April 25, 2019 / 1:22 PM / 3 months ago

RPT-INSIGHT-'Don't shoot yourself in the foot': Inside Mexico's campaign to save NAFTA

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By Dave Graham

MEXICO CITY, April 25 (Reuters) - In April 2017, a group of Mexican executives filed into the Texas governor's mansion in Austin for a meeting they hoped would help save a trillion-dollar trade deal.

They had a simple pitch for their audience - Republican Governor Greg Abbott, a handful of business leaders and some party donors: it would be in Texas' best interest to preserve the North American Free Trade Agreement (NAFTA).

Abbott was just one of the prominent names on a list of dozens of American politicians and business executives that Mexico would carefully compile to help save NAFTA from the relentless attacks of U.S. President Donald Trump.

Supplying them with up-to-date information on trade and investment flows, the Mexicans believed the Americans could persuade policymakers that scrapping NAFTA would hurt U.S. workers and companies. (Graphic: tmsnrt.rs/2I9Q1Gb)

Rather than "be good to Mexico," said Juan Gallardo, a prominent Mexican businessman who helped craft the strategy, the message was "don't shoot yourself in the foot."

The inside story of Mexico's efforts to stop Trump from killing NAFTA – and to preserve its essence in a reworked accord – comes from interviews with more than 20 Mexican and U.S. officials, lawmakers and executives involved in the process.

After 18 months of talks and concessions by both sides, a deal was struck. Canada later signed on in what became known as the United States-Mexico-Canada Agreement (USMCA), which awaits ratification by lawmakers in the three countries.

But final approval has become more uncertain since Democrats took control of the House of Representatives from Republicans, a potential setback to Mexico's best laid plans.

GIVING GROUND

Mexican business and political leaders, including the heads of the foreign and economy ministries, started scrambling to save the 25-year-old trade deal right after Trump's election in November 2016.

Early on, they decided to avoid public confrontation with Trump, who had made blaming NAFTA for job losses, particularly in manufacturing, a centerpiece of his campaign.

"Tit-for-tat wasn't going to work," said Moises Kalach, head of the international negotiating arm of Mexico's CCE business lobby. "We agreed not to even get into the ring."

Trump showed no sign of backing off after taking office in January 2017, telling aides he wanted to withdraw simultaneously from NAFTA and the Trans-Pacific Partnership (TPP), according to three Mexican business and government leaders.

When Trump pulled out of TPP that month, Mexican officials feared NAFTA would be next. In Mexico City, then-foreign minister Luis Videgaray and his counterpart in the economy ministry, Ildefonso Guajardo, flew to Washington to sketch out possible concessions for an overhauled trade pact.

Meeting with Trump's economic advisors and his son-in-law Jared Kushner, they floated stricter content rules for auto manufacturing, tougher Mexican labor laws and changes to dispute resolution mechanisms, Mexican participants said.

Those early concessions would eventually evolve into new rules set out in the USMCA deal.

"I'm absolutely convinced that if that didn't happen ... NAFTA would have died in January 2017," Videgaray told Reuters shortly before leaving office.

While Videgaray dangled concessions, Mexico's private sector rolled out a lobbying operation underpinned by reams of data supplied by IQOM, a Mexican trade consultancy.

Headquartered in an old stone townhouse in Mexico City, IQOM collected data and intelligence to pinpoint U.S. businesses with the most to lose from a NAFTA repeal. Two top Mexican negotiators of the original NAFTA, Herminio Blanco and Jaime Zabludovsky, spearheaded the effort.

It was "a permanent, online, computer-based information-gathering drive," said IQOM partner Zabludovsky. "And a lot of data crunching."

Meanwhile, the CCE hired Washington lobbying firm Akin Gump in the summer of 2017 to help identify about 250 potential U.S. allies, Gallardo said.

Akin Gump and the CCE communicated daily and met regularly. The idea was to "engage with USMCA stakeholders on both sides of the aisle and in the Trump administration," an Akin Gump spokesperson said, and build "CCE's brand and reputation as a trusted partner."

Throughout the process, Mexican negotiators were in close contact with their Canadian counterparts - even as Mexico also left the door open to a bilateral deal with the United States.

EYE-OPENER

During negotiations, Mexico's private sector had some 200 representatives in Washington updating its negotiators on how best to pitch the case to U.S. Trade Representative Robert Lighthizer, according to sources involved in the process.

Each member of Mexico's team also had politicians or executives to target. Kalach of the CCE said he spoke to 36 U.S. state governors about the value of cross-border trade.

Mexican participants often expressed surprise about how little U.S. politicians knew about the extent of bilateral economic ties. Even in Texas, the state doing the most trade with Mexico, some officials appeared not to have grasped fully what a NAFTA termination could cost, Gallardo said.

At the April 2017 meeting in the governor's mansion, the Mexican delegation gave a detailed breakdown of trade between Mexico and Texas to Abbott and the others, who included Gerardo Schwebel, executive vice president of the International Bank of Commerce, and oil tycoon Paul Foster, sources said.

Economic ties were explained "by players, by amounts," Gallardo said. "That was an eye-opener... no one had ever put that together into one paper."

Abbott eventually sent a letter to Lighthizer defending NAFTA - emphasizing that Texas exported more than $90 billion of goods to Mexico annually and that nearly a million jobs depended on free trade with the NAFTA partners.

In a second letter to Lighthizer, Abbott asked the Trump administration to "reconsider" its demand for a sunset clause that could have killed the new agreement in five years, a major Mexican concern. In the end, the clause was left out.

John Wittman, a spokesman for Abbott, confirmed the Austin meeting, adding that the governor had been engaged with various stakeholders and White House officials throughout NAFTA talks.

Lighthizer's office did not respond to a request for comment.

HELP FROM WALL STREET

High among the list of prospective allies drawn up by Mexico were several top Wall Street executives, including Jamie Dimon of JPMorgan Chase & Co, Blackstone's Stephen Schwarzman and KKR's Henry Kravis.

Dimon chairs the Business Roundtable, which, with the U.S. Chamber of Commerce, was viewed by the Mexicans as a powerful voice in support of NAFTA. The banking executive proved particularly effective, Mexican and U.S. sources said.

Among others, a source familiar with the situation said, Dimon met with Kushner, U.S. Treasury Secretary Steven Mnuchin and Gary Cohn, Trump's chief economic adviser until April 2018.

Calling Mexico a peaceful neighbor, Dimon publicly argued a trade agreement would help "ensure that the young democracy in Mexico is not hijacked by populist and anti-American leaders."

Mnuchin held multiple meetings with counterparts, and offered his input to Lighthizer as he negotiated USMCA, a U.S. Treasury official said. Mnuchin sees Canada and Mexico as important trading partners, and believes free and fair trade with them benefits the United States, the official added.

The White House did not respond to requests for comment about the meetings. Representatives for Cohn, Schwarzman and Kravis declined to comment or did not reply to requests for one.

Kansas City Southern Chief Executive Officer Pat Ottensmeyer, whose company runs trains through Mexico, was a staunch advocate for NAFTA in the United States, and also consulted with top-level Mexican officials.

Between Trump's inauguration and the end of 2018, Kansas City Southern said it had organized or participated in 65 meetings with lawmakers or regulators, as well as 76 speeches or conferences in defense of NAFTA.

Ottensmeyer recalled speaking to several cabinet members, including Lighthizer and current Secretary of State Mike Pompeo, when he was still head of the CIA.

The approach was to "literally talk to anybody and everybody who we thought was willing to listen and could be influential in the process," Ottensmeyer told Reuters.

A representative for Pompeo declined to comment.

Within months, Mexico's lobbying efforts began paying dividends: American politicians and business executives were making a case for NAFTA directly to the White House, pushing back on Trump's ongoing threats to rip up NAFTA.

"From what I understand," Gallardo said, "Trump never, ever in his wildest dreams imagined the kind of uproar this was going to create. And that's what stopped him."

Reporting by Dave Graham Additional reporting by Frank Jack Daniel and Anthony Esposito in Mexico City, Jennifer Hiller in Houston, Richard Cowan in Washington, David Henry and Greg Roumeliotis in New York Editing by Simon Webb, Brian Thevenot and Paul Thomasch

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