Archive for the ‘Trade’ Category

The Good, the Bad and the NAFTA

July 19, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

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Over the past few weeks, there has been some great news coming out of Mexico’s energy sector.

First, there was the announcement that a consortium of international energy companies had discovered enormous shallow water oil reserves in a previously unexplored bloc. These companies won the rights to explore the field two years ago during the energy reform’s first public bidding round, and it now appears that their risk will be paid off with an abundance of black gold. Yet, it’s not just the companies that will benefit, it’s a boost for the energy reform writ large and also for the Mexican government’s tax coffers (as they are set to rake in 83 percent in taxes over the project’s lifetime). This past week, I also met with U.S. Secretary of Energy Rick Perry while he was in Mexico City to highlight our strong and vitally important cross-border energy integration. As other parts of the bilateral relationship are looking tense, this is one area where the two countries are moving ever closer together.

Yet, there is still a fair share of bad news coming out of Mexico and in some cases it’s getting worse. The country’s murder rate has skyrocketed this year, with 11,155 people killed from January through May alone (a 32 percent increase from last year), including seven journalists. Corruption allegations have also shown no signs of abating. Over the past year, the federal government took the positive step of indicting several corrupt governors, but so far there have been few steps toward seriously prosecuting them or rewriting the rules to make sure that others can’t follow in their illicit footsteps. Public frustration over this combination of ineffectiveness and inaction came to a boil when the Mexican government was accused of using top-secret technology to spy on not just organized criminal groups but also public intellectuals, journalists, and human rights investigators.

Finally, there is one news item that can only be categorized by its profound uncertainty: the NAFTA renegotiations. These discussions are scheduled to begin in early fall, after the United States wraps up its 90-day notification period (it has already collected more than 12,000 public comments and held three days of public hearings). On Monday, the U.S. government published its “Summary of Objectives for the NAFTA Renegotiation,” which covers broad swaths of North America’s $1 trillion in cross-border trade. But the negotiators will have to move fast, as they’ll be under intense pressure to wrap up discussions by early 2018, before Mexico’s presidential campaigns pick up steam.

To follow all the latest bilateral and trilateral developments, The Mexican Council on Foreign Relations, COMEXI and the Bush Center are doing an excellent job at creating smart North America focused content. In a recent report, COMEXI lays out various recommendations for “Redefining the Bilateral Relationship,” across the NAFTA negotiations, bilateral security, the border, and migration—highlighting not just policy divergences but the many areas where the United States and Mexico’s interests align. Meanwhile, the Bush Institute’s North American Competitiveness Initiative continues to be an excellent resource for in-depth context and recommendations on boosting our region’s prosperity and security.

What Are the Opportunities for ASEAN?

July 14, 2017

Curtis Chin (U.S. Ambassador to the Asian Development Bank, 2007-2010; Asia Fellow, Milken Institute)

Cross posted from Yale Insights

Asia’s importance in the world economy is large and growing; the continent already accounts for one third of global GDP, according to the World Bank. While the giant economies of China and India get the most attention, the countries of Southeast Asia are contributing to that growth as well. PwC’s Long View forecast sees Thailand, Malaysia, Vietnam, the Philippines, and Indonesia moving into the world’s 25 biggest economies, with Indonesia rising to number four globally, by 2050.

Those countries, plus Brunei, Cambodia, Laos, Myanmar, and Singapore, are part of the Association of South East Asian Nations (ASEAN), which gives them collective economic and political heft. The Council on Foreign Relations describes ASEAN as the most developed example of regional integration outside of the EU. (That isn’t to say the two unions are easily comparable. EU members share sovereignty through a strong, legally-based, central institution, while ASEAN is a consensus-based intergovernmental agency with no element of sovereignty sharing.)

In addition to providing some measure of economic integration, ASEAN provides much-needed stability to a region that was the site of war and genocide for much of the late 20th century. But that doesn’t mean that Western-style democracy is taking hold. Earlier this year, Phil Robertson, deputy director of Human Rights Watch’s Asia division, told Agence France Presse, “Human rights is in a precipitous downward spiral in every ASEAN country except perhaps Myanmar, and that’s only because military rule in that country was so horrible for so long.”

To understand the economic opportunities and development challenges facing the region, Yale Insights talked with Curtis Chin ’90, former U.S. ambassador to the Asian Development Bank and currently an Asia fellow at the Milken Institute.

Q: Can you put ASEAN in context, in Asia and the world?

When people talk about Asia, too often, they’re really just discussing China and India. Clearly those are two giant and very important countries, but there’s more to the region. Put together, the 10 nations of ASEAN have a population of 630 million people. That’s not the billion-plus population of China or India, but it’s very clearly significant. If it were a single economy, ASEAN, at $2.4 trillion, would be just the third largest in Asia. On the other hand, it would be the fifth largest in the world.

The $274 billion invested from the U.S. into ASEAN in 2015 is more than went to China, India, Japan, and South Korea combined. That may be surprising, but I think it’s testament to the tremendous opportunity that ASEAN offers whether as a production base, a market to sell services and products, or as a source of ideas and innovation for the rest of the world.

Q: What are the opportunities and challenges the ASEAN countries face?

It’s important to recognize that Southeast Asia is tremendously diverse. ASEAN includes the city-state of Singapore with its modern infrastructure, population of 5 million people, and role as a hub for financial innovation. It also includes the archipelago nations of the Philippines and Indonesia with populations of 100 million and 250 million, respectively, each spread over thousands of islands. And it includes Myanmar, which is very much finding its way forward in terms of governance and stability. The rules, laws, and structures you need to put in place to attract investment are still being developed. The other countries—Malaysia, Brunei, Thailand, Vietnam, Cambodia, and Laos—all have their own unique concerns and different levels of economic development. Leading each of these countries presents very distinct challenges.

Q: As an association of countries, how does ASEAN compare to the EU?

There’s been a lot of compare and contrast between Southeast Asia and what is going on in Europe. Critics will say the consensus-based ASEAN way is slow. The organization has existed for 50 years but only in 2015 did the countries come together to create the ASEAN Economic Community, or AEC.

The AEC is bringing down trade barriers and moving towards, not a European-style common market, but a distinctly Southeast Asian one. The AEC doesn’t mean free trade and free movement of labor, but it has meant freer trade and freer movement of labor. They haven’t moved towards a single currency, and looking at what’s happened in Europe, I don’t think that’s going to happen anytime soon in Southeast Asia. But ASEAN is still coming together, albeit slowly, step by step while the EU is facing Brexit and questions about its future.

To its great credit, Europe has come together in a way that has meant peace for seven decades. Southeast Asia, too, was a region torn by war, and ASEAN has been a tool to bring these diverse nations together in a peaceful manner to slowly build a stronger economy for them all.

Q: Are there specific examples of cooperation that you’d point to?

Examples of greater cooperation and integration would include ASEAN working to address human trafficking and the illegal wildlife trade. More needs to be done, but they are making progress. Malaysia, Indonesia, and Singapore are coming together to address the challenges of slash-and-burn forest fires that take place every year—pollution knows no borders. As an outsider—although I live in ASEAN—I want them to do more, but they are taking steps forward. It is very important that institutions get stronger, and that individual governments and companies figure out ways to better work together.

When I was the U.S. ambassador to the Asian Development Bank, many people thought that the BRIC countries [Brazil, Russia, India, and China] would really drive the next phase of global growth. In the last couple years, those economies have not grown as fast as people once envisioned. Now, when people ask me whether the next global star will come from Southeast Asia, I say that any of them could take off, but to get there they need to focus first on what I call the “little BRIC”: bureaucracy, regulation, interventionism by government, and corruption.

Clearly, government structures and regulation are necessary, but when does it go too far and reduce the incentives to start a company or hire more people? When is there too much government interventionism in an economy? When is corruption out of hand? For me, the little BRIC is the true economic constraint on growth in Southeast Asia, in ASEAN, and the world.

Q: Are there examples of countries that have found good ways to address some elements of the little BRIC?

The right balance will likely vary country to country and might change over time. As an American, I might think Singapore has too much regulation, but clearly Singapore is doing well and I know the leaders are also thinking through how to encourage more innovation and how to move to a next level of development.

And in terms of corruption, Singapore is among the 10 least corrupt countries on Transparency International’s Corruption Perception Index. The U.S.is only in the top 20. Unfortunately, for a number of ASEAN countries, corruption is an area where there is tremendous need to improve.

Q: In addition to the AEC, there are a number of trade deals that do or may involve ASEAN, including the TPP and RCEP. What’s happening with trade in the region?

China is central to that question. How does China deal with the rest of Asia, and how does the rest of Asia deal with China? That’s critical both economically and militarily, especially with tensions in the South China Sea.

When I think of the alphabet soup of trade deals or potential trade deals, overall integration is a wonderful thing. But we also have to recognize that the consequences of trade have not been equally distributed. Thus the pushback in Europe in the United States, and also in Asia. As we develop trade deals moving forward, countries and companies will need to think through how their citizens or employees will benefit, and if they are going to be hurt by a trade deal, what needs to be done to address that.

If we’re going to have greater free trade, if we’re going to have greater fair trade, more needs to be done to communicate the pluses and minuses of each deal. That will let people make an informed decision, whether it’s the right way to go, or not. And we need to figure out what will ensure that prosperity goes beyond a very small group of people.

Q: What is happening with the digital economy in ASEAN?

When people think of ASEAN, they often think about it as a source of natural resources—the tremendous oil and gas reserves in part of the region—or they’re thinking about ASEAN as production-based: the value of the labor of the people of the Philippines, Indonesia, or Thailand. But ASEAN today shouldn’t be thought of only in those terms. ASEAN today should be looked at as an opportunity even in areas like high-tech and the digital economy.

I saw an interesting statistic, which was that even though ASEAN might only have 630 million people, there are 700 million digital consumers. Clearly many individuals are using multiple devices, but it shows ASEAN’s digital economy is growing in leaps and bounds and will continue to do so. That sector is projected to grow 500%, to $200 billion, by 2025.

Q: What about infrastructure?

There is still tremendous need in areas like power, water, sanitation, and roads throughout much of the region. By one estimate the need is more than $22 trillion through 2030, but there is a significant infrastructure financing gap.

Beyond simply finding the funding, I think that approach needs to be refocused. Too often, development is simply about building. We need to also think through how we maintain and update what is being built.

When I sat on the Asian Development Bank’s board, I became, some would say notorious—I would like to say helpful—in underscoring what I called the three Ps of responsible development. That is, people, planet, and partnership. Responsible development takes into consideration the people that are being impacted by a project, the impact on the broader environment, and the reality that there isn’t enough capital at the ADB, World Bank, or even now the new Asian Infrastructure Investment Bank. The reality is that for the region to move forward, these countries need to encourage their private sectors.

At the end of the day, Asia’s way forward must include a thriving private sector in each country because government cannot be the driver of job creation. Even in China, we’ve seen the government thinking through how they can use the private sector to move their economy forward, to increase growth. There just isn’t enough money to build an economy on state-owned enterprises.

Q: How does that dovetail with your work as the inaugural Asia Fellow at the Milken Institute?

The Milken Institute is a nonprofit, nonpartisan economic and policy think tank that focuses on increasing prosperity. These are questions that are very much on the minds of the leaders of Southeast Asia: “How do we get economies to move forward? How do we get there to be more growth and more evenly spread growth?”

For the Milken Institute, capital market development is key. Without capital to allow for implementation, even the best idea remains simply an idea. What’s critical for the countries of ASEAN is that they need to bring together their own private sectors, public sectors, and civil societies to develop strategies to increase access to capital. As the nations of Asia-Pacific address this little BRIC, foreign direct investment is more likely to come in, which will drive job creation.

And today there are many different ways that countries and companies can access capital. It’s no longer a loan to the government from the World Bank or a business loan from a local bank. There are lessons from the United States, from Europe, and from around the world that I think countries of ASEAN will increasingly want to adopt.

Mexico: Off to the Races

June 2, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

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The U.S.-Mexico relationship is once again back in the headlines and this time it’s not just changing, it could be completely redefined. After months of anticipation, U.S. Trade Representative Robert Lighthizer submitted a two-page letter to Congress on May 18th, which announced the Trump administration’s intent to renegotiate NAFTA. The letter spurred the U.S. government into action, triggering the start of a consultation process—where businesses, industry groups, and private citizens can submit comments—and public hearings scheduled for later this summer. By early fall, negotiators from all three countries will begin sitting down together to hash out the details, with the goal of wrapping up the negotiations in early 2018.

To put it simply, reshaping NAFTA—an agreement that underpins over a trillion dollars in trade and that touches every major sector of the three countries’ economies—in only a few months is remarkably ambitious. While Mexican officials would like to end the process before the start of their presidential campaign cycle in early 2018, delays seem not just likely but inevitable. Throughout the process, expect to see a renewed focus on the trilateral relationship, which we are already witnessing through cross-border events and publications, as civil society groups and businesses seek to share their opinions and insert them into the negotiations.

However, while the upcoming NAFTA negotiations might be tough, the even more game-changing process in Mexico is going to be tackling the country’s rule of law challenges. On this front, 2017 has been a grim year, with setbacks for the recent anti-corruption reforms, fugitive corrupt governors, and the highest homicide rate for a first-quarter in the last two decades. Among those killed since January were six journalists, a particularly dark stain on an already bleak record. As I wrote for USA Today earlier this week, making improvements in protecting journalists and human rights defenders is not just going to be good policy, it will be the substance of strong leadership and presidential legacy.

Finally, for those of you keeping an eye on Mexican politics, this Sunday, June 4th marks the governor races in the State of Mexico, Coahuila, and Nayarit. Of the three, the State of Mexico race is the one to watch, as President Enrique Peña Nieto’s PRI party has not lost the state in a century. The latest polls, however, show the PRI candidate Alfredo del Mazo to be neck and neck with the leftist Morena candidate Delfina Gómez. While the PRI’s success at holding the state and Morena’s ability to pull in voters with its anti-corruption, populist message is expected to provide a sneak-peek for next year’s presidential elections, the fact that the race is so close (after the PRI won this governorship by 20+ percent in previous years) is already a strong indicator of the state and country’s political mood.

U.S./Mexico: Improving Tone, But Nothing’s Final

April 20, 2017

Antonio O. Garza (U.S. Ambassador to Mexico, 2002-2009)

Cross posted from Ambassador Garza’s website

These past few weeks have presented the Trump administration with its first real foreign policy tests. Syria’s use of chemical weapons, the United States’ retaliatory airstrikes, the nuclear standoff with North Korea, and China and Russia’s constant maneuvering in this ever-moving foreign policy chess board. Yet in these globally-focused days and weeks, Mexico—once seemingly the administration’s top focus—has skirted below the radar.

Today’s U.S.-Mexico relationship is marked by a relatively thoughtful tone, which I for one interpret as good news. As the economic tensions have eased slightly, the continental conversation has begun to center more on fair trade, each countries’ interests, and job creation, a healthier tone for beginning NAFTA negotiations than the protectionist talk that dominated economic discussions just a few months ago.

On bilateral security cooperation, the discussion has also become more focused. Throughout the change in U.S. administrations, law enforcement on both sides of the border have continued to work together with little interruption. And at the highest level, DHS Secretary John Kelly has continuously heralded the United States’ cooperation with Mexico as both positive and critically important.

Yet while bilateral relations may be on more stable ground, Mexico continues to face its own range of domestic drama. In the ongoing saga of fugitive governors, there has been some recent success. Interpol and Guatemalan officials captured Veracruz Governor Javier Duarte in Guatemala and Italian officials nabbed former Governor of Tamaulipas Tomas Yarrington, with both now facing charges of corruption and collusion with organized crime. Yet, there are still governors on the run, with former Chihuahua Governor Cesar Duarte missing and possibly hiding out in El Paso.

The stories of corruption and ongoing violence will continue to play out as we move ever closer to Mexico’s presidential elections in July 2018. To get a sense of what Mexico’s population is feeling in the election’s lead-up, be sure to watch the State of Mexico’s election this coming June. President Peña Nieto’s PRI party has governed the state for almost a century, but the three opposition candidates are making it a close run. Also tellingly, insecurity has been a big theme of the campaigns with both the PRI and the PAN releasing TV spots that focus on the state’s security conditions.

However, one cautionary note before we fall back into a more predictable and comfortable bilateral relationship or get swept away in Mexico’s electoral intrigue. While the U.S.-Mexico bilateral relationship is on better footing, now is not the time for complacency. Ensuring cooperative economic and security relations requires consistent and tireless effort to protect what works and continually improve those areas where things could be better. This may always be true, but amid shifting policies, it’s critical.

Treat Mexico as a Strategic Partner

February 21, 2017

John D. Negroponte (Mexico, 1989-1993)
James R. Jones (Mexico, 1993-1997)
Jeffrey Davidow (Mexico, 1998-2002)
Antonio Garza (Mexico, 2002-2009)
Carlos Pascual (Mexico, 2009-2011)
Earl Anthony Wayne (Mexico, 2011-2015)

An edited version of this piece appeared in The Washington Post.

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Mexico is of enormous importance to the United States. We have strong strategic interests in a relationship of respect and collaboration with Mexico while we work through differences on trade, security, and migration.

US-Mexico relations touch the daily lives of more Americans than ties with any other country, whether through culture, commerce or travel. US prosperity and the security of our homeland are deeply affected by the type of relationship we have with our southern neighbor.

Much can be improved between Mexico and the US for the good of both countries, but tackling these challenges need not be a win-lose proposition. Both countries can gain security and prosperity. Reviving the animosity and “distance” that characterized our relationship in the seventies or eighties is dangerous and runs counter to our interests.

The six of us have served as U.S. Ambassadors to Mexico, managing the ever-improving relationship across Democratic and Republican administrations since the late eighties. We have seen firsthand the strategic value of working cooperatively with Mexico to tackle common problems, including crime, terrorism and global economic competition. Along the way, Mexico has become a more democratic and prosperous country, making it a better and more reliable partner.

We are now deeply concerned to see this foundation shaken. Public attitudes in both countries are being soured by exaggerated public accusations. Mexicans believe that their national “dignity” has been insulted. Champions of closer cooperation with the US are on the defensive. Nationalist voices are gaining traction. This is not in America’s long-term interest.

The United States and Mexico started our modern journey to closer partnership with the 1993 North American Free Trade Agreement. Collectively, the six of us have worked through every stage of NAFTA. This is not a perfect agreement, but neither is it the job killer some have construed. Since NAFTA was signed in 1993, U.S. jobs linked to trade with Mexico grew from 700,000 to 4.9 million. The value of our two-way trade has grown six fold, reaching $584 billion in 2015. Mexico is now the second largest market for US exports, larger than our exports to China, Japan, and Germany combined. Mexico is the third largest buyer of US agricultural products. We build many things together, with parts crossing borders in both directions – so much so that finished Mexican manufactured exports were found to have 40% U.S. content.

US jobs moved to Mexico, but others were created by NAFTA. A 2013 study estimated that the US is $127 billion richer each year because of extra NAFTA trade. New studies have made clear that the big causes of US manufacturing job losses are automation and trade with China, not NAFTA. NAFTA can be improved to help boost the US economy in such areas as “rule of origin,” services, e-commerce, border inefficiencies, and labor standards. Those are the issues that should be negotiated based on facts to strengthen a long-term relationship that makes both countries more competitive.

Energy deserves special mention. Under NAFTA, Mexico’s nationalized energy sector was still off limits to US companies. In 2013, Mexico opened investment and trade in oil, natural gas, electricity, renewables, and refined fuels to US and other companies. Today, the US exports more natural gas and gasoline to Mexico than to any country. In December, major US companies won licenses to develop Mexico’s oil reserves, while others are partners in new pipelines. These openings make North America more energy secure.

The US deficit with Mexico gets more public attention than it deserves. Mexico represents 8% of our deficit. Our deficits with China, the EU and Japan are larger. The deficit with Mexico declined by over 40% between 2010 and 2015, even as our trade grew 35%.

A sharp point of contention has been over the border wall and migration. The great irony is that today there are 1.1 million fewer undocumented Mexicans in the US than in 2007. Apprehensions of Mexicans at the border have reached the lowest levels of this century. Mexico has joined us to manage the surge in migrants from Central America, deporting over 165,000 from its southern border in 2015, more than the United States did. Publically demanding that Mexico pay for a wall that Mexicans don’t think is needed has fueled anti-American nationalism. That limits the capacity of Mexico’s government to work with us to find solutions.

Common borders also made Mexico and the United States partners in national security. Ever since 9/11, Mexico and the US have worked closely to stop potential terrorists from entering the US. We also work to improve the fight against illicit trafficking. The trafficking of heroin and other drugs into the US and the smuggling of weapons and drug profits into Mexico fuel violence, corruption, and deaths in both countries. Still, during the years of our collective service, law enforcement officials have built trust, competency and legal channels to act against criminal networks. That cooperation needs to be strengthened, not undermined.

Together, the authors have witnessed profound and positive changes in the US-Mexico relationship over the last quarter century. We urge that the US engage in serious, fact-based negotiations over differences on trade and other issues. Intimidating or denigrating remarks make it harder to reach outcomes that support American economic and security interests and fuel anti-Americanism in Mexico. Workers, companies, and communities of both countries will prosper with a long-term strategic partnership between the US and Mexico. Let’s keep building it.