I would like to thank the Minnesota International Center for inviting me to visit Minnesota and for organizing this luncheon as part of the activities surrounding Mexico as your focus country this year. I would also particularly like to thank Lenny Moore, Chair of the Board of Directors for his leadership, and Carol Byrne, President of MIC. Thanks also go to the Economic Club of Minnesota for co-sponsoring this event. I was honored to participate in their celebration of NAFTA’s 20th anniversary in Washington, DC several months ago. Finally, I want acknowledge the presence of a particular Mexican-American and first Latino Council Member of the City of Minneapolis, Alondra Cano. Thank you for being here.
What has been happening in Mexico for the last two decades, and particularly since December 2012, is nothing less than a sea-change in the trajectory and future prospects of the country. With the reforms currently underway in Mexico, our reinvigorated economic engagement with the United States through the High-Level Economic Dialogue (HLED), trilateral initiatives launched at the North American Leaders’ Summit in Toluca last February, international engagement with Latin America through the Pacific Alliance, and with Asia via the Trans-Pacific Partnership (TPP), Mexico is poised to enter an era of sustained growth and dynamism. If Mexico were a stock, it would certainly be time to buy and hold!
This year we are also celebrating NAFTA’s 20th anniversary, and rightly so, for it represented a big leap forward in the strategic outlook and the rules governing economic interaction in North America. All of you are aware of the success that NAFTA has been in terms of boosting trade in North America:
- Intra-NAFTA trade, $288 billion dollars in 1993, was over $1 trillion dollars in 2013 (1.075), a 273% increase.
- Bilateral trade between Mexico and the United States has grown from about 80 billion dollars in 1993 to more than 500 billion dollars annually, which translates into approximately one million dollars per minute.
- Mexico is the third largest trading partner of the US and second largest export destination.
- In fact, in 2013, total US exports to Mexico exceeded US exports to Japan and China combined, or to all the BRICS combined.
- Soccer fans here today know that the World Cup is on its way. You might also know that, in the history of the event, eight different countries have won the World Cup (well, nine countries after Mexico wins it this year). You might be surprised to hear that Mexico buys more goods from the United States than all the eight countries that have won the FIFA World Cup combined (Argentina, Brazil, England, France, Germany, Italy, Spain and Uruguay).
- The US Chamber of Commerce has estimated that 6 million jobs in the US depend on exports to Mexico.
- Minnesota plays a very significant role in the development of a more competitive North America. The state's exports to Mexico have increased at an average annual rate of 9.5% for the last 20 years, from 242 million dollars to 1.5 billion dollars since the onset of NAFTA. During the past two decades, Mexico moved up in the rankings from the 7th to the 3rd largest market destination for Minnesota exports (after Canada and China). Some 17,000 jobs here in Minnesota today, are the result of trade with Mexico.
While the goal of NAFTA was the establishment of a free trade area, something much more significant has happened—North America has become a region of shared production. We are jointly producing goods through the deeply integrated production and supply chains that have developed as the result of the clear, stable and transparent rules established by NAFTA, and we are increasingly engaging with the global economy as one region.
The paradigmatic example of North America production is the auto industry, but the aerospace industry is also becoming increasingly regional. Bombardier, the Canadian Aerospace company, is a good example of an integrated North American operation where design and manufacturing are shared among the three countries. Bombardier Aerospace manufactures the fuselage and cockpit of the Learjet 85 business jet in Querétaro, which uses Pratt & Whitney turbines made in Quebec, and final assembly takes place in Wichita, Kansas.
Also, the Bombardier transportation site in Huehuetoca, in the State of Mexico, is a facility that specializes in electrical harness manufacturing for rail vehicles. Due to logistical advantages and geographic location, finished goods are exported to customers in North and South America as well as to the Pacific and Atlantic Oceans. Many of you here in Minnesota will be most familiar with Bombardier’s work on the Minneapolis Light Rail Vehicles.
But the Minnesota-Mexico partnership is perhaps best illustrated by a few examples of vibrant entrepreneurship and long-term investment strategies.
Take the case of Donaldson, which began investing in filtration system manufacturing in Aguascalientes in 1984, and later in Monterrey. More recently, PowerCore Generation filters are manufactured and exported to the Americas from the recently upgraded manufacturing plant in Aguascalientes.
In the past 14 years, Baja California has become a strategic medical device manufacturing center in Mexico with the arrival of key global industry players. Medtronic, with its long presence in manufacturing medical technology in Tijuana and Empalme (Sonora) has moved from low value-added processes to manufacturing first generation devices such as CoreValve, an aortic valve that is implanted without surgery. Medtronic is also forging closer relations with Mexican educational institutions to attract highly skilled professionals, and is playing an important role in our region’s competitiveness.
Cargill has been active in Mexico for decades and now has a presence in twelve Mexican states with over 1,500 employees. An advocate of free trade, Cargill has welcomed the entry of Mexico and Canada into the Transpacific Partnership trade negotiations. At the local level, Cargill is also contributing towards stronger communities, partnering with the Fundación Mexicana para el Desarrollo Rural, a NGO with almost 50 years of experience in promoting sustainable development for smallholder farmers.
Less than one year ago, 3M opened a new 7 million dollar R&D center in San Luis Potosi following a new 3M Innovation Center that opened in 2012. With advanced R&D centers, 3M Mexico aims to speed up the strategic development of new products and technologies by hosting pilot lines, analytical laboratories and chambers to test weathering and thermal cycles, along with new equipment and soon, a rapid prototyping and 3-D modeling laboratory. 3M Mexico is also investing in the development of a local workforce through a doctoral program for scientists in the state of San Luis Potosi.
More evidence of growing intra-regional investment can be seen in the percentage of US value-added in US imports: it is 2% from Japan and from the European Union, 3% for imports from Brazil, and 4% for Chinese imports. It is 25% for imports from Canada and 40% for imports from Mexico. That is to say, US imports from Mexico have ten times more US value-added than US imports from China.
While the rules established by NAFTA were key to its success, the investment decisions taken by business leaders, including many of you here today, were of paramount importance. You are probably aware that the US is the main foreign investor in Mexico. From 1999 to 2013, Mexico received 168 billion dollars in US investment, 48% of the total FDI for that period, but Mexican investment in the US is also increasing. Mexican FDI in the US was over 20 billion during the same period, and 40 of the 50 US states host at least one location of a world-class Mexican-based company like CEMEX, GRUMA, Grupo Alfa, Grupo México, Lala, Mexichem and Bimbo.
Many of those numbers are encouraging, but if we are to take North American economic integration and competitiveness to the next level, we need to have much stronger and proactive engagement between the public and private sector, and to truly think and act regionally.
The world economy has changed radically in the last two decades: services loom much larger now, as does e-commerce, and advanced manufacturing (including 3-D printing) means that a highly skilled workforce, streamlined regulations and vastly improved infrastructure and logistics, at border crossings and throughout North America, will be critically important to take full advantage of our economic complementarity.
The energy landscape has also changed dramatically, and with last December’s constitutional reform, Mexico’s energy horizons are set to change profoundly, and for the better. Meanwhile, according to the International Energy Agency, the US is slated to overtake Saudi Arabia and Russia as the world’s top oil producer in 2015. In addition, in its Energy Outlook to 2040 ExxonMobil estimated that by 2020 North America would become a net natural gas exporter and a net exporter of oil around 2030. North America thus has all the necessary energy resources to fuel its economic growth for a long time.
While the future holds many opportunities, there are also things to overcome. The significant transaction costs of cross-border trade and investment still remain, as do other impediments that have prevented us from fully unleashing the potential of the Mexican economy. We are tackling these challenges head-on.
Mexico has undertaken a flurry of reforms under the leadership of President Peña Nieto that include election laws, labor, education, telecommunications, financial services, competition policy, fiscal policy and, as I mentioned, energy.
The common thread that runs through these reforms is the democratization of productivity in order to reduce entry barriers for businesses and provide a way to allow all Mexicans to fully contribute to and benefit from a stable and robust economy that is strongly connected to North America, South America, Asia and Europe.
Bilateral engagement will also be of critical importance in preparing for a competitive future. The High-Level Economic Dialogue (HLED) is a mechanism designed to foster engagement at the highest level between the Mexican and US governments with a view to reducing transaction costs to increase the competitiveness of our shared economic space. Through the HLED, we are launching initiatives in areas such as transportation, telecommunications, strategic logistics corridors, and customs and border master plans, which will increase the competitiveness of the region. We are also fostering economic growth and entrepreneurship through joint investment promotion, advanced manufacturing, and deepening regulatory cooperation. Border efficiency, in both physical and regulatory aspects, is also a key item under the HLED, and will complement actions already under way through the Mexico-US 21st Century Border initiative.
In terms of trilateral engagement, last February’s North American Leaders’ Summit in Toluca focused on the region’s competitiveness. Presidents Peña Nieto and Obama and Prime Minister Harper acknowledged that, while North America is one of the most competitive and dynamic regions in the world, there is still enormous untapped potential, and undertook a series of commitments that build upon the foundation we laid some twenty years ago with NAFTA. To mention a few of them, the leaders agreed to:
- Develop a North American Competitiveness work plan, focused on investment and innovation.
- Conduct a mapping of industrial clusters to promote development, innovation and investment.
- Establish a North American Transportation Plan.
- Build on existing bilateral border mechanisms to expedite the safe movement of goods across North America, and promote trilateral exchanges on logistics corridors and regional development.
- Strengthen trilateral regulatory cooperation in order to reduce transaction costs for businesses.
- Simplify procedures and harmonize customs information requirements for businesspersons and visitors of the three countries
All three North American countries are also participating in the Trans-Pacific Partnership negotiations, which will allow us to revisit and upgrade NAFTA to bring it into the 21st Century. It will cover new issues such as e-commerce, and place greater importance on other issues that are essential for competitiveness such as regulatory cooperation, trade facilitation and bolstering the participation of small and medium-sized businesses in international trade flows. With the TPP, Mexico is part of the group of countries that are crafting the rules for 21st Century trade.
In Spanish we have two different words for the verb “to be”, ser and estar. With that in mind, Mexico, está in North America, but es Latin America. And in that sense, I cannot miss an opportunity to say a few words about the Pacific Alliance, a very ambitious, and at the same time very pragmatic initiative among like-minded countries. It is a new, results-oriented and market-friendly model of open regionalism. Currently Chile, Colombia, Peru and Mexico are the Pacific Alliance members, but soon Costa Rica and Panama are expected to join as well.
The Alliance will provide for the free movement of goods, services, capital and people, to make the most out of synergies between Pacific Latin American countries, and to also serve as a bridge to the Asia Pacific. We have managed to achieve an ambitious level of agreements in a surprisingly short timespan through a flexible engagement process which follows an early harvest approach—we implement agreements as they are achieved and keep forward momentum going with new initiatives on a broad spectrum of topics.
Taken as a whole, our far-reaching domestic reforms, bilateral engagement with the US on strategic economic issues, participation in some of the most significant trade negotiations currently underway, and the growing impetus for a new North American era, have Mexico poised to be at the cutting edge of rules on international trade and investment, and become an even more important player in the global economy for a long time to come.