The WTO's Principle of the Most Favoured Nation and the End of NAFTA

Sergio Arturo Olliver Martinez Grijalva

Throughout the US presidential campaign one of the main issues was trade with Mexico, and Donald Trump's repeated threat to withdraw from the North American Free Trade Agreement (NAFTA), although once he won the presidency he began to speak in more friendly terms and made reference to a renegotiation of the treaty instead.

But, how would trade between Mexico and the United States be governed by an eventual if not very possible end to NAFTA? The answer is found in the World Trade Organization (WTO), although it is true that at this time México has a privileged access to the US market, both by its geographical location and due to NAFTA, the latter might come to an end but not the first, trade between both countries will go back to being governed by the rules of the General Agreement on Tariffs and Trade (GATT), as well as by the principles of the WTO.

Principle of the Most Favoured Nation

Of the multiple principles that the WTO has, this would be the main one that Trump does not seem to understand, since both the United States and México are members of the WTO, it would be virtually impossible to implement the recently tweeted "Huge border tax" in a direct threat to Toyota for maintaining investments and production of automobiles in Mexico.

The WTO's Most Favored Nation Principle is there to grant equal access in tariffs to all signatory members, in this way if the Trump government allows market access to countries such as Canada, Germany or Japan, according to WTO rules, all other member states should also be allowed the same access under exactly the same rules and preference, so countries such as China and México should not be penalized in particular by any special 'Border tax' if the rest of the WTO members don't have to pay it, thus eliminating any possibility of special tariffs on any product manufactured in Mexico or China by any foreign company or dependent or in association based in Mexico.

Thus, if Trump's government decides to continue go ahead and renegociate NAFTA under conditions less favorable to what would be obtained through the WTO, it would be quite feasible to withdraw from the negotiating table and allow trade between the two countries to be governed by WTO general rules, with NAFTA remaining a trade agreement between Mexico and Canada, at least for the next four years.

While there is a possibility that a small trade agreement involving only three countries can be modified, it is almost impossible for a global trade treaty involving almost all the countries of the world to be manipulated by the wish of a single government. We are certain that the WTO and GATT will remain in place despite Donald Trump's will, and we are certain that the US will not withdraw from the WTO because this would make them loose access to the market of almost every country in the world.