I would first like to express my gratitude for this kind invitation to participate in Pan-American Day. Thank you to Romy Diaz, Abelardo Lechter and to all the distinguished members of the Board of Directors.
I am told that Mexican Ambassadors have been coming to Philadelphia to address the Pan-American Association almost since its inception (Ambassador Francisco Castillo Najera came in 1944), and it is fitting that we do so because our interests are aligned in many ways. We both seek to build greater understanding between different countries in the region as well as promote our respective cultures and emphasize our shared history. I am particularly pleased to hear about the scholarships and awards the Pan-American Association provides to college students because education is ground zero in the promotion of better understanding. I would like to congratulate Theresa Bene and Cristina Rocca for their accomplishments and wish them great success in their future endeavors.
Let me start with where we are right now: North America. An old African adage says that there are two ideal times to plant a tree: twenty years ago and right now. Well, twenty years ago we planted a tree called the North American Free Trade Agreement. NAFTA represented a big leap forward in the strategic outlook and rules governing economic interaction in North America.
I want to underscore just how forward-looking the agreement 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 that 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. 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 $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 estimates that 6 million jobs in the US depend on exports to Mexico.
Booming trade and investment has not been limited to US Border States. In fact, four states have Mexico as their top export destination (Arizona, California, New Mexico and Texas), twenty-two states have Mexico as their second largest export destination, and six states have Mexico as their third largest export destination. This means that thirty-two states have Mexico as one of their top three export destinations.
Regarding Pennsylvania, in 2013 Mexico was its second largest export destination and third biggest trading partner. And, according to the U.S. Chamber of Commerce, almost a quarter of a million jobs (246,409) in Pennsylvania rely on trade with Mexico.
While the goal of NAFTA was the establishment of a free trade area and growing trade with Mexico has benefitted Pennsylvania as it has the other states, 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 we are increasingly engaging with the global economy as one region.
The paradigmatic example of North American production is the auto industry, but aerospace production is also becoming increasingly regional. Bombardier, a 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.
It might not surprise you to hear 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 you may not know that 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, of course, Bimbo, which has a very important presence in Pennsylvania.
This 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.
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 and throughout North America will be critically important to take full advantage of our economic complementarity.
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 we are already making strides.
Through a High Level Economic Dialogue, formally launched in September 2013, our two Nations are creating initiatives in areas such as transportation, telecommunications, strategic logistics corridors, and customs and border master plans, which will increase the competitiveness of the region.
Another area that deserves special attention is education. Not only is education the driver of growth and a key factor in overcoming poverty and income inequality, it is also a tool through which Mexico and the United States can come closer together. It is a vehicle to forge long-lasting relationships between our people and to ensure our prosperity and well-being.
Unfortunately, today, the level of academic, technical and scientific exchange between Mexico and the United States does not keep up with the intensity of its trade and political relationship. Mexico, with 116 million inhabitants, only sends 14,000 students a year to the United States, and 4,000 U.S. students take courses for academic credit in Mexico each year.
South Korea, with a population of 49 million, sends 72,000 students to the United States every year.
In response to these low numbers, Mexico and the United Stated have created the Bilateral Forum on Higher Education, Innovation and Research, for the purpose of developing a shared vision for educational cooperation, with a view to expanding economic opportunities in both countries, and a workforce 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 university students, professors and researchers to the US by 2018, and is part of the proposed “100+50 Strategy”, which also aims to send 50,000 US students to study in Mexico by 2018.
We must, can and will do much better in terms of bilateral academic and educational engagement. I am sure that Pennsylvania, which has some of the world’s most renowned colleges and universities, will be particularly sensitive to this issue and help us attain these very ambitious goals.
Turning to trilateral engagement, last February President Peña Nieto hosted President Obama and Prime Minister Harper at the North American Leaders´ Summit in Toluca. The Summit took a hard look at North American competitiveness and where we stand in the global economy. Our three governments have determined that while North America is one of the most competitive and dynamic regions in the world, there is still enormous untapped potential.
At Toluca, we undertook a series of commitments that build upon the foundation we laid some twenty years ago with NAFTA. Those commitments are 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. Let me highlight just a few of the commitments to give you a sense of North American actions and priorities in the economic realm. We will:
- Develop a North American Competitiveness work plan, focused on investment and innovation.
- Jointly promote trade and investment in sectors where our integrated production chains give us a comparative advantage.
- 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 on logistics corridors and regional development.
- Strengthen trilateral regulatory cooperation in order to reduce transaction costs for businesses.
- Establish 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
- Establish a Trilateral Council for Research, Development and Innovation and promote joint research in national laboratories and universities, strengthening links with companies across North America.
- Promote trilateral cooperation on women’s entrepreneurship.
- Hold a meeting of Energy Ministers of North America to explore common strategies on energy efficiency, infrastructure, innovation, renewable energy, non-conventional energy sources, energy trade, and responsible development of energy resources.
As you can see, we will indeed tap the full potential of deeper economic integration and engagement in North America, but we are not concentrating all our efforts in this region.
I am sure that those of you associated with the Pan American Association would also be interested hearing about the Pacific Alliance.
To borrow a phrase from George Orwell in Animal Farm, “all free trade agreements are equal, but some free trade agreements are more equal than others.” Indeed, there are dozens of FTAs in force, and Mexico and Chile are the two countries with the largest FTA networks.
But the Alliance it is not a run-of–the-mill trade initiative. In fact, it represents a very ambitious, and at the same time very pragmatic initiative among like-minded countries. It is a new, pragmatic, results-oriented and market-friendly model of open regionalism. Pacific Alliance members mean what they say, and then do what they say.
Currently Chile, Colombia, Peru and Mexico are the Pacific Alliance members, but it is expected that soon Costa Rica and Panama will join. Just last April 3, Mexico and Panama signed a Free Trade Agreement that will enter to force once approved by the legislative branch of each country.
In its three pillars of trade, mobility, and cooperation, the Alliance encompasses a broad array of topics beyond common trade and investment initiatives.
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.
It includes cooperation between immigration and consular authorities, and the elimination of visa requirements.
It includes trade facilitation and customs cooperation, and coordination between the agencies in charge of trade and investment promotion, including joint trade and investment promotion offices.
The Pacific Alliance countries are even sharing an Embassy in Accra, Ghana.
The main thing to note is that we have managed to achieve a very high level of ambition in a surprisingly short timespan through a flexible engagement process. Instead of waiting to complete agreements in all three pillars before letting any of them enter into force, we have opted to follow an early harvest approach, whereby we implement agreements when they are achieved and keep a forward momentum going with new initiatives on a broad spectrum of topics.
The Alliance is thus best understood as a dynamic process, rather than a trade and investment agreement.
Many countries are interested in the Pacific Alliance for obvious reasons: they will have access to a market of over 218 million people in the most stable and dynamic Latin American economies, and be able to source from the most competitive providers in the region. Mexico, on its own, is already the second largest destination for US exports. In fact, the US exports more to Mexico than to Brazil, China, Russia and India combined. And the Pacific Alliance countries buy more products from the US than the European Union ($273 USD billion v $262 billion).
In short, the Alliance countries taken together are the world’s eighth largest economy, they have an ambitious trade and investment liberalization process in place, their macroeconomic stability will stand them in good stead for future growth, they have maintained staunchly pro-business policies and provide different ways to engage, either through observer status or by accepting new members. They are a bastion of stability amid international economic instability and should share a bright future.
The late Bob Pastor –founder of the Center for North American Studies at American University and a friend of many of us here -- once said that one should not pursue aims because they are feasible, but rather because they are desirable. In forging the future of the Americas, we are making feasible what is desirable, and we must remain as forceful and ambitious as were those who spearheaded NAFTA negotiations more than 20 years ago.