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Treasury Notes

 Travels To Mexico Deepen Economic Relations

By: Charles Collyns
1/31/2013

6:00 AM on a bone chilling Washington morning, the day after the inauguration ceremony and celebrations, four bleary eyed travelers gathered at Gate A29 of Dulles Airport, bound for Mexico City. I was joined by Jose Fernandez, Assistant Secretary for Economics and Business Affairs in the State Department, Michael Camuñez, Assistant Secretary for Market Access and Collyns pen and pad.jpgCompliance at the Commerce Department, and Susan Kurland, Assistant Secretary for Aviation and International Affairs at the Transportation Department. Not an ideal time to fly but each of us was eager to visit Mexico, to meet our counterparts in the new Mexican government and learn about their priorities and plans. And we particularly wanted to travel as one team to demonstrate our joint commitment to work together across our four agencies to achieve the vision that President Obama and President Peña Nieto expressed when they met last year: to build and deepen the economic cooperation between our two governments.

Mexico has long been an indispensable economic partner for the United States. The relationship has deepened in recent years as Mexico has established a solid reputation for strong macroeconomic management, and as businesses in the two countries have taken advantage of the opportunities opened up by the North American Free Trade Agreement (NAFTA) signed in 1994. Since then, trade between our two countries has increased fourfold to over $500 billion in 2012. Mexico is now the United States' second largest export market and our third largest source of imports. Moreover, together with Canada, manufacturing supply chains in areas like autos, aviation, and electronics have become increasingly integrated.  

Mexico has recovered well from the global financial crisis and in 2012 its GDP growth of almost 4 percent was among the highest of all OECD members. But despite this recent success Mexico has not achieved its full growth potential. Structural impediments to growth have been well known for many years but have proven hard to address. Poor infrastructure has raised transportation costs. Development of energy resources has been hampered by lack of investment and restrictions on bringing in expertise and new technology from the private sector. Competition needs to be increased, in particular in services like telecommunications, to bring down prices and improve standards. Low education standards (lowest among all OECD countries) hold back human resources and keep poverty high.

However, there now seems to be a real opportunity to advance sweeping reforms that previously would have been dismissed as unrealistic. In President Peña Nieto's inaugural speech he laid out a bold vision for a new Mexico, emphasizing the need to improve security and justice, combat poverty, provide quality education for all, establish solid economic growth and reposition Mexico in the world. Shortly afterwards, the main political parties came together to endorse a new pact for Mexico, including 95 pledges across the full range of policies. And perhaps most impressive of all, in recent months the Mexican Congress has been able to deliver a notable down payment on the reform agenda by passing two key reforms with broad support from across the parties: a labor market reform offering greater flexibility and an education reform aimed at improving teaching standards.

Once we landed in Mexico City, our four cabinet department-strong delegation quickly engaged in a series of meetings with our Mexican counterparts. While many of them had only recently arrived in their positions, they all had clear ambitions to push forward bold agendas.

From my viewpoint in Treasury, the cornerstone of the reform effort will be the fiscal reforms being prepared in the Secretaria de Hacienda y Crédito Público, the Mexican finance ministry. Mexico's revenue to GDP ratio is among the lowest in the Hemisphere, second only to Guatemala, and Mexico is highly dependent on potentially volatile revenues from the hydrocarbon sector. With a continuing commitment to balancing the budget, the ability to fund infrastructure, education and social programs will depend on finding ways to broaden the tax base and enhance revenue collection. Officials in the Hacienda also emphasized their commitment to increasing transparency and accountability of public spending so that taxpayers can be confident that their money will be well spent.

Collyns Hacienda.jpg

In all of our meetings, there was a focus on identifying concrete initiatives that could be quickly advanced together by our two Governments. A central priority will be to work together to improve transportation links between Mexico and the United States to further promote the increasing integration of supply chains and enhance the global competitiveness of manufacturing across the North American region. This will involve building on the 21st century border initiative and working to improve infrastructure at the border, to harmonize regulations and enhance air transport links.

We also welcomed Mexico's participation in the negotiations on the Trans-Pacific Partnership, a broad effort to put in place a high-standard agreement, that can serve as a new template for free trade across the Pacific.

 

After a few days south of the border, all four of us came away encouraged by the drive for reform and the strong interest in our two governments working together on a very practical agenda. We felt the effort to do the trip jointly had fully achieved its objectives since many of the projects will indeed depend on close cooperation across our agencies. We re-affirmed our commitment to continue to work together to realize both President Obama's and President Peña Nieto's vision for deepening the economic relationship between our countries and thus boosting both nations' economies.

Collyns Mexico City Anthropology Museum.jpg

Charles Collyns is the Assistant Secretary for International Finance at the U.S. Department of the Treasury.​​​

Posted in:  International Affairs
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