidify their campaign infrastructure and platforms, we’ll hopefully get a better sense about how they plan to address Mexico’s most pressing issues, including lowering violence (which is currently at its highest levels in Mexico over the past 20 years), rooting out corruption at every level, and boosting economic growth that benefits Mexicans of all social classes. It will also be interesting to watch how the candidates position themselves against the Peña Nieto administration, and whether they plan to defend, adjust, or dismantle its extensive list of economic reforms.

Among the most controversial of these economic reforms will be the future of the country’s energy sector. The 2013 opening has been a success for both the government and private energy companies, and this past year was marked with smooth auctions, large reserve findings, and three electricity auctions that each broke the world record for the cheapest solar electricity.

The energy sector still remains a politically sensitive one, and MORENA candidate López Obrador has historically stoked feelings of resource nationalism and even threatened to reverse the energy sector opening or put its fate up for a public referendum. More recently, MORENA’s platform took a softer tone, but it will be an interesting issue to watch evolve over the coming months.

With so much on the horizon in North America for 2018, we are surely in for even more “sound and fury” during the coming months. As I’ve written about in my previous yearly newsletters, this is the era of uncertainty, and the only thing we can be certain about is uncertainty itself.

Yet, it’s possible that next year will bring at least a sense of direction to the future of the NAFTA negotiations, Mexico’s elections, and the path that Mexico and the region will be heading down. Things may not end up as we hope and we may even see more volatility, but we may soon have a better sense of what we are working with and where we are going.

 

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