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Obama’s Trip to Mexico: Building on NAFTA to Broaden Trade with Asia

by | May 1st, 2013 | 04:17 pm
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President Obama’s fourth visit to Mexico since taking office in 2009 will also be his first under its new president, Enrique Peña Nieto, who took office in December. While some of the discussion is certain to focus on the joint US-Mexican campaign against drug trafficking, that issue, as vital as it is, should not overlook the important changes in economic reform that have occurred since Obama’s last visit to the G-20 meeting in Los Cabos in June 2012. Mexico’s efforts on comprehensive economic reform are being carried out through the 95-part Pacto para Mexico (Pact for Mexico), an agenda agreed upon by the three political parties, which sets out priorities and specific deadlines.

Labor reform, passed at the end of President Felipe Calderon’s tenure, aims to increase the flexibility of Mexico’s labor force, bring workers from the large informal sector (estimated as earning about 4.5 percent of GDP per year) into the formal economy, and increase the competitiveness of Mexico’s workforce. This was followed by a bill that aims to improve the quality of education by, among other actions, establishing teacher evaluations and ending the practice of selling or bequeathing teaching positions. The education reform drive was punctuated by the arrest of the head of the teacher’s union—one of the country’s most influential political actors—on charges of embezzling large sums of money from the union. Most recently, a bill has been introduced to break the monopolies in the information and communications technology (ICT) sector. If successfully implemented, the measure could add a percentage point of growth per year to the country’s GDP, according to some estimates. The largest reform—energy and fiscal—is still pending, but is on the agenda for 2014.

Mexico’s reforms are important to the United States. President Obama has acknowledged this point in an interview with Americas Quarterly magazine, emphasizing the contribution the new measures can make to improve the US-Mexico economic partnership and joint efforts to improve international competitiveness. Not only does Mexico represent the second largest market for US exports, buying more than $224 billion of US goods in 2011, it is an essential link in the North American supply chain, particularly in autos. Mexico has also come into its own as an investor in the US market. In 2011, the United States attracted about $13.8 billion in Mexican foreign direct investment. Cemex, the Mexican cement company, now makes up more than 10 percent of this segment of the US market. School children open their lunch box to find sandwiches made with bread from Mexico’s Grupo Bimbo, which bought Sarah Lee in 2010.

The timing of President Obama’s trip is fortuitous for the signal it will send to pushing reform forward. While the Mexico-US economic relationship continues to be strong, Mexico’s reform agenda can add momentum to the Trans-Pacific Partnership (TPP) negotiations, which have also been joined by Canada. A first priority should be to deepen the North American economic relationship just as the North American Free Trade Agreement (NAFTA) celebrates its 20th birthday next year. NAFTA has spurred economic growth on all sides, but it is also a product of its times—an artifact of the economic reality of the 1990s. The new reality of the second decade of the 21st century is the negotiations over the TPP, underscoring the importance of the Asia Pacific region to North America. Mexico’s participation in the Pacific Alliance, a trade grouping of Pacific-oriented Latin American economies moving to knit together common trade provisions and extend their ties with Asia, as well as its initiative to harmonize its trade deals with Central American countries, complement the growing role of Asia in spurring economic progress in the Western Hemisphere.  Presidents Obama and Peña Nieto can help advance both of their economic agendas by taking steps to further deepen NAFTA within the context of the TPP so that North American supply chains can use this agreement as a solid ramp to global supply chains. NAFTA has already eliminated most barriers to trade and investment. Now it can spur the region to greater competitiveness in world markets.

Presidents Obama and Peña Nieto should also set the stage for a common approach towards the (US-EU) Transatlantic Trade and Investment Partnership (TTIP) negotiations, recently undertaken by the United States. Mexico already has a long-standing free trade agreement with the European Union. Canada and the European Union hope to conclude their agreement this summer. The announcement of TTIP presents an opportunity for the NAFTA countries to consolidate a common position across both the Pacific and Atlantic.