Thank you, Jon (Kent).
I would also like to thank Ann Beauchesne and the US Chamber of Commerce for organizing this event. It was wonderful to see the list of attendees and recognize so many partners of Mexico—Commissioner Kerlikowske, Senator Hatch, Alan Bersin and many others.
International economists have long known that trade flows behave similarly to the laws of gravity—size and proximity are key factors in determining how economies interact with one another. Large economies within close proximity to each other will naturally have an intense trade relationship, and that relationship will be characterized by a large volume of intra-industry trade. So perhaps it is no surprise that Mexico, the United States and Canada developed integrated supply and production chains once NAFTA cleared the way for our three economies to interact the way that “gravity” intended.
Most of you here are already 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.
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 US states have Mexico as one of their top three export destinations.
While the goal of NAFTA 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.
The paradigmatic example of North America production is the auto industry, but aerospace production 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.
The 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 but also 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.
However, more than 20 years since the onset of NAFTA significant transaction costs to cross-border trade and investment still remain. We need to streamline customs procedures and invest in infrastructure to reduce border wait times, which cost us billions of dollars per year. We must also work with the private sector to develop world-class logistics that reduce the costly friction of cross-border trade and boost the competitiveness of the region, and we must prioritize correctly.
As you know, 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 with a view to reducing transaction costs in order to increase the competitiveness of our shared economic space. Moreover, in recognition of the important role the private sector has to play in overcoming these challenges, it also sought out stakeholders to ensure that their voices form an important part of discussions on border management issues.
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 21st Century Border initiative.
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.
In Toluca, we undertook a series of commitments that build upon the foundation we laid some twenty years ago with NAFTA. To mention a few of those commitments, we 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, 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.
- Simplify procedures and harmonize customs information requirements for businesspersons and visitors of the three countries
Those commitments are a trilateral 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, and underscore the growing importance of infrastructure and logistics in ensure ring that supply chains can operate efficiently and allow us to successfully compete in a dynamic world economy. They also recognize the important role that businesses must play in building the future of trade in the region.
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, business and government leaders must make feasible what is desirable, and remain as forceful and ambitious as were those who spearheaded NAFTA negotiations more than 20 years ago.