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Increasing U.S.–Mexico Competitiveness: The Way Forward
A visit to Mexico by Franklin L. Lavin, under secretary of commerce for international trade, highlighted important issues that will enhance the relationship between the United States and its second-largest export market. by David Levey As the trading relationship between Mexico and the United States approaches a rate of $1 billion per day, the economic connection between the two countries continues to grow richer and more complex. In recognition of this relationship, and to catalyze further growth, Franklin L. Lavin, under secretary of commerce for international trade, visited Mexico on May 7–10, 2007, to meet with business leaders and government trade officials.
In 2006, the United States was Mexico’s largest trading partner. For the United States, trade with Mexico is larger than trade with all of South America, Central America, and the Caribbean combined (with enough left over to also include all trade with India). Put another way, U.S. trade with Mexico today is as large as our trade with the entire world 30 years ago. Growth and Competition Although there is much to celebrate in the trade and economic progress between the two countries that has been made in recent years, Lavin remarked during his visit that competition from other regions of the world continues unabated. Neither Mexico nor the United States can be satisfied with what they have accomplished so far. Speaking at the American Chamber of Commerce in Mexico City on May 8, 2007, Lavin noted, “Mexico’s middle class has grown significantly since the North American Free Trade Agreement [NAFTA] was put into force, with nearly 10 million households—40 percent of the population—part of the middle class today. More Mexicans own their own homes today than ever before, a sign that a vibrant domestic consumer market for imported goods is being created. Indeed, Mexico today is the second-largest export market for the U.S.“ This growth is due, in large part, to a dramatically improved business environment in Mexico. In a recent report, Doing Business 2007: How to Reform, the World Bank ranks Mexico as one of the world’s top three economic reformers among the 175 countries it measured. According to the report, Mexico jumped more than 20 rankings, and it now ranks favorably with economies such as Spain and Taiwan. This change is quite an improvement from 20, 10, or even 5 years ago. Factory Visit Highlights Challenges According to the World Bank, one of the regions that is most open for business is the central Mexican state of Querétaro, which is located about 120 miles north of Mexico City. Lavin visited the city of Querétaro on May 9, 2007, touring a state-of-the-art glass making facility for Guardian Industries. In a speech to Querétaro’s business leaders, Lavin remarked that the United States has to improve border crossings, to update trucking rules, to enact immigration reform, and to extend the benefits of free trade to other nations in the Western Hemisphere. Passage of the pending free trade agreements already negotiated with Colombia, Panama, and Peru is also an important priority for the Bush administration. Trade Barriers and Rule of Law During his time in Mexico, Lavin raised a number of issues with his Mexican hosts. In his remarks in Querétaro, he pointed out that “one barrier to trade that remains [is] redundant testing and certification procedures. For example, Mexico has not yet authorized foreign testing bodies in keeping with NAFTA obligations. . . . This results in unnecessary retesting and recertifying of electrical products.” Another challenge is the need to increase the effectiveness of the rule of law. Lavin remarked, “I have heard from a number of companies [that] want reassurances that commercial disputes will be addressed through civil proceedings. They want to know they will not be subjected to criminal charges if their company has a civil dispute with a Mexican entity.” Intellectual Property and Market Liberalization A related legal issue is the protection of intellectual property rights (IPR). “Strong IPR protection will help spur investment in high technology in Mexico and will give Mexicans an incentive to innovate,” noted Lavin during his visit. “President Felipe Calderón has taken a number of important, positive actions regarding a wide variety of rule of law issues, but these initiatives need to now be implemented.” Mexico can take other steps that would improve the lives of its citizens, such as liberalization in the telecommunications and broadcasting sectors. A competitive broadcasting sector, for example, would provide more content choices for Mexican consumers and would spur innovation. Competition in cell phone service, which is currently a monopoly, would encourage innovation and lower prices. Mexicans now pay some of the highest rates in the world for fixed-line telephone service, and the rates for international and cellular service are about six times the U.S. average. None of these policy and market issues detract from Mexico’s impressive economic achievements or from the great strides that the United States and Mexico have taken together. “There is cause for optimism—both because of how far the two countries have come in such a short period of time and because of the commitment shown by the leadership of both countries to advancing our relationship as partners, neighbors, and friends,” said Lavin. David Levey is a writer in the International Trade Administration’s Office of Public Affairs.
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