Tuesday, April 30, 2013
Pact would remove obstacles to expanding offshore drilling
By Roberta Rampton
Washington – More than a year after the United States and Mexico signed a much-lauded deal that would remove obstacles to expanding deepwater drilling for oil in the Gulf of Mexico, the agreement still has not been finalized by the United States.
The delay, for which people close to the administration blame Congress while Republicans in Congress blame the administration, is certain to be discussed when President Barack Obama visits Mexican President Enrique Peña Nieto in Mexico City on Thursday.
Mexico immediately ratified the pact in April 2012, but the United States has so far been unable to pass a simply worded, one-page law to put the agreement into force.
The deal, formally known as the Transboundary Hydrocarbons Agreement, provides legal guidelines for deepwater drilling in the 1.5 million acres (600,000 hectares) of the Gulf that straddle the U.S.-Mexico boundary.
It is seen as the key to opening a new era of cooperation on oil production between the two countries. Mexico’s state-owned oil company Pemex needs technology and investment to boost its stagnant production, and U.S. companies are eager to help.
“The U.S. has a real opportunity now to put energy back on the agenda with Mexico in a way that it really hasn’t been able to be on the agenda for the last several years,” said Neil Brown, who worked on the issue during the last Congress as lead Republican international energy aide in the Senate.
But the final step of implementing the deal has languished.
“I’m not aware of strong opposition to it. I think it’s been a little more inertia,” said Jason Bordoff, a top energy official at the White House until January who now runs Columbia University’s Center on Global Energy Policy.
In the past several weeks, there have been some signs that the implementing legislation may move forward, but there also could be new complications related to disclosure requirements.
DEAL COULD OPEN THE DOOR
Oil is critical for the Mexican economy, paying for a third of the government’s budget. But production peaked in 2004 at 3.4 million barrels per day and has slipped below 2.6 million bpd. Pemex says it can revive production with deepwater wells in the Gulf, but needs technical and financial help.
The agreement would be the first step toward joint projects for reservoirs that cross the boundary, providing a way for Pemex and other oil companies to share production and creating a framework to solve disputes that could arise.
“Without the agreement, it creates a barrier to investment,” said Erik Melito, a director at the American Petroleum Institute, the oil industry’s lobby group.
The agreement could help calm Mexico’s fears about what is termed the “popote” or drinking-straw effect — fears that U.S. oil companies are going to drain reservoirs that extend into Mexico’s side of the border, robbing Mexico of its share, said David Goldwyn, a former State Department official who helped launch negotiations.
“This has been an urban myth in Mexico for decades,” said Goldwyn, now president of Goldwyn Global Strategies, a consulting firm.
Peña Nieto is working toward reforms for Pemex that would allow for more production and cooperation in projects generally — a delicate issue in a country where Pemex and oil are symbols of national pride.
“If they can see some success here (with the transboundary deal), that’s going to change the political conversation in Mexico,” Goldwyn said.
To finalize the deal, Congress needs to pass legislation that gives the Interior Department the authority it needs to implement the technical aspects of the agreement.
But in the Senate last year, dissension over an unrelated Law of the Sea treaty and the heated politics of the U.S. presidential election effectively put the deal on hold.
Monday, April 29, 2013
From Christian Science Monitor: San Diego 2024 Olympics in Tijuana? How a cross-border Games could work.
Can one summer Olympics be held in two countries? Or in Oklahoma?
Those are questions that have surfaced in recent days as the United States Olympic Committee (USOC) looks for bid cities to host the 2024 summer Olympics.The USOC has contacted 35 cities as part of a feeling-out process.
Of those 35 cities, Tulsa, Okla., was the smallest, with only 400,000 residents. But the mayor of Tulsa is not dismissing the notion of hosting the summer Games out of hand, despite the fact that the city would need to more than triple its number of hotel rooms (to at least 45,000) and find more than $3 billion to build infrastructure like an Olympic stadium.
"I see this as a great opportunity, I really do," Mayor Dewey Bartlett told The Associated Press, encouraged by the city's success in hosting the Bassmaster Classic in February.
Perhaps the most intriguing candidate was San Diego, which has submitted a joint bid with Tijuana, Mexico.
USOC chief executive Scott Blackmun said the bid "would have its challenges," according to a report in the Los Angeles Times. "We haven't looked at it carefully. We just learned about it.”
Yet the problems might not be so difficult. No Olympic Games have been shared between two neighboring host countries, but the world of soccer has been dividing is major events between countries for years. South Korea and Japan shared the 2002 World Cup, and the European Championships were held in Austria and Switzerland in 2008 and Poland and Ukraine last year.
In Euro 2012, for example, Poland and Ukraine set up special "green lines" at customs posts on the border, which allowed fans with game tickets and nothing to declare to pass through via an expedited process.
Of course, the World Cup and European Championships are spread out at eight sites over an entire month, while the summer Olympics – while mammoth – want to be as compact as possible to limit travel for athletes, fans, and VIPs. Soccer tournaments are a string of big events evenly spaced out, while the summer Games are a constellation of small events packed together in time and space.
But San Diego and Tijuana are hardly worlds apart. The driving distance is 17 miles. For the winter Games, which have increasingly devolved into city sports (skating, hockey) and mountain sports (skiing, sliding), 17 miles would be nothing.
Even the London and Beijing summer Games were far more far-flung. London held its sailing events in Weymouth, more than 100 miles away; Beijing held them in Qingdao, more than 300 miles away. Beijing even held its equestrian events in Hong Kong – a 3-1/2 hour flight away – for quarantine reasons. (The equestrian events for the 1956 Melbourne Games had to be held in Stockholm for the same reason.)
And imagine beach volleyball in Tijuana. International Olympic Committee (IOC) execs wanting to lure young viewers with a dash of X Games cool might be getting goose bumps.
The fact is, the process is just starting – the USOC does not need to submit its 2024 bid city to the IOC until 2017. But whoever the USOC chooses would seem to have a strong chance at winning.
The US has not hosted a winter Olympics since 2002 and a summer Olympics since 1996. That's quite a dry spell for the country that is unquestionably the economic engine of the Olympic movement. The reason is that the USOC and the IOC have been fighting over how much money the USOC should share with the IOC.
While that dispute lingered – and grew worse – New York was surprisingly eliminated early in the competition for the 2012 Games, and Chicago's bid for 2016 was humiliatingly defeated despite President Obama's personal lobbying. Reading between the lines, the USOC didn't even submit a bid city for the 2020 summer or 2022 winter Games.
But a deal was struck earlier this year, and USOC officials are starting the process for 2024 methodically, perhaps sensing the bid is theirs if they present a strong candidate.
Mr. Blackmun mentioned Los Angeles and Philadelphia as other potential bid cities. By reaching out to 35 cities, the USOC is trying to create a little national goodwill by letting many cities – like Tulsa – into the process. But it is also emphasizing that, this time, it will be running the show.
In the past, local politicians have driven the effort in attempts to burnish their credentials or clout, leaving the USOC to try to sell the product to the IOC. This time, it will be in control every step of the way.
"Politicians like credit and glory. There will be lots of credit and glory to go around if the bid wins," writes Alan Abrahamson in a blog on the USOC website. "It may seem elemental but a bid wins by swaying votes within the IOC. There, success or failure truly rests with the USOC."
In that process, only San Diego would be able to offer the IOC the first ever cross-borderOlympics. And for an organization that purports to foster international cooperation and friendship, that could be the strongest selling point of all.
President Barack Obama heads to Mexico this week to meet with his recently installed counterpart, President Enrique Peña Nieto. On the two most important issues for the U.S.-Mexico relationship — economics and security — he faces two almost different governments, made up of disparate teams, agendas and strategies. How Obama and his administration manage each of these issues and groups will shape both countries far into the future.
Though at times given shorter shrift than security and immigration, growing U.S.-Mexico economic ties have the potential to transform both nations. Since the North American Free Trade Agreement began 20 years ago, trade has quadrupled to about $500 billion a year. In this, Texas leads the rest of the nation, with some $16 billion in goods crossing the border each month, supporting nearly 500,000 jobs.
As important as the sheer amount of trade, the agreement shaped the decisions of thousands of companies, including Texas-based Dell, Pilgrim’s and Taylor Farms, companies that began making and growing things on both sides of the border to gain a competitive edge. Today, for every manufactured product “made in Mexico,” on average, 38 percent was actually made in America by U.S. workers. These links far exceed other nations — the comparison for China, Brazil and the European Union is 4 percent or less; for Canada, our other NAFTA partner, it is 25 percent. In this age of global supply chains, Mexico is by far the best partner not just for U.S. companies but also for their workers.
As Obama focuses on these ties, he will find an able and willing partner in Mexico. Peña Nieto has prioritized economic reforms above all others, with a comprehensive and ambitious agenda to change Mexico’s labor laws, education system, telecommunications and broadcasting, financial architecture, energy sector and taxes. This effort is led by an aggressive and cohesive team consisting of the finance minister, foreign minister and commerce secretary, among others. It is also a group with years of experience living in the United States, completing impressive degrees from MIT, Yale and Wharton.
Yet no less important for the two neighbors is security. Under Felipe Calderón’s administration, more than 70,000 Mexicans were killed and many more disappeared in violence related to drugs and organized crime. Regular crime, too, has risen, with 40 percent of Mexicans in a recent survey reporting that they or a family member had been a victim of a crime in the past year. This growing crisis opened the door to greater bilateral efforts. After years of cautious circling, U.S.-Mexico security cooperation — through the Mérida Initiative and other efforts — blossomed, setting the two neighbors on a different and more collaborative path.
On this policy front, the direction Peña Nieto’s government plans to take is less clear. While repeatedly promising to reduce violence, the details of his administration’s security plan remain vague — suggesting more spending on prevention and social programs. Even the concrete shifts announced — for instance, creating a new federal gendarmerie — have been clouded by contradictory explanations and timelines. The efforts to recentralize the security apparatus by bringing the autonomous Federal Police back under the control of the Ministry of Interior still await the definition of basic reporting lines and the stamp of a finally confirmed executive secretary of the national public security system charged with coordinating security efforts (an area where the previous government struggled). Finally, the leaders of this side of Peña Nieto’s government — Osorio Chong, ex-governor of Hidalgo; Manuel Mondragón y Kalb, the deputy secretary of public safety and previously Mexico City’s top cop; and Jesús Murillo Karam, Mexico’s attorney general and also an ex-governor of Hidalgo — are less familiar to the United States, and some worry less open to working with their neighbor than their predecessors.
To be fair, security is harder. After more than a decade of underperformance, most Mexicans agree on what needs to be done economically. In contrast, there is no ready security blueprint for the way forward, for what will work to make Mexico — and by extension the United States — safer. And the issues on which there is some consensus — cleaning up Mexico’s police forces and courts and expanding programs to help youths and communities at risk — were started under the Calderón administration, making it a tricky sell for a government trying to differentiate itself.
For Obama, the challenge this week will be to push forward on both fronts, recognizing and embracing the economic ambitions while also ensuring that security cooperation doesn’t falter. What really matters is what happens after the visit and how the U.S. government works with all of these elements and directions in Peña Nieto’s Cabinet. Because the outcome matters — as no other country affects the United States on a day-to-day basis as much as Mexico.
Mexican President Enrique Peña Nieto's government is said to be wary of U.S. involvement in security affairs and is expected to change the way things are done.
By Shashank Bengali and Tracy Wilkinson, Los Angeles Times
8:30 PM PDT, April 28, 2013
WASHINGTON — President Obama travels to Mexico this week amid signs that the relationship between the United States and its southern neighbor's new government faces a new period of uncertainty after years of unprecedented closeness forged by the deadly war against Mexican drug cartels.
The government of Mexican President Enrique Peña Nieto is said to be wary of the level of U.S. involvement in security affairs that characterized the administration of his predecessor, Felipe Calderon. As a result, the Mexican government is expected to narrow U.S. involvement in its attorney general's office and Interior Ministry, the agencies that oversee police and intelligence, current and former U.S. and Mexican officials say.
Instead, Peña Nieto and officials from his Institutional Revolutionary Party, or PRI, want to concentrate U.S. participation in less sensitive but potentially profitable areas such as the economy.
Privately, the shifts have led to a large degree of concern in Washington about what the day-to-day working relationship will look like.
Publicly, the Obama administration has welcomed a broader agenda.
"We don't want to define this relationship with Mexico … in the context of security or counter-narcotics trafficking," U.S. Secretary of State John F. Kerry said April 19 in Washington, with his Mexican counterpart, Jose Antonio Meade, at his side.
"We want to define it much larger in the context of our citizens' economic needs and our capacity to do more on the economic frontier. I am convinced we're going to grow that relationship."
Under Calderon, the United States expanded its role in Mexico to a level never before seen, sending drone aircraft, intelligence agents, police trainers and other assistance worth $2 billion over a six-year period to help fight the drug war. U.S. intelligence, in particular, was instrumental in the killing or capture of 25 drug kingpins, or capos.
The number of U.S. employees at the American Embassy and elsewhere snowballed, coming from agencies as diverse as the Drug Enforcement Administration, CIA, FBI and Treasury. Many participated directly in planning and carrying out drug-war missions with the Mexicans.
Much of that is likely to change.
"The U.S. knows it's going to be different and they're actively trying to find ways to work with the Mexican government," said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington.
Washington is "waiting to see how comfortable [the Mexicans] are with the kind of cooperation that has been going on," Wood added. "The [Mexican] government recognizes that reliable flows of information and intelligence are crucial, but they would rather build up their own capacity than depend on the U.S."
The PRI wants to assert much more control over how U.S. officials operate in Mexico, said a former Mexican official with close ties to the administration. "The doors [to the Americans] are closing," he said.
One of Peña Nieto's most senior staff members, Atty. Gen. Jesus Murillo Karam, is openly critical of two areas where U.S. advisors have been especially active — and where their work seems to have backfired: a series of high-profile corruption prosecutions and a botched program of police vetting.
Millions of U.S. dollars have gone to training prosecutors and police. But the corruption cases collapsed because of what Murillo now says was flimsy evidence, and the vetting has failed to rid police forces of bad cops and may also have resulted in the firing of good officers.
"In a desire of simple imitation," Murillo said, "we let ourselves be guided by the values of other latitudes, other countries."
Some in the Mexican government portray the changing relationship as more tweak than rupture.
One official said Mexico seeks continued U.S. support and advice in the drug war, but wants to reinstate a more formal relationship through "proper," high-level channels, not across-the-board contacts throughout its agencies.
"It's how the PRI does things, always centralizing the channels," said the official, who was not authorized to speak publicly about the government's thinking.
The PRI ruled Mexico uninterrupted for seven decades until it was booted out in 2000. It returned to the presidency in December and has steadily reprised its tradition of concentrating power in a few hands.
For one thing, it is consolidating control over the drug war under the Interior Ministry, including plans to establish a 10,000-member national gendarmerie and add at least 35,000 officers to the federal police force. A powerful Public Security Ministry that existed under Calderon and received substantial U.S. attention has been dissolved; its main body, the federal police, subsumed into the Interior Ministry.
Experts say that the PRI's long-standing concern for protecting Mexican sovereignty could provide a cover for rolling back U.S. involvement. But it may not be easy.
Despite Calderon's U.S.-backed frontal assault on drug cartels, or perhaps because of it, violence skyrocketed, and experts and former officials say that Peña Nieto may have difficulty scaling back U.S. involvement because it has become so deeply entrenched in Mexico's security establishment.
Military attention to Mexico has also grown; in January, the Pentagon announced that it was creating a new headquarters for special operations forces at Colorado-based U.S. Northern Command, which covers Mexico. The number of special operations personnel could increase fivefold to about 125; they would help oversee sensitive training operations requested by Mexican security forces.
U.S. troops aren't expected to get involved in combat in Mexico because of Mexican resistance to a foreign presence, but officials say the special operations expansion has further entrenched a mission the military already has begun.
"Obviously we have a good military-to-military relationship with Mexico, and a lot of that involves special operations," said the command's spokesman, Capt. Jeff Davis. "The bread and butter of what they do is build capacity and train forces.... It's no change in operation, but it provides us better accountability and better command and control."
Friday, April 26, 2013
Thursday, April 25, 2013
Wednesday, April 24, 2013
China, India, and Brazil are out. Mexico is in – at least according to international observers who have been cooing over Mexico's rise in recent months.
With a new year and a new government, the way the world views Mexico has already changed dramatically. Mexico has enviable economic stability and a forecast for growth, improved social mobility, and an emerging middle class, Mexico is competing with Brazil to become the economic darling of Latin America and is challenging China in manufacturing prowess. The drug war rages on in many regions, but optimism for Mexico’s future is trumping the dark prognoses of the recent past.
But is all the optimism for Mexico’s future warranted?
There are two sides to the coin when comes to Mexico's future as a global economic force. The new government inherited an economy rebounding from the impact of the economic crisis, but how the administration approaches deep-rooted challenges like poverty and inequality will determine whether the current optimism gains momentum or peters out.
Mexico’s potential remains enigmatic. There is no doubting the country’s macroeconomic successes, economists say. A stable currency over nearly 20 year, steady (if sometimes slow) economic growth; and fiscal discipline have combined to keep Mexico sailing in smooth waters. Mexico has signed a dozen trade pacts, which have opened it to the world. That’s the bird’s eye view.
But zoom in and Mexico’s troubles come into focus.
Despite a more open economy and a growing middle class, nearly half the population remains poor, living on as little as $80 per month or less. The widely industrialized north and central regions contrast with the poverty entrenched across much of the south. Nationwide, between 50 and 62 percent of workers toil in the informal economy, according to the World Bank – an uncharted area in which workers frequently don’t pay taxes and lack the safety nets of health insurance or employment contracts.
“We need to ensure that the benefits of this intelligent global integration reach all the economic players at a national level – small and medium-sized businesses, and all regions of the country,” said Economy Secretary Ildefonso Guajardo at a recent conference. “It’s unsustainable to continue having two Mexicos.”
A more inclusive Mexico'
Donning a flower necklace and traditional embroidered serape over his white button-down,President Enrique Peña Nieto recently traveled to Mexico’s southern Chiapas state to promote a crusade against hunger. The nearly six-month-old administration has promised to reduce the country’s glaring inequalities, starting with malnutrition.
In eradicating hunger, he told a group of supporters in Zinacantán, the government “wants to achieve a more inclusive Mexico,” one of “opportunities for all Mexicans.”
In addition to social programs like the anti-hunger campaign, President Peña Nieto’s administration is pushing an ambitious reform agenda to deliver on the promise of greater equality and economic opportunity.
An overhaul of the education system aims to improve the quality of teaching and raise Mexico’s dismal rankings in student performance. A plan to reform the telecommunications industry would strike at the dominance of billionaire Carlos Slim’s companies in telephone, cellular, and Internet service – with the intent of boosting competition, lowering prices and narrowing the country’s abysmal digital divide. Both reforms are making their way through Congress.
Also on the table, in draft or discussion stages, are reforms of Mexico’s banking industry, which has one of the lowest commercial lending rates in Latin America, stunting growth; of the tax code, with the goal of increasing Mexico’s low levels of tax collection; and of energy, with the aim of sparking investment in a stagnated industry controlled by the national oil monopoly.
The idea driving all these reforms is competition, says Eduardo Perez Motta, president of theFederal Competition Commission.
“By strengthening the regulatory body” – part of the telecommunications reform – “you increase the possibility of being able to punish abuses,” he says.
Dominant companies and influential unions in Mexico have long enjoyed immunity from sanctions, even when their practices hurt consumers. Analysts say the government’s ability to rein in powerful interests could determine whether the country delivers on its potential.
But a “Pact for Mexico,” led by Peña Nieto and uniting Mexico’s three biggest political parties behind the reforms, has teetered in recent days due to accusations by the opposition that the president’s party is using the hunger crusade as a platform to campaign for upcoming local elections.
Beyond the prospect of reform, there are other bright spots, like the increasing number of students attending college and the growth of Mexico’s automotive and aerospace industries. Mexico’s information technology sector, too, is increasingly delivering to US companies the back office outsourcing services that made India a brand name.
Low wages – compared to China’s rising labor costs – plus proximity to the US market has made Mexico a much more attractive manufacturing and service outsourcing partner for many North American companies.
“We believe that Mexico has the conditions to generate [economic] dynamism,” said Gerardo Gutierrez, head of the Business Coordinating Committee, a trade organization, at a recent conference. “Mexico’s moment is here."
Yet it’s also because wages have remained stagnant and job growth has been slow for a decade that many Mexicans continue to work outside the formal economy, selling goods from makeshift street stalls or services from the back of a truck.
Federico Fernandez sells chicle gum, candy, and earrings from a table outside a busy Mexico Citymetro station, a prime location for which he says he pays the city government a bribe. He is pessimistic about Mexico’s prospects.
“Every government promises many things during the campaign,” he says, “but once they’re in they forget about us. I don’t see the improvement. I work just to get by.”
Mr. Fernandez says he makes enough to pay for food, rent, and transportation and – perhaps a sign of hope for the future – to help with expenses for his daughter, the first in the family to attend college.
Monday, April 22, 2013
New Study Finds China Manufacturing Costs Rising to US Level
CNBC.com | Thursday, 18 Apr 2013 | 9:14 AM ET
Walk onto the shop floor at Prince Industries in Shanghai, China and it looks like most other manufacturing plants in this country. It's busy running two shifts, cranking out components that will be shipped to major manufacturers likeCaterpillar, Siemens, and Honeywell.
But change is in the air.
The cost of manufacturing in China is going up and rising quickly.
"It's something that we anticipated when we went to China, we just didn't know how quick it would happen," said Mark Miller, CEO of Prince Industries.
China and US Costs Even by '15
China is no longer a slam dunk for manufacturers looking for the lowest cost for operations.
In fact, a new study by the consulting firm AlixPartners estimates by 2015 the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the U.S.
"The Chinese manufacturing cost advantage has eroded dramatically in the last few years," said Steve Maurer, AlixPartners managing director. "If you go back to 2005, it was pretty common for landed cost from China to be 25 to 30 percent less than the cost of manufacturing in the United States. Based on our analysis, two-thirds of that gap has closed."
(Read More: Not Concerned About Hard Landing in China: IMF)
Maurer said higher labor wages, the rising value of China's currency, and the cost of shipping goods from China to points around the world have made manufacturing in China more expensive.
"If trends continue, the China cost is going to be on par with U.S. cost in the next four to five years," said Maurer.
Higher Wages, Rising Currency
Since Prince Industries opened its plant in Shanghai a decade ago, wages have increased an average of 12 percent annually, while China's currency, the RMB, has appreciated 25 percent vs. the U.S. dollar.
The rising value of the RMB was expected and has made it more costly to ship goods built in China around the world.
Meanwhile, hourly wages have been going up steadily due to China raising minimum wages, while competition for labor has forced manufacturers to pay more to attract skilled workers and keep them.
Pulling Out of China or Moving Further Inland?
As the cost of manufacturing in China has risen, so have reports of companies pulling their plants out of the country to find cheaper locations.
Some have re-shored facilities to the U.S., where cost differences are offset by higher productivity of American workers.
(Read More: Has China's Economy Hit a 'Dead End'?)
But few expect a mass exodus of manufacturers in China.
"I don't think companies are going to pull out of China," said Hal Sirkin with the Boston Consulting Group. "Because of Chinese domestic demand which is growing at 8 or 10 percent a year, even if they decide to pull out their export plants they will then convert those plants, basically re-tool them into Chinese consumption because there is a great market in China given all that growth."
Sirkin said manufacturers squeezed by higher costs in more expensive cities on the coast of China like Shanghai will increasingly look to move plants to inner or western China where labor costs are lower.
"Some companies have found success in inner China and others have decided it is not worth it for them because they cannot get the productivity that they need," said Sirkin.
Made in China and the US
Even with manufacturing costs rising in China, Prince Industries has benefited from expanding its operations outside Chicago to include a plant in China. Since making the move into China, the firm's annual revenue has doubled to $40 million.
(Read More: Can China Turn 'Economy on Steroids' to Real Growth?)
Much of that growth is spurred by the Prince Industries plant in Shanghai supplying customers who are manufacturing in China.
Given the changing market, would CEO Miller still expand to China?
"I think for us it made sense, it doesn't make sense obviously for every U.S. manufacturer," he said. "Once we announced that we were going to China, we had to convince our U.S. workforce that we weren't going to move all of our manufacturing to China and just become a shell over here. Fortunately for us it worked out."
CORRECTION: A study by AlixPartners estimated that by 2015 the cost of outsourcing manufacturing to China will be equal to the cost of manufacturing in the U.S. An earlier version of this story said the survey estimated that by 2016 outsourcing manufacturing costs will be equal.
Friday, April 19, 2013
Enrique Peña Nieto
President of Mexico, 46
By Bill Richardson April 18, 2013
During a 2012 joint appearance in Mexico City with then presidential candidate Enrique Peña Nieto, I saw that the Mexican media was attacking him savagely. His critics argued that he was inexperienced and untested, a pretty boy with a TV-star wife; they were skeptical that his party, the ancient PRI, would reform the country and take on the drug cartels. Yet it was obvious to me that he had boatloads of charisma, a quick grasp of the issues and a self-deprecating humorous side.
Since his narrow election victory, Peña Nieto’s stock has skyrocketed, with near unanimous praise from across Mexican society. He signed a “Pact for Mexico” in December with the two opposition parties and has enacted significant labor reforms. He’s proposed significant changes in the energy and telecommunications sectors, as well as improvements in the nation’s finances. At the Organization of American States, he has led the fight against countries like Ecuador that seek curbs on press freedoms.
The U.S. shouldn’t treat Peña Nieto like a patsy. He combines Reagan’s charisma with Obama’s intellect and Clinton’s political skills. This is a leader to watch.
Thursday, April 18, 2013
MEXICO CITY — As the top suppliers of manufactured goods to the American market, China and Mexico have typically been in direct competition over the past decade.
More often than not, the business went to China. But with labor costs rising there and Mexico pushing for new access to Chinese consumers, the rivalry is shifting, economists and trade analysts say.
No longer pure competitors but not quite partners, the two countries are moving toward an expanded trade relationship that could ultimately benefit the United States by boosting U.S. exports and keeping cheap imports flowing to U.S. consumers.
Mexican President Enrique Peña Nieto’s recent trip to China, coming just four months into his term, has been viewed here as a smart overture aimed at mending ties between two nations that have often been at odds over trade issues.
Mexico resisted China’s entry into the World Trade Organization in 2001, and its share of the U.S. import market started slumping soon after.
Now that trend is in reverse. Mexico accounts for a growing portion of U.S. imports, and China’s slice of the $2.7 trillion market has narrowed. Those tendencies are likely to continue, economists say, as several new studies show that Mexican manufacturing costs are now lower than China’s when factors such as shipping and energy prices are taken into account.
“They started out as rivals, because there was a bull rush to China and Mexico lost out,” said Barry Lawrence, director of the Global Supply Chain Laboratory at Texas A&M University. “But Mexico is now the more competitive of the two.”
“That implies direct competition, but the reality is that the two will be looking at building optimal supply chains,” Lawrence said. “There will be a lot of business in China, but a lot of it will come through Mexico.”
Items such as washing machines, cars, computers and farm equipment can start as components in China that are assembled in Mexico and finished in the United States before reaching American consumers. If companies can take advantage of each country’s manufacturing strengths, the result will be quality products at the lowest-possible prices, analysts say.
Likewise, the United States and Mexico can find new fuel for economic growth and help each other reduce their gaping trade deficits with China by working together to sell more goods to the swelling Chinese middle class.
Mexican poultry and pork raised on U.S. grains can feed Chinese consumers. Cars made jointly by Mexican and U.S. auto plants can cater to China’s seemingly boundless demand for automobiles.
In recent years, Mexico has accumulated an even bigger trade imbalance with China than the United States, importing nine times as much as it sends across the Pacific. The U.S. deficit is closer to 4 to 1.
But if Peña Nieto’s trip can serve as an opening, China can be “a land of enormous opportunity if handled right,” said Duncan Wood, the director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. “China is a market that is untapped for Mexican business.
During his visit to China, Peña Nieto met with President Xi Jinping and signed new commercial agreements, including a deal to sell Mexican oil to China for the first time on a sustained basis, guaranteeing shipments of at least 30,000 barrels a day.
It’s a modest amount for the world’s seventh-largest oil exporter, but the deal was seen as a gesture of good faith.
“The Chinese perspective has been: I’m more important for you than you are for me, so if you want to improve the relationship, fantastic,” said Enrique Dussel, the director of the center for China-Mexico studies at Mexico’s National Autonomous University. “But there are very strong frictions and tensions between the two governments. We’ve had a lot of meetings but limited and weak results.”
Still, Dussel said, the idea that China and Mexico are rivals for the U.S. market is increasingly outdated. “The competition is over,” he said. “In general terms, China is much more developed than Mexico.”
For example, one of the Mexican economy’s biggest success stories, its booming auto industry, produced a record 2.5 million cars last year — Fords, Nissans, Volkswagens and other brands.
“China produced 20 million cars,” Dussel said. “And 30 percent of them were Chinese brands with domestic technology.”
Yet the same sizzling growth that has made China the world’s largest exporter has created labor shortages and sent wages higher at a rate of “10 to 20 percent a year,” said Harold Sirkin, a senior partner at the Boston Consulting Group, a worldwide management consulting firm. “That changes the equation for the whole world, and Mexico will be a big beneficiary, as well as the U.S.”
Diversifying in Mexico
But even as Mexico becomes a more attractive destination for foreign manufacturers, economists say those same companies are not likely to pull up their stakes in China, given that the Chinese market is the fastest-growing in the world.
Instead, companies are likely to continue making products in China and Mexico, shifting some activities to North America in order to take advantage of lower energy costs, proximity to U.S. consumers and the tax breaks offered by the North American Free Trade Agreement.
In the past, “Mexico wasn’t even brought up” during business meetings in China, said Derek Leathers, president of Werner Enterprises, a global shipping and logistics company that works in 120 countries. But during a recent trip there, “I don’t think I had a single meeting where at some point I wasn’t asked about Mexico.”
The interest isn’t based on concern for competition so much as the investment possibilities for Chinese companies.
Mexico is Latin America’s second-largest economy after Brazil, but unlike the South American giant, it has attracted relatively little Chinese investment. That, too, could change.
“Chinese companies realize a good hedge,” said Mexican economist Luis de la Calle. “Large multinationals have invested heavily in China, and now they need to diversify, and Mexico is a good bet.”