Mexico ready for 'Plan B' if NAFTA talks fail

Mexico will be bringing its trade 'Plan B' to the table, with formal negotiations on NAFTA likely beginning in earnest around September, according to economy minister Ildefonso Guajardo.

The minister, speaking at a financial summit in Mexico City Thursday, held by Latin Finance, laid out three key pillars for the delicate and critical discussions ahead: Mexico make it clear that it is ready to leave NAFTA if certain lines are crossed; the 23-year-old free trade agreement must be modernized; and finally, all parties need to produce political wins in order to sell a renegotiated treaty at home.

"No negotiator comes to the table without a Plan B," said Guajardo, explaining that WTO rules would apply in any event should the treaty fall apart. As an emerging nation, Mexico would still enjoy 'most favored nation' status with the US under the WTO rules, meaning 40% of Mexican goods exported to the US would still see zero tariffs and another 40% would only face a maximum of 5% in tariffs.

Nevertheless, certain specialized goods, such as pick-up trucks could see a 25% tariff under the rules. Likewise, Mexico, as an emerging nation, could impose a maximum of 30% for the average tariff of US goods coming into the country.

"If the US tries to hit us with tariffs, we cannot say that we will not react to that," said the official. Guajardo's remarks echo recent comments made by foreign relations minister Luis Videgaray that Mexico would act under an "eye-for-an-eye" logic if pushed.

Guajardo, pointed out that the treaty is aging, noting it went into effect at a time before the ubiquitous presence of the internet and mobile phones.

"The world has changed," he said, noting that NAFTA urgently needs to address technological changes. He added that there are also plenty of areas where NAFTA could be improved, including dispute resolution.

The final pillar involves facing the political realities of each nation in the treaty, noting that, while he sees Trump as a most "perfect villain", he said any deal must accept that "Trump must have his wins," just like there must be wins for Mexico and Canada.

Guajardo also stressed that the discussions will be very much tri-lateral, where Canada also plays a major role in the future of the agreement.