News Column

Obama, Pena Nieto Talk U.S.-Mexico Trade

May 2, 2013
Mexican president Enrique Pena Nieto (file photo)
Mexican president Enrique Pena Nieto (file photo)

Delivery trucks from Mexico line up early in the morning at the border crossing in Tijuana, where 20 million flat-screen TVs were manufactured last year.

Traffic studies found cargo trucks, even empty ones, wait 90 minutes on average to cross into the USA as U.S. Customs agents check for contraband; then at least an hour is spent waiting to get back into Tijuana.

"Trucks that are a critical element of a competitive supply chain may spend three to four hours waiting in line during a day," says Kenn Morris of the Crossborder Group, a San Diego consultancy, which commissioned the traffic studies. "These kinds of delays are both too typical and really strangle border economies ... and put more barriers between what should be two strong economic partners."

Improving on the way goods flow from Mexico to the USA is what President Enrique Pena Nieto intends to emphasize today when President Obama visits Mexico City.

The U.S. Justice Department says Mexico's drug lords are establishing greater control over criminal activities in the USA, but Pena Nieto, elected in December, has pushed such security concerns to the side in favor of economic issues.

U.S.-Mexican trade has risen as Mexico becomes an increasingly attractive locale for U.S. manufacturers that are seeing the cost to produce goods in China go up. Trade between Mexico and the USA topped $500 billion in 2012.

Trade analysts here say Obama should take up Mexico on its offer because closer economic ties benefit both the U.S. and Mexico, especially now that Mexico is seeking greater access to U.S. suppliers to keep its assembly lines expanding.

Mexico's economy grew by less than 2% annually during the six-year administration of then-president Felipe Calderon that ended in 2012. But it is forecast to grow by 3.5% in 2013, according to Mexico's government.

Shannon O'Neil, a Latin America analyst at the Council on Foreign Relations and author of Two Nations Indivisible, says the challenge for the two countries is, "How do you make it so that things cross the border more easily?"

Border crossing takes so long in large part because of inadequate infrastructure and inadequate staffing for the amount of traffic, she says. It also results from significant bureaucracy: duplicate customs forms and other procedures.

The capacity of the border entry points to clear trade traffic into the USA has not kept pace with the increase in trade in the border region. In addition, the 9/11 attacks in 2001 prompted added security measures, which slow things down and raise expenses for businesses.

Among the ideas that trade analysts say the two presidents should consider is a way to improve commercial traffic, such as screening programs that allow low-risk shipments and carefully investigated shippers faster clearance.

Though Pena Nieto is pushing economic changes such as breaking established monopolies, some of the credit for the economic boom is going to Calderon for his attention to fiscal prudence during the recession.

Investors sank $80 billion into Mexican stocks and bonds last year, according to the Bank of Mexico. The Mexican peso has surged in value. Mexico also manufactured more than 2.8 million motor vehicles last year, according to the Mexican Automotive Industry Association.

The peso's rise is potentially problematic because it could make exports more expensive and hurt the burgeoning manufacturing sector, says Manuel Molano of the Mexican Institute for Competitiveness.

Molano and others say the improvements have more to do with China, where production, salaries and shipping costs are increasing.

"China has become costly and complicated for producing things," while Mexico benefits from its proximity to the U.S., Molano says.

Wages are now nearly 20% lower in Mexico than in China, according to Merrill Lynch research.

Much of the optimism for Mexico centers on its political system and potential for change. Pena Nieto has promised structural reforms -- which he says will add 2 percentage points a year to GDP growth -- to the state-run petroleum industry and tax system, which his Institutional Revolutionary Party (PRI) opposed during its 12 years of opposition.

Congress has already overhauled outdated labor laws, approved an education package to improve the country's underperforming school system and started debate on opening up the powerful telecommunications and TV industries.

"They are running at a furious pace," Molano says of the administration, but he adds that the president has been "lucky" that his opposition has been weak and divided.

That may not last. Opposition parties withdrew support recently after PRI officials in Veracruz state were accused of using an anti-hunger program to buy votes, but the parties appear ready to cooperate again.

Source: Copyright USA TODAY 2013

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