Photo: Instituto de Estudios Cajasol

By EARL ANTHONY WAYNE, former U.S. ambassador to Mexico

In a bid to revive economic relations and make Mexico and the United States more competitive with China, leaders of the two countries have launched a renewed cabinet-level High Level Economic Dialogue (HLED), dormant since 2017. To underscore that initiative, Vice President Kamala Harris headed a U.S. delegation consisting of the secretaries of state, commerce, Homeland Security, and the U.S. Trade Representative in a meeting at the White House with Mexico’s foreign and commerce ministers and others on Sept. 9.

If done well and accompanied by Mexican moves to improve the investment climate, the HLED process can encourage more nearshoring of manufacturing and other businesses to Mexico, contributing to more resilient supply chains.

Binational working groups are working to identify objectives and actions with plans to report on progress by early November.

The HLED is aimed at pursuing economic opportunities beyond the trade issues covered in the United States-Mexico-Canada Agreement (USMCA), which took effect in 2020. The USMCA calls for new consultative mechanisms on such issues as trade rules for auto production, respect for labor rights and barriers to trade in agricultural products. As a complement to the new dialogue, the HLED can also help strengthen value chains and effective nearshoring in key sectors, generating “good” jobs on both sides of the border.

The HLED was a productive bilateral cabinet-level working process from 2013 to 2016, but it was dropped by the Donald Trump administration. Momentum was lost on important items, including border modernization, which was costly to economic efficiency and growth.

With USMCA implementation underway and hope growing for the end of covid-fueled restrictions on cross-border cooperation, U.S. President Joseph R. Biden, Jr. and Mexican President Andrés Manuel Lopez Obrador have seen the potential benefit from collaboration to better manage cross-border supply chains and trade, address cyber threats to that trade, and strengthen investment in workers. They also agree on the need to promote targeted economic development in southern Mexico and Central America as part of broader efforts to help reduce migration.

This new HLED effort recognizes the value of learning from the pandemic economic recession that exposed weaknesses in U.S.-Mexico cross-border supply chains and the management of border trade flows in key sectors such as autos, health supplies, electronics and aerospace. Covid also underscored the costs and dangers of being dependent on long supply chains to Asia, whereas shorter value chains with Mexico could provide more security in future crises, as well as the potential for more efficient supply chains in such areas as semiconductors, medical devices and pharmaceuticals.

If you grouped together the U.S. and Mexican border states,.they would amount to the third-largest economy in the world. Better facilitation of trade, investment and development on both sides of the border could easily attract more nearshoring investment, grow jobs and promote well-being in the crossborder production regions that are already flourishing to the benefit of the United States and Mexico.

As the United States and Mexico struggle to manage migrants passing through Mexico and to the U.S. border and to build more rational, humane and efficient systems for handling these migrants, the governments also agree on the need to promote investment and economic development in or near the home regions of these migrants that can provide good jobs and thus reduce some of the “pull” factors drawing them toward the United States.

The Sept. 9 White House meeting proposed four pillars for the initial HLED work agenda. The first pillar is “building back together.” It could include steps to create more resilient and efficient supply chains and to plan for responses to future disruptions, like those faced in the last 18 months. This work will take up the unfinished agenda of making the U.S.-Mexico border a modern, 21st century border by improving the flows of goods and people with more efficient andsecure processes and facilities. The ministers apparently agreed first to make semiconductor supply chains more resilient, and to help Mexico fill valuable niches. Supply chains for electric vehicles, medical devices and pharmaceuticals are also possibilities for reducing vulnerabilities, attracting nearshoring investment and increasing competitiveness. Specialists have also suggested “greener” technologies and adaptation to climate change as a good sector for cooperation.

Such sectoral reviews should involve private-sector stakeholders sharing their perspectives on market strengths and weaknesses and inputs to facilitate investment and cross-border flows. Attention to the efficiency of border crossing processes and infrastructure was largely put aside during the Trump administration and should be renewed. Many studies have highlighted how increased investment in customs agencies, in technologies employed and in new border infrastructure can increase competitiveness.

Progress will be much more likely with regular and better organized joint work between the two federal governments, the private sector, and states and cities.

The HLED’s second pillar is “promoting sustainable economic and social development in southern Mexico and Central America.” Identifying the right mix of economic, financial and development tools and programs to increase investment will not be easy. Despite years of U.S. development efforts, troublefree formulas do not exist. Many thorny issues surround proposals for the United States to allow different types of temporary work visas for individuals from these regions. Mexico has championed programs involving planting trees and providing youth apprenticeship opportunities, but both programs have been criticized as ineffective. Mexico’s Economy Secretariat has also mentioned potential supply chain investment in the south of Mexico, and private sector actors argue that road, port, rail and energy infrastructure investments are vital.

The third pillar will look at “securing tools for future prosperity,” including enhanced cybersecurity cooperation and managing the evolution of information technology networks that will become increasingly important in North American trade. Once again, improved government-to-government dialogue should bring the private sector into the conversation.

The fourth pillar is “investing in our people,” with a focus on workforce development. Workers in both countries would benefit from improving the skills
of workers in industries that connect Mexico and the United States. A skilled workforce is needed to keep pace with new and enhanced technologies in the increasingly important cross-border delivery of services. Such efforts will also encourage nearshoring investments. Mexico and the United States should also try to align their recognition of the credentials that workers receive through skills and education programs, a step that can improve wages and worker mobility. Such cooperation could cover professional as well as vocation training, and could be targeted to help specific groups such as women or disadvantaged communities. Focusing these efforts on small and medium enterprises to bring them into the USMCA economy and promoting basic skills in southern Mexico and Central America will help attract investment there. There are good U.S. and Mexican examples of collaboration on workforce development that bring together national, subnational, academic, union, foundation and private-sector
actors. These examples could provide valuable inspiration for pilot projects.

One of the most encouraging aspects of the HLED is its orientation toward collaboration by organizing stakeholder dialogues. Such a “democratization” of bilateral economic relations can have positive side effects. For example, the HLED could look at managing the U.S.-Mexico border “as a whole,” rather than by geographic region or involving federal agencies alone. A more regular communication with communities on both sides of the border, perhaps scheduling annual border summits to assess progress, could uncover new ways to bolster mutual prosperity for Mexico and the United States.

EARL ANTHONY WAYNE is a distinguished diplomat in residence at American
University’s School of International Service; co-chair of the Wilson Center’s Mexico
Institute; and a senior adviser for the, CSIS Project on Prosperity and Development. He
served as U.S. ambassador to Mexico and assistant secretary of state for economic and
business affairs.

(The above article first appeared in a series of essays published by the Center for Strategic and International Studies (CSIS) and the Peterson Institute for International Economics (PIIE) on the feasibility and benefits of relocating supply chains to Mexico- It is being republished in Pulse News Mexico with express prior persmission.)

 

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