AMBASSADOR MEDINA MORA’S SPEECH ON THE OCCASION OF THE FORUM “NORTH AMERICAN COMPETITIVENESS IN A CHANGING GLOBAL ECONOMY”, ON JULY 24, 2013, AT THE CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES.
Good afternoon. I would first like to thank the Center for Strategic and International Studies for hosting us today and for inviting me to talk about an important topic—North American competitiveness. I especially would like to thank Carl Meacham for his efforts in putting this event together.
I want to start by saying that I want to embark on a personal crusade, but I need all the help I can get. Ladies and gentlemen, my crusade has one purpose: to change “designed in” or “made in” Mexico, the US or Canada to “Designed and Made in North America”. And my objective here today is to explain why this makes sense.
A Canadian company called Bombardier makes 85 percent of the total composite material in the Learjet 85 in Mexico. Those components are then transported to Wichita, Kansas, and Toronto, for final production and assembly. So why would a Canadian company choose to build airplanes in Queretaro and then transport them to Kansas? While competitive labor costs is one of the obvious answers, there are two more answers which are less obvious and more significant—human capital and infrastructure. Queretaro is home to the National Aeronautics University where two thirds of the workers at the Bombardier plant in Queretaro were trained, while Wichita, Kansas, described as the "air capital of the world", boasts more than a century of aviation manufacturing experience. A second factor is that Queretaro and Wichita sit along a convergence of road and rail networks, so the necessary parts for final assembly can be transported along the supply chain much more quickly than they could if they were coming from Asia, for example.
The case of Bombardier illustrates the way in which our interconnected economies benefit production and provide our region with a competitive advantage. The company can profit from specialized aeronautical training in Queretaro, design and assembly in Wichita and Toronto, and research and development in Montreal. Simply put, our competitiveness comes from our integration and complementarity.
We have come a long way since NAFTA entered into force almost twenty years ago. Our economies have prospered; trade has expanded as has the well-being of our people. But nothing is set in stone, and the continued prosperity of North America could stall if we do not pay attention to it.
The future of North American competitiveness will greatly depend on our ability to build upon the successes of NAFTA, while at the same time recognizing the remaining challenges that have prevented us from taking full advantage of our joint strength. Our ability to successfully streamline customs procedures and bolster infrastructure in the region to speed supply chains and boost productivity will be of paramount importance.
So let’s talk about what we have accomplished thus far.
Twenty years ago, a seed was planted. Our commercial engagement, which began as a young tree, has now developed deep roots and wide branches. Our markets have grown, have matured together, our relationship has flourished, not only through the deepened relationship in traditional sectors but also through the diversification of the sectors that unite us. Twenty years ago, the North American Free Trade Agreement launched with a bilateral trade of eighty one billion dollars. In 2012, bilateral trade grew to four hundred and ninety four (494) billion dollars - a 510 per cent growth. This means that trade between Mexico and the U.S. has sextupled, growing 10 per cent annually. This, by any standard, is a successful trade agreement.
The success of aerospace is just one reflection of what is happening in many other industries. If you came here today in a car assembled in North America, the parts that make up your car have already crossed the border to Mexico eight times on average even before you bought it. If you own a Ford, GM or Chrysler, this means that forty per cent of your car is manufactured in Mexico.
North American integration does not end with manufacturing advantages. A deep transformation in the kinds of things that companies are investing in is taking place. In recent years, we have witnessed a growth of successful research centers established in Mexico such as Honeywell’s in Baja California, Intel’s in Guadalajara, and General Electric’s in Querétaro- which, by the way, is the company’s largest center for research and design outside the United States. Most studies of international firms specializing in IT agree that Mexico could soon become one of the world’s major powers in the high-tech industry.
These are just a few of the reasons why I think we should all start saying “Designed and Made in North America”. Let’s make it a trend, ladies and gentlemen.
So what else needs to be done?
Ladies and Gentlemen, as the old African saying goes, “there are two good times to plant a tree: twenty years ago and right now”. Twenty years ago we signed NAFTA, but we need plan a new tree. Yes, the integration has been exceptional, but many challenges remain. The truth is that we have a twenty first century value chain with a twentieth century legal framework and nineteenth century infrastructure.
Our common borders are both the key to our prosperity and a challenge to it. A recent report from the Woodrow Wilson Center's Mexico Institute concluded that border wait times cost the United States and Mexico many billions of dollars each year. Since more than 80 per cent of goods traded between the United States and Mexico cross the border by land, perhaps it is not surprising that restrictions and inefficiencies have tremendous costs. A 2008 study by the U.S.
Department of Commerce estimated that every minute of delay at the border costs the U.S. $100 million and more than 500 jobs. Long and unpredictable wait times at the border play havoc with a company’s bottom line and with regional competitiveness as a whole. We should expand and modernize our current border infrastructure to improve border wait times, customs procedures, and trusted traveler and shipper programs. The ultimate goal is to have a seamless and efficient border to take full advantage of our geographic proximity.
In every trade relationship, the improvement of the regulatory structure is essential to further increase the flow of commerce. Our countries are committed to improving regulatory cooperation aimed at making regulations more compatible, reducing regulatory burdens, and increasing transparency and predictability, so we can ensure environmental protection and the health and safety of our workers and consumers. A better regulatory framework will ultimately lower trade costs, and support growth, productivity, investment and innovation.
While investing in new border infrastructure is of great importance, the existing infrastructure along our border must be modernized as well. Last week, President Peña Nieto announced Mexico’s plan to direct over 300 billion dollars to infrastructure over the next six years. Those investments in roads, railways, airports, and sea ports will not only benefit Mexico, but the entire region. Beyond that, as a result of unprecedented agreements that are being reached between the country's main political parties, Mexico has recently pushed through large scale reforms to education, labor, telecommunications, anti-trust legislation, and legal procedures, with fiscal and energy reform still on the agenda.
On that point, I know you are all curious to know how the issue of energy reform will play out in Mexico, so am I. But regardless of what transpires in terms of energy reform in Mexico, we can expect more cooperation to build on recent achievements like the Trans-boundary Hydrocarbons Agreement of 2012 in which the United States and Mexico reached a resolution on how to allocate potential oil reserves that cross dividing lines between our two countries in the Gulf of Mexico. Although it has yet to be enacted in the US, this agreement is tied into our future competitiveness. Increasing transportation costs around the world have provided us with a unique advantage. Our three countries combined have the largest shale gas and shale oil resources in the world. North America will continue to have the lowest natural gas and electricity prices in the world for at least the next decade. There is no doubt that further cooperation in the energy sector is needed.
Let us talk for a moment about the changing global economy. As all of you know, we are currently in trade negotiations for the Trans-Pacific Partnership (TPP) agreement and the United States is beginning a negotiation with Europe on a possible new trade and investment agreement (TTIP). We believe that we should participate as a region in this trade initiative to foster North America’s competitiveness. While Mexico signed an Economic Partnership, Political Coordination and Cooperation Agreement with the European Union back in 2000, Canada and United States are still in the negotiation process. Trade between Mexico and the EU has increased from $21 billion to $63 billion in 12 years of the agreement.
Ladies and gentlemen, Mexico is a fervent promoter of free trade. We have signed 44 free trade agreements, more than any other country in the world, and we are excited about the possibilities that the Trans-Pacific Partnership will open up for Mexico and the region. As most of you probably know, the TPP would be the largest free trade agreement in history with member countries producing 40 per cent of the world's economic output. The inclusion of Mexico and Canada in the TPP negotiations is a positive step for the North American region. The same could be said about the prospects of the US- EU free trade zone.
While the specifics of these agreements are still being discussed – thus making it unfruitful to engage in pure speculation – let me tell you that the prospects of the TPP will actually complement NAFTA. It will not only open up the doors to the largest emerging market, it will also allow for improving norms and regulations that affect North America itself.
The TPP will allow North America to tap into the Asia Pacific region, which will provide most of the world’s economic growth over the next few decades. It is a region where Mexico is already trading successfully, with annual average growth rates for our exports of around 20 per cent, and where we have signed and implemented an Economic Partnership Agreement with Japan, the latest country to join the TPP negotiations.
Through TPP, Mexico can diversify its exports destinations while strengthening North American supply chains. Just one example of how this can be achieved is through the use of inputs from the other TPP members in our productive processes, which can help reduce costs and lead to an increase in North American exports to the rest of the world. That is a textbook example on how to boost competitiveness.
Finally, let’s not forget Mexico also serves as North America's portal to Latin America. During recent negotiations of the Pacific Alliance, Mexico, Peru, Chile, and Colombia significantly advanced on an agreement to eliminate tariffs on 92 per cent of trade, with the remaining 8 per cent to be negotiated for removal in the near future. The Pacific Alliance, as a region, would form the eighth largest economy in the world.
As New York Times columnist Thomas Friedman noted just last week, “We have already derived great economic benefit through the North American Free Trade Agreement. And, if we were thinking strategically, one of our top foreign policy priorities would be to further integrate North America.” Friedman was advising the United States, but I think Mexico is certainly listening.
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