by the El Reportero’s wire services

Anti-US rhetoric predicted to accompany Mexico’s presidential election campaign

Five days of trade talks wrapped up Sunday with a commitment by all three NAFTA partners to accelerate the process in the coming months.

An early finish to negotiating the North American Free Trade Agreement will benefit Mexico, which would prefer to see it done before campaigning begins for next year’s presidential election.

In a joint press release on Sunday, representatives of Mexico, the United States and Canada said last week’s meetings covered more than two dozen different negotiating topics.
“Negotiators from each country will continue domestic consultations and work to advance negotiating text through the end of August, and will reconvene in Mexico for a second round of talks from Sept. 1-5,” the statement said.

The three parties have agreed that negotiations will continue “at a rapid pace,” moving to Canada in late September and returning to the U.S. in October. Additional rounds are being planned for the remainder of the year.

Mexico Economy Secretary Ildefonso Guajardo said the idea is to conclude the negotiations at the end of the year or in early 2018 before election campaigns begin for the Mexican presidency and U.S. Congress.

According to a Canadian analyst, accelerating the talks has turned the process around, putting the tougher issues on the table — including automobiles and rules of origin — first rather than waiting till the end.

That, says public policy analyst Meredith Lilly, is a sign that “the Americans realize that they could be put in a [difficult] position because of the Mexican calendar.”

That calendar means anti-U.S. political posturing could begin early in the new year as parties and candidates come out hard against U.S. President Donald Trump as an election tactic, said Lilly.

But an unnamed source told Reuters the schedule was exceedingly fast, given that past trade deals took years to negotiate.

One of the stickier issues in the talks will be rules of origin for the automotive industry. U.S. Trade Representative Robert Lighthizer has made it clear that strengthening those rules was a priority. They are also the main factor behind U.S. trade deficits, an issue deemed critical by President Trump.

Source: El Universal (sp), CBC (en), Reuters (en).

Differences emerge in trade negotiations

Neither Mexico nor Canada support changes to rules of origin in auto industry

Rules of origin in the automotive industry have emerged as the biggest sticking point among other differences between Mexico and the United States in talks to renegotiate the North American Free Trade Agreement (NAFTA).

The United States is demanding higher U.S. content in auto manufacturing but Mexican Economy Secretary Ildefonso Guajardo said he doesn’t support the implementation of specific national rules of origin into a renegotiated NAFTA.

His position is shared by Canada’s Minister of Foreign Affairs, Chrystia Freeland.

In his opening statement, United States trade representative Robert Lighthizer said “Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content. Country of origin should be verified, not deemed.”

However, automotive groups from all three countries are urging negotiators not to change rules of origin to avoid upsetting complex supply chains.

Industry sources say the U.S. also pushed for the establishment of a wage system in the manufacturing industry, an issue that had not previously been publicly raised by the U.S. government.

Both Mexico and Canada sought instead to formalize international wage mechanisms in the agreement such as those provided by the International Labor Organization (ILO).

The U.S. has also made it clear that it wants to restore what it perceives as an imbalance in the agreement with Lighthizer saying, “We need to assure that huge trade deficits do not continue.”

However, Mexican foreign trade undersecretary Juan Carlos Baker said, “I would strongly contest whether emphasizing trade deficits is the real metric for how our relationship should be measured” and both Mexico and Canada have argued that the deficit is due to a low U.S. domestic savings rate.

Another clash came on the issue of intellectual property. Mexico wants to grant eight years patent protection while the U.S. wants 12.

More differences are likely to arise with talks scheduled on a dispute settlement system for anti-dumping and anti-subsidy cases. The U.S. wants to eliminate the system while Mexico and Canada want it maintained.

Mexico and the U.S. clashed earlier this year over subsidies and dumping in the sugar industry.

Guajardo played down any suggestion that NAFTA was wavering due to difficult issues or differences. He said that after two days of talks, progress has been made and that there are issues that have benefits for all parties.

Common ground has been found on not using currency manipulation to make markets more competitive and a desire to reduce Asian imports in the textile industry.

The first round of talks started in Washington on Wednesday and will run until Sunday. The second round is scheduled for Mexico in early September.

Source: El Universal (sp), Milenio (sp), Reuters (en).

US warns of violence in tourist destinations

Increased criminal activity, more homicides bring new travel alert

Crime increases in five Mexican states have triggered a new travel warning for Mexico by the United States Department of State, which offers a new caution about several tourist destinations.

The alert cites increased criminal activity in Baja California, Baja California Sur, Chiapas, Colima, Guerrero, Quintana Roo and Veracruz, warning U.S. citizens about gun battles between rival criminal organizations or with authorities on the streets and in public places during broad daylight.

Caution is urged in Baja California, including Tijuana, Rosarito, Ensenada, Tecate and Mexicali, particularly at night.

As with several other state-specific warnings, that for Baja California says most homicides appear to be targeted, criminal organization assassinations, but turf battles have resulted in violent crime in areas frequented by U.S. visitors.

The warning announced that U.S. government personnel are only allowed to travel on the Mexicali-Tijuana toll highway during daylight hours.

Criminal activity and violence remain an issue throughout Baja California Sur, said the State Department, which included Los Cabos and La Paz in its warning, making the same caution about violence in tourist areas.

In Chiapas, including Palenque and San Cristóbal de las Casas, U.S. officials must now remain in tourist areas and are not permitted to use public transportation.

Inter-city travel at night is prohibited for government personnel in Colima, as is traveling within 19 kilometers of the border with Michoacán and traveling on highway 110 between La Tecomaca and the Jalisco border.

Source: El Universal (sp), CBC (en), Reuters (en).

History shows there is a repeating, almost natural progression from currency wars to trade wars to shooting wars

by Paul Goncharoff
Analysis

What does the future hold?

For those that dig into and analyze the history of humankind there has been a repeating, almost natural progression from currency wars to trade wars to shooting wars. In basic terms, the yeast that gives rise to currency wars are: too much debt and too little growth. Hence, countries steal growth from trading partners by cheapening their currencies to promote exports and create export-related jobs. Short-term relief at best as in every case eventually currency balances reassert, it is therefore a zero-sum exercise.

This no-win situation eventually becomes obvious to those countries involved and they move on to trade wars or in today’s popular parlance – sanctions. This is expressed through punishing tariffs, export subsidies and nontariff impediments to free trade. The same dynamics apply as in currency wars and both sides null themselves out of play. Meanwhile the difficulties that started these chain of events has not gone away: too much debt and too little growth never goes away by avoiding the hard nationally responsible internal fixes needed – politically painful as they might be.

After the Crimean’s voted to again reunify with Russia, President Obama imposed economic sanctions on Russia’s major banks and corporations, and certain political figures and oligarchs. The EU joined these sanctions. Russia responded by imposing its own sanctions on Europe and the U.S., by banning certain imports. These and the several sanctions that were added on have been a failure. They did not succeed in changing Russian beliefs. They have had no impact on forcing any imposed changes on Russian national interests. This failure was as predictable as the spin of the earth.

The benefits to Europe by removing sanctions would help prop up and ensure the beginnings of growth noticed among a few of the member nations.

Russia’s reserves nosedived beginning in mid-2014 due to the global collapse of oil prices, which fell from $100 per barrel to $24 per barrel by 2016, together with the onset of imposed sanctions. The Russian reserve position fell to a low of $350 billion by mid-2015, about where they were at the depths of the 2008 crisis.

When U.S.-led sanctions forbade Russian multinationals, such as Gazprom and Rosneft, from refinancing in 2015 any dollar- and euro-denominated debt in western capital markets, those companies turned to the Russian Central Bank. They beseeched the head of the CB Ms. Nabiullina to permit them to dip into Russia’s remaining hard currency reserves to pay off maturing corporate debt.

She took her role seriously, and in the national interest, and for the most part, she refused these requests, insisting that Russian reserves were for the benefit of the Russian people and the Russian economy and were not a slush fund for corporations or oligarchs.

By doing her job a-politically, she forced the Russian energy companies to make alternative arrangements including equity sales, joint ventures, and yuan loans from China to pay their bills. As a result, Russia’s credit was not impaired and its reserve position has gradually recovered. The strong position taken by the head of Russia’s Central Bank was not the response planned for or expected by the host of prestigious ‘expert’ think tanks between Washington and Brussels. Perhaps because it beggars belief that in this day and age any Central Bank could take the firm and necessary common sense steps that serve their citizens interests.

A further side to Russia’s reserve management under Nabiullina was evident during the panic days of the oil-related drawdown during mid-2015. The Central Bank of Russia never sold its gold. In fact, it continued to add to its gold reserves.

It is worthwhile having a glance at gold reserves as a percentage of GDP. In short let us use GDP as a measure for the economy, and gold as a measure for real money, and then the gold-to-GDP ratio tells us how much real money backs the real economy. This is the opposite of heightened leverage through increased government debt, which has become the new normal in our ‘developed’ world.

The ratio for United States weighs in at 1.8 percent. China is estimated by some to be at 2.2 percent. The EU shows 3.6 percent which is double that of the US. Russia comes in at an audited 5.6 percent (and growing), which is over three times the United States ratio.

Russia’s solid gold position combined with today’s low external debt puts Russia in a comparatively strong position to weather economic distress without default, or to face unknown geopolitical black swan events in the future.

This chain of escalation only solidifies positions if nobody believes in common sense, tensions increase, rival blocs and alliances based on perceived greater self-interests are formed. Shooting wars then start in an attempt to terminate outstanding debt and re-balance the books unilaterally. The direct and collateral damage is always far worse that fixing internal problems at the outset.

What have we seen in the past few years that looks fishy? In 2010, the new phase of this currency war began with efforts by the Obama administration to promote U.S. growth through a weak dollar. By 2011, the U.S. dollar reached an all-time low on the Fed’s broad real index. Countries understandably responded, and the period of the “cheap dollar” was replaced by “cheap euro” and “cheap yuan”. One more time currency wars proved themselves a zero-sum-game by 2012.

Now the trade wars with sanctions have begun in 2014. This past July 2017 the U.S. Congress passed one of the toughest veto-immune economic sanctions bills ever and sent it to President Trump for his now token signature. The new sanctions law is directed against North Korea, Iran, and Russia.

This new law says that U.S. companies cannot participate in any Russian project in oil and gas exploration in the Arctic. It restricts even foreign companies that do business with Russia in Arctic exploration by banning them from U.S. markets and U.S. contracts. This approach places diplomacy on a shelf as it takes on the form of an existential threat to Russia. This not only is a threat to Russia’s national interests, but also threatens many countries that comprise the EU by choking off an independently reliable source of energy to Europe. I have doubts that even previously staunch trading partners will stand idly by as the US one-sidedly dismantles what remain of bilateral trading relations. Retaliation is to be expected. We are now in a no holds barred trade war. What can we expect to follow?

Despite what is tensioning between the US and Russia, or between the US and Iran, the sharp end of the stick today is between the US and North Korea with escalating threats being exchanged on an almost daily basis. This has moved significantly farther than any currency or trade war and seems likely to end badly. In an editorial this past Aug. 11, China’s Global Times newspaper warned that China won’t come to North Korea’s aid if it launches missiles threatening U.S. soil and there is retaliation — but that China would intervene if Washington strikes first. “China should also make clear that if North Korea launches missiles that threaten U.S. soil first and the U.S. retaliates, China will stay neutral,” furthermore “If the U.S. and South Korea carry out strikes and try to overthrow the North Korean regime and change the political pattern of the Korean Peninsula, China will prevent them from doing so.”

It would seem that we’re all heading to experience the historical third stage, maybe assisted by Ukrainian rocket engines to Pyongyang. What irony. Not a happy prospect. (by Russian Insider).