The Honorable Janet Napolitano, President, University of California
Dr. Pradeep Khosla, Chancellor, UCSD
Dr. Peter Cowhey, Dean, School of International Relations and Pacific Studies
It is an honor to participate in the 2014 edition of the Center for US-Mexican Studies symposium Mexico Moving Forward.
Ambassador Eduardo Medina Mora could not be here today, but he asked me to convey his best wishes for a very successful symposium and for a vigorous research and outreach agenda for the Center for US-Mexican studies in the coming years.
I truly am among friends: UCSD is my Alma mater, where I earned my PhD. Some of my former professors are here, such as Peter and Peter. I have also had the privilege of collaborating with many of the distinguished speakers that are here with us.
At the symposium we will learn about arts and culture in contemporary Mexico, hear about NAFTA and North American developments, about domestic reforms in Mexico and pacific partnerships – not only the Trans-Pacific Partnership (TPP) but also the Pacific Alliance between Mexico, Colombia, Chile and Peru, and almost surely about engaging with China, and what all this means for Mexico moving forward.
I believe that UCSD is uniquely poised to undertake path-breaking and rigorous research in these areas, with its Center for US-Mexican Studies, its Center for Iberian and Latin American Studies, and RRPS- the School of International relations and Pacific Studies, so both the venue and the topics that will be addresses make for a very powerful combination.
Given that 2014 is the 20th anniversary of NAFTA’s entry into force, and the North American Leaders’ Summit took place just two weeks ago, I will center my remarks on where I see Mexico in the context of North America now, and how I envision North America in the future.
An old African adage says that there are two ideal times to plant a tree: twenty years ago and right now. Well, a tree was planted twenty years ago: NAFTA represented a big leap forward in the strategic outlook and in the rules governing economic interaction in North America.
In the next section a very distinguished panel will assess NAFTA, but I do want to underscore just how forward-looking it was at its inception. We need only recall the 1992 presidential debates in which a famous Texan and feisty independent candidate to the US Presidency, Ross Perot, said NAFTA would create a “giant sucking sound” as NAFTA sent US jobs to Mexico because of wage differentials between both countries. At the same time, some groups in Mexico also feared the sucking sound, but had the exact opposite worry and assumed NAFTA would translate into significant job losses in Mexico in favor of the US, given the large size of many US corporations and their easy access to capital and technology.
We were really treading upon new ground. There was no precedent for such a far-reaching trade agreement between a developing country and two developed countries. It liberalized tariffs on practically all goods, including agricultural products; it included trade in services, and provisions on investment, intellectual property and government procurement. By its scope and coverage NAFTA was, in fact, the most advanced free trade agreement in the world.
Assessing NAFTA has become somewhat of a cottage industry but if one focuses on the preamble, where the countries state that they seek to create an expanded and secure market for the goods and services produced in their territories, to establish clear and mutually advantageous rules governing their trade, and to ensure a predictable commercial framework for business planning and investment, it has been a clear success.
- Intra-NAFTA trade, $288 billion dollars in 1993, was over $1trillion dollars in 2013 (1.075), a 273% increase. SOURCE: US CENSUS, INEGI, STATISTICS CANADA
- 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 trade partner of the US and second largest export destination.
- In 2013, total US exports to Mexico reached 226 billion dollars, which is more than 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 estimates that 6 million jobs in the US depend on exports to Mexico.
While the goal of the agreement was the establishment of a free trade area, something 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 are increasingly engaging with the global economy as one region.
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 the cockpit of the Learjet 85 business jet in Queretaro, which uses Pratt & Whitney turbines made in Quebec, and final assembly takes place in Wichita, Kansas.
And this is just one example. Pre-NAFTA yearly FDI (1980 to 1993) averaged $2.9 billion, and post-NAFTA (1994-2012) it was $19.3 billion. SOURCE: INEGI
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 for that period), while Mexican FDI in the US was over 20 billion over the same period. SOURCE: SECRETARIA DE ECONOMIA
40 of 50 US states host at least one location of a Mexican-based corporation, such as CEMEX, GRUMA, Grupo Alfa, Grupo Financiero Banorte, Grupo México, LaLa, Bimbo and Mexichem, among others.
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. SOURCE: Koopman, Robert et.al. “Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains.” NBER Working Paper #16426, Cambridge, MA 2010. Pp. 38. Cited in Wilson, Cristopher, “Working Together: Economic Ties Between the United States and Mexico.” Woodrow Wilson International Center for Scholars, 2011.
The success of NAFTA was largely the result of the rules established by the agreement, and particularly the trade and investment decisions taken by business leaders during these past two decades. 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 but also throughout North America, will be critically important to take full advantage of our economic complementarity. By the way, a great way to get an overview of advanced manufacturing is via a UCSD-TV program hosted by Dean Cowhey last April.
The energy landscape has also changed dramatically. During the NAFTA negotiations, Mexico did not open its hydrocarbons sector to foreign investment, but with last December’s constitutional reform, Mexico’s energy horizons are set to change radically, 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, and reliable and affordable energy will be a key component in ensuring a very competitive North American manufacturing base.
So, we know what needs to be done and are already making strides. Last September Vice President Joe Biden was in Mexico, and formally launched the High-Level Economic Dialogue (HLED). The Dialogue is a mechanism designed to foster engagement at the highest level between the Mexican and US Governments –in close coordination with stakeholders - with a view to reducing transaction costs in order 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 promoting 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 21st Century Border initiative.
In addition to the HLED, last May Presidents Peña Nieto and Obama agreed to create the Bilateral Forum on Higher Education, Innovation and Research (FOBESII, for its Spanish acronym). The FOBESII will develop a shared vision for educational cooperation, with a view to expanding economic opportunities in both countries, and developing a workforce for attuned to the needs of the 21st century economy.
In close collaboration with academia, business and other stakeholders, FOBESII will develop initiatives on, among other issues, workforce development; student and academic mobility; research, technological development and innovation partnerships; and language instruction.
The Mexican FOBESII Advisory Group has already presented the “Proyecta 100,000” initiative, which aims to send 100,000 Mexican higher education students to the US by 2018, and is part of the proposed “100+50 Strategy”, which aims to send 50,000 US students to study in Mexico also by 2018.
This is particularly relevant given that Mexico comes in at 9th place in the number of students studying in the US. Until 2011 it was the main destination for US students studying in Latin America, but is now in fourth place (after Costa Rica, Argentina and Brazil). Currently, there are about 14,000 Mexican students in the US and 3,800 US students in Mexico.
As I mentioned, we must really strengthen trinational engagement. We are already doing so through the Trans-Pacific Partnership (TPP) negotiations, in which the three NAFTA countries are participating. The TPP will open up access to more markets for North American goods and also allow us to upgrade the rules governing trade and investment in North America NAFTA to bring it into the 21st Century. The TPP will cover new issues such as e-commerce, and give greater relevance to other issues that are key for competitiveness such as regulatory cooperation, trade facilitation and bolstering the participation of small and medium enterprises in international trade flows. With the TPP, Mexico is part of the group of countries that are crafting the rules for 21st Century trade.
Let me turn now to the Toluca Summit. The Summit provided a new impetus to trinational engagement. We will engage at a trilateral level on some issues that are being addressed bilaterally through the HLED. Let me highlight some of the commitments that have a bearing on North American competitiveness:
SHARED AND INCLUSIVE PROSPERITY
- Develop a North American Competitiveness work plan, focused on investment and innovation.
- Jointly promote trade and investment.
- Conduct a mapping of industrial clusters to promote development, innovation and investment.
- Establish a North American Transportation Plan, starting with freight planning.
- Build on existing bilateral border mechanisms to expedite the safe movement of goods across North America, and promote trilateral exchanges in logistics corridors and regional development.
- Strengthen trilateral regulatory cooperation in order to reduce transaction costs for businesses.
- Establish in 2014 a North American Trusted Traveler Program, which will allow vetted travelers to more easily cross borders between the three countries.
- Simplify procedures and harmonize customs information requirements for businesspersons and visitors of the three countries
NEW OPPORTUNITY AREAS
- Establish a Trilateral Council for Research, Development and Innovation and promote joint research in national laboratories and universities, strengthening links with companies in North America.
- Increase educational exchanges and promote the development of skills required by the 21st Century workforce.
- Promote trilateral cooperation on women’s entrepreneurship.
- Hold a Meeting of Energy Ministers of North America in 2014 in order to explore common strategies on energy efficiency, infrastructure, innovation, renewable energy, non-conventional energy sources, energy trade, and responsible development of energy resources.
These commitments are a sign that our governments are building on the foundation that we laid some twenty years ago. It is also an acknowledgment that our economies are not in a zero-sum game with each other, but rather are competing together as one unit in the global marketplace. North America is one of the most competitive and dynamic regions in the world, but there is still untapped potential.
Looking toward the future, PricewaterhouseCoopers has estimated that in 2050, the five largest economies in the world will be China, the United States, India, Brazil, and Japan. Mexico will be the 7th largest economy in the world in 2050, after Russia. The US and Canada will be the top two countries in the world in 2050 in terms of GDP per capita, while Mexico will be the top Latin American country.
The future is not a foregone conclusion; it is what we make of it. The late Bob Pastor – founder of the Center for North American Studies at American University -- once said that one should not pursue aims because they are feasible, but rather because they are desirable. In forging the future of North America we must be as forceful and ambitious as those who spearheaded NAFTA negotiations more than 20 years ago.