Mexico: Regional Leader
It was over twenty years ago that Mexico began opening up its trade with the implementation of a number of unilateral policies and its accession to the General Agreement on Tariffs and Trade (GATT) in 1986. Since then it has been increasing its presence on international markets, and activities related to external trade have grown to the extent that they currently account for nearly two thirds of its GDP.
Bilateral, regional and multilateral negotiations have yielded preferential conditions for access to markets in goods and services over third countries. There is currently a network of twelve FTAs providing secure, preferential access to the markets of 44 countries, over one billion potential consumers and three-quarters of world GDP. There are also six Economic Complementarily Agreements (ECAs) and there are twenty-three Reciprocal Investment Promotion and Protection Agreements (APPRIs) in force, which provide legal certainty both for Mexican investments abroad and for foreign investment in Mexico.
Mexico by far is the major trading power in Latin America. In 2000 Mexico’s trade easily surpassed that of Argentina, Brazil, and Chile combined. The transformation of Mexico from a closed economy to a major trader was the result of improvisation and crisis led policy changes as well as vision and long-term planning. In the other hand, the rise of China in the global economy has raised major issues for the Mexican economy. First, Mexico was not prepared for the enormous new trade relationship with China and second, China’s massive exports cause that several industrial sectors in Mexico suffer substantially from Chinese competition both domestically and internationally, especially with the U.S.
Despite the image of Mexico as a major trade power pushing for trade liberalization across many fronts, the political economy of trade policy indicates that Mexico could become a stumbling bloc for multilateral trade liberalization if new policies or structures are not made in the near future. What does Mexico need to do to meet regional and Chinese challenges and what complementary policies are required from the Mexican Government? This paper will explain Mexico’s transformation from a closed economy to a trading power, current agreements, policies, and challenges with Latin American countries and China and finally, I will propose new policies, agreements, and approaches to consolidate Mexico as Regional leader by uniting Latin American Countries in a multilateral system not only based in trade, but also social education and health.
Mexico’s Roadmap to trade liberalization
Mexico remained a highly protected economy from the post-World War II era up until the mid-1980s. It took three economic shocks from trade policy to be altered in a significant way. Ortiz (Studer & Wise, 2007) described them as follows: The first was the macroeconomic instability of the early 1970s and devaluation of the peso in 1976 (after twenty-two years of fixed parity to the U.S. dollar); the second a severe economic downturn in 1982-1983 caused by a drop in the world price of oil an dries in international interest rates (which pushed Mexico to verge of defaulting on its foreign debt); the third shock was the 1986 stock market crash and a devaluation of the peso in 1987.
From the late 1940s until the mid-1970s the basic thrust of trade policy was the use of high tariffs and import licensing requirements for a broad range of products, with the aim of fostering import substitution industrialization (Solis, 1991). The policy was quite successful, especially from the mid 1950s until the early 1970s. The trade reforms pursued from 1977 to 1980 consisted of export promotion through fiscal, financial, and energy subsidies, available as a result of oil price hike by the Organization of Petroleum Exporting Countries (OPEC). Oil was becoming increasingly important for the Mexican economy after the discovery of significant reserves in the mid 1970s (Studer & Wise, 2007). Some trade liberalization also occurred during this window of time.
In 1978 the U.S. government, seeking to avoid a permanent trade deficit with Mexico, whereby U.S. imported oil from its southern neighbor while the latter maintained a closed economy, issued “emphatic invitations” for Mexico to join the GATT before the end of Tokyo Round (1973-79) (Flores, 1998). This incipient interest in GATT was maintained when Lopez Portillo became president in 1976, and in January 1979 Mexico finally began negotiations for GATT accession. Government policy makers made clear that Mexico would accept accession only if three basic principles were upheld: that Mexico be recognized as a developing country, that it be allowed to implement measures required to achieve the aims of domestic economic and social development policies, and that its liberalization commitments made during the Tokyo Round be considered as part of the concessions given for GATT accession (Flores, 1998).
In March 1980 Lopez Portillo made public his decision to postpone Mexico’s accession to GATT. The announcement, made on the anniversary of the nationalization of the oil industry in 1930 sated that it was not the appropriate time for Mexico to join GATT. One of the main reasons given was the world energy plan that Mexico had proposed at the United Nations, the idea being that Mexico’s new status as an oil exporter could be incompatible with some GATT provisions, such as bilateral negotiations were preferable to multilateral ones as a way to bridge the gap between North and South.
Unfortunately, the situation imploded in 1982, when the banks halted lending, Lopez Portillo devalued the peso, and Mexico’s economic fundamentals literally collapsed. By the time Mexico decided to restart GATT accession negotiations in late 1985, national economic circumstances had changed drastically. For lack of any viable alternatives in the aftermath of the 1982 crisis, the country had embarked on a rapid course of unilateral trade liberalization.
The decision to liberalize unilaterally just before it was about to undertake trade negotiations reflects the dire economic straits that had befallen Mexico and the extent to which trade opening and GATT entry become part of an overall economic reform program aimed at stabilizing the economy and restoring growth. As had been the case in 1979, the 1986 GATT protocol fulfilled all of Mexico’s basic requirements. Mexico successfully negotiated a 50% bound tariff level, higher than the rates it was currently applying, and an eight-year phase-in period, during which tariffs could be higher than the bound level for certain products (Flores, 1998). Mexico finally joined GATT in 1986.
The Political Economy of Mexican Trade Policy
From the time of Lopez Portillo (1976-1982) up until the end of the Zedillo administration (1994-2000), trade policy was conducted by the chief executive with very little effective opposition, either form or civil society groups and organizations. Just as Lopez Portillo personally decided against the entry into GATT, so did De la Madrid favor entry, under dire economic circumstances. Salinas managed to negotiate NAFTA despite numerous protests from diverse groups within Mexico. Thus, the political system and dominance of the Partido Revolucionario Institucional (PRI) during the 1980s and 1990s were key ingredients in allowing the radical shifts in trade policy observed during that period. (Studer & Wise, 2007)
Economic policymaking has become more pluralistic in recent years. In 2000, Vicente Fox, the candidate from the Partido the Accion Nacional (PAN), won the presidential election after more than seventy years of PRI dominance. Representation in both chambers of federal legislature has become more pluralistic and their members more assertive in foreign policy matters. In addition, intraexecutive divisions over foreign policy have become more explicit. (Ortiz in Studer & Wise, 2007).
Mexico and the Multilateral Trading System
In the two decades since Mexico joined the GATT, it has become an important trader in Latin America, participates actively in multilateral trade negotiations and has been one of the most dynamic participants in regional trade agreements. According to World Trade Organization, currently, more than seventy percent of the country’s GDP derives from trade. According to Ortiz (Studer & Wise, 2007) the present situation stands in stark contrast to Mexico’s trade practices of relatively recent times. In 1982, Mexico still had a closed economy and delayed joining the GATT until 1986. Even in 1980, during the oil price boom, Mexico’s exports amounted to only U.S. $33 billion, compared with U.S. $178 billion in 2003.
According to Ortiz (Studer & Wise, 2007), when Mexico finally joined GATT in 1986, it was after a period of unilateral trade liberalization ushered in as part of a larger macroeconomic stabilization effort. Throughout the 1990s Mexico negotiated a series of free trade agreements (FTAs), chief among them the North American Free Trade Agreement (NAFTA), Thereafter, Mexico’s multilateral commitments were not as pressing in light of the importance that NAFTA came to play as regional initiative.
During the 1990s the most significant benchmarks for Mexican trade policy were the entry into force of NAFTA and several other FTAs. In terms of export composition there were no significant changes but export volumes grew dramatically. The remarkable growth was closely linked to bilateral trade with the United States. While in 2004, seventy-four percent of Mexico’s trade was with the United States and Canada, its trade with Europe decreased from 12% of total trade in 1993 to eight percent in 2004.
Mexico’s Trade Strategy
Mexico has pursued a three-dimensional trade strategy perhaps more diligently than even the United States according to Schott (Studer & Wise, 2007). Mexico has been an active participant in multilateral talks since its GATT accession in 1986 and was the host country for the special Summit of the Americas in Monterrey and for the hemispheric trade talks in Puebla. Mexico is perhaps most famous as the instigator of NAFTA as well as many other FTAs with countries around the world including key industrial markets such as the European Union (EU, The European Free Trade Association (EFTA), and Japan. In addition, Mexico entered in FTAs with Bolivia, Chile, Costa Rica, El Salvador, Guatemala, The G3 (Colombia, Mexico, and Venezuela), Honduras, Israel and Nicaragua during the period January 1995 to June 2001 (Schott in Studer & Wise, 2007). It is important to emphasize that Mexico has many more FTAs than United States and these pacts are an integral part of Mexico’s broader development strategy.
Bilateral and Regional Agreements
Bilateral and regional agreements have been a mainstay of Mexican trade policy in recent years. They complement and promote greater multilateral liberalization and are consistent with the WTO provisions.
Mexico is one of the WTO Members with the greatest number of FTAs: it has a network of 12 which afford it preferential access to over a billion consumers in 44 countries, representing about 75 per cent of world GDP. Thanks to these agreements, Mexico now ranks as the tenth largest exporter in the world in terms of value of exports and the largest in Latin America and the Caribbean, and is one of the main developing country recipients of FDI, with all attendant benefits that this brings for economic growth, job creation and wages.
In 2002, Mexico had FTAs with the following Members: United States and Canada (1994); Colombia and Venezuela (1995); Bolivia (1995); Costa Rica (1995); Nicaragua (1998); Chile (1999), Israel (2000); the European Union (2000); the “Northern Triangle” with Guatemala, Honduras and El Salvador (2001); the European Free Trade Association (EFTA) with Iceland, Norway, Liechtenstein and Switzerland (2001).
Between 2002 and 2006 two new FTAs entered into force: with Uruguay (2004), and Japan (2005). Venezuela gave notice of termination of its FTA with Mexico on 22 May 2006 and that notice took effect 180 days following its communication (on 19 November 2006). Mexico is currently in negotiations to adjust and extend an FTA with Colombia and to develop FTAs with Korea and Peru.
The trade agreements which have been negotiated have opened up markets for Mexican exports and have increased Mexico’s attractiveness for investment, by affording greater certainty for economic agents, including exporters, investors and consumers. These agreements and the multilateral trading system are complementary mechanisms for moving towards liberalization of the economy and maintaining consistency between the instruments.
Mexico is also involved in other regional initiatives such as the Asia-Pacific Economic Cooperation (APEC) mechanism, the goal of which is to achieve a free-trade and investment regime by 2020 at the latest. Mexico is the seat of the Secretariat of the Free Trade Area of the Americas (FTAA). Furthermore, Mexico has been a member of the Organization for Economic Cooperation and Development (OECD) since 1994, and it is in that capacity that it is taking part in discussions to draw up an international trade agenda.
According to Schott (Studer & Wise, 2007), Mexico is crafting its own Free Trade Area of the Americas (FTAA) through an agglomeration of bilateral FTAs with trading partners in the region. These agreements are key to its strategy to attract European and Asian investment to build up Mexico as the locale for servicing the broader hemispheric market. Yet, there still is a confused debate on whether the FTAA or a similar approach is good for Mexico since it will erode Mexico’s preferences in the U.S. market. It is important to emphasize that NAFTA preferences are being devalued every year as the United States negotiates other FTAs and reduces its most favorite nation trade barriers.
Where South America is concerned, China’s trade impact in the Mercosur is relatively light. Argentina and Brazil, the two powerhouses of the Mercosur region, benefit significantly from the relationship, however. China is Argentina’s fourth largest export destination, and Brazil’s third (ICTSD, 2007). Inversion of the relationship is seen in the trade picture with the two smallest Mercosur nations, Paraguay and Uruguay. Uruguay’s exports to China reached just U.S.$119 million in 2005, while imports totaled approximately U.S.$242 million. Paraguay’s position is even more disaggregated, at U.S.$69 million in exports compared to an approximate U.S.$716 million for imports during the same period (ICTSD, 2007). Prospectus to the region of course is advancing, yet with the decline in the Mercosur region’s currency in the last two years since the 2008 world financial crisis, with exception of Brazil and Mexico which have actively courted the relationship with China, Latin America’s market remains relatively unimportant as an export destination. Even still, both nations retain index positions on the China export scale below the 20th rank, with the value of Chinese exports to Mercosur exponentially growing since earlier in the decade when a mere 0.6% of the nation’s exports reached the region (ICTSD, 2007).
In the last decade, China has successfully built strong commercial and investment with Latin American and Caribbean countries. Despite the global economic downturn, China continues to pour billions of dollars into Latin America through investments, loans, acquisitions, and currency swaps. China hopes to be perceived as a friendly economic partner rather than a competitor and to lay foundation for stable, long-term commercial relations.
China became Mexico’s second largest trading partner in 2003, behind only the United States. China is Mexico’s new economic neighbor and not always a welcome one according to Dussel (2008). The growth in the economic relationship has not been matched by growth in institutional ties and as mentioned by Dussel (2008), Mexico benefits less from China’s commodity demand and competes directly with China in many manufactured goods.
The rise of China in the global economy has raised three major issues for the Mexican economy according to Dussel (2008). First, Mexico was not prepared for the enormous new trade relationship with China; second, Mexico’s integration to the world market; and third, China’s massive exports cause that several industrial sectors in Mexico suffer substantially from Chinese competition both domestically and internationally, especially with the U.S. One pronounced area of concern in this regard has been Mexico’s competitive position against China’s in the export auto part industry to the U.S. market. This comes at a time when there is an insurgence of anti-dumping disputes prompted by the United States, against the threat of influx of Chinese industrial exports to the NAFTA region.
Since China’s turn of the 21st century entrance into accord with the WTO as a member state, the nation’s accelerated growth as an export economy on the global market has instigated a number of WTO disputes. Most of those complaints have been filed by developed countries. As China amasses stockpiles of inexpensive products for trade, particular market segments have been virtually saturated with a massive flow of cheap goods represented in competitive products already existing in the national markets of the NAFTA region. Everyday mass consumer items like auto parts, and especially ecologically costly products to manufacture such as petroleum-based tires, which require full cost pricing inputs in the parallel U.S. manufacturing sector in response to environmental regulatory compliance, are flooding the retail consumer sector with low cost, alternatives from China. The disputes against China are obviously supported by NAFTA region members, as this impinges upon the competitive edge of Canadian and Mexican industrial outputs. Trade surplus impacts those decisions as seen in Figure 1.
Figure 1: U.S. Trade Balance with Major Trading Partners FY08 ($ Billions).
In United States WTO complaint, DS340 Auto Parts Dispute against China, the export tire industry and the country’s anti-dumping violations in the United States expressly denies China of continued agreement for bulk export those goods to its national market. It is also important to put the DS340 Auto Parts Dispute into comparative scope with other anti-dumping suits filed against China by the United States, in order to perceive the entire protectionist picture that has emerged by way of the Anti-Dumping protocols. Commenced in 2006, the European Union, United States and then followed by Canada, filed dispute (DS340) for mediation against China in complaint that the country had violated WTO anti-dumping guidelines in the auto parts sector in export trade to the EU and NAFTA regional markets. Two years later, in 2008, the WTO reached decision regarding the complaint, and mandated control measures to China’s agreement to export Auto Parts to the plaintiff countries, including new stipulations to taxes and tariffs:
“(a) Policy on Development of Automotive Industry (Order No. 8 of the National Development and Reform Commission, 21 May 2004); (b) Measures for the Administration of Importation of Automotive Parts and Components for Complete Vehicles (Decree No. 125), which entered into force on 1 April 2005); and, (c) Rules for Determining Whether Imported Automotive Parts and Components Constitute Complete Vehicles (General Administration of Customs Public Announcement No. 4, which entered into force on 1 April 2005; as well as any amendments, replacements, extensions, implementing measures or other measures related” (WTO, 2008).
Implementation on August 31, 2009 articulated Subsidies and Countervailing Measures: Art. 3, 3.1(b), 3.2; Trade-Related Investment Measures (TRIMs): Art. 2, 2.1; and GATT 1994: Art. II, II:1, III, III:2, III:4, III:5, XI:1, with respect to the claim(s), and the United States countered decision indicating that the Policy Order 8, Decree 125 and Announcement 4 are inconsistent with Article III:5 of the GATT 1994, TRIMs Agreement and SCM Agreement. The WTO Panel “decided to exercise judicial economy,” and “recommended that the DSB request China to bring these inconsistent measures as listed above into conformity with its obligations under the GATT 1994 and the WTO Agreement” (WTO, 2008).
If not stated expressly, the inference to the decision is that China (GDP) advancements are pushing the boundaries of inequity with developed nations that have lost ground with the nation’s signatory to the WTO. China’s membership has decisively changed the landscape of the global market and led to stagnation of industrial surpluses in developed economies which has in turn led to a devolution of bi-lateral and multi-lateral trade allowance, currencies, not to mention labor and advantages to laissez-faire competition by those partners (Brown, 2009). What is implied is an ethical assumption about China’s government and its role in regard to corporate responsibility. Still nebulous from the perspective of trade partners, advocacy for the WTO disputes in the United States has been expressed in terms of a range of tactics, including international legal matters asserting that China’s labor force is subject to inhumane conditions due to environmental and pay scale negligence. The watchdog tendency of the U.S. And other Western nations in this regard, has largely been met with deaf ears by China’s government. Social responsibility and sustainability appear as Western interests, and while corporations positioned in high risk sectors attempt to ‘mitigate’ through mechanisms of identity management and regulatory compliance, where fiscal gain is present, China is; and without exception to moral agenda.
The DS340 auto parts dispute may be a harbinger to forthcoming application and enforcement Anti-dumping legislation as remedy to accelerated destabilization between China and the rest of the world. Compensatory damages sought in outcome to the disputes between China and other national markets will inevitably send a message, but of course will also provoke new underhanded tactics of contractual and compliance resistance by lawyers, politicians and executives as seen following in the recent, 2010 Boeing Corporation — United States success at dispute against Airbus — France.
According to the United Steelworkers Union in 2009, tire imports from China in 2008 were approximately 46 million; up from 15 million in 2004. The cost to the United States was 5,000 tire worker jobs (Reuters, 2009). Cascading tariffs were requested in response to the situation by the U.S. International Trade Commission (ITC), which pegged a 55% tariff intended to drop to 45% percent year two, and 35% in each subsequent year. Chinese tire makers rejected the imposition of the new tariff structure, arguing that they would only be shut out of the U.S. tire market. China currently supplies 17% of the market with below cost tires. The ITC counters China’s tire makers, arguing that such an act will inevitably safeguard the United States. Condemnation by China’s Ministry of Commerce is certain to follow. Canada and the United States, united in protest against the uneven China trade relationship, means that the cumulative effect of tariffs and taxes by each nation in the NAFTA trade bloc, will ultimately affect the Chinese tire export business in the region overall. Automotive manufacturing and auto parts are an economy of scale in Mexico, where agreements channel manufacturing for assembly and secondary trade distribution in that nation (Wise, 2006).
Since the Summary of the Final Act of the Uruguay Round 1986 to 1994, Agreement on Implementation of GATT Article VI (Anti-dumping), North American economists have pointed to the ineffectiveness of anti-dumping legislation as a safety net, because the WTO states that, “if a company exports a product at a price lower than the price it normally charges on its own home market, it is said to be ‘dumping’ the product” (WTO, 2010). National compliance to the Anti-dumping legislation is largely voluntary. Member nation-states tend to divide their allegiance to those recommendations with domestic trade laws, and interpret decision according jurisdictional custom unless a dispute is in process. The WTO upholds furtherance of the Accord, and a significant amount of time addressing violations to those provisions by the body.
Competitive market assessments of anti-dumping activities are analyzed according to the definition of ‘fairness’ in the General Agreement on Tariffs and Trade (GATT). Aggregate response by nation-states to market constraints serves to build a case for complaint, as seen in the DS340 auto parts dispute. In the trade law arena, WTO case decisions contribute to enforcement and amendments to the Uniform Commercial Code (UCC) where ‘goods’ are defined according to international contract law.
Since 2007, there has been a marked 17% increase in the number of WTO anti-dumping investigations, of which China is the most frequent defendant to resultant disputes. The most frequently targeted products in those investigations include: ‘base metals sector (43 initiations), the chemicals sector (22 initiations), textiles sector (19 initiations) and plastic and rubber sector (14 initiations)’ (WTO 2010). The results of the WTO anti-dumping investigations initiated between 1995 and 2008 are illustrated in Tables 1 and 2.
Table 1: Anti-dumping number of investigations initiated, 1995-2008.
Table 2: Anti-dumping number of final measures, 1995 — 2008.
Application of new domestic legislation in 2008 reinforced existing international anti-dumping measures, which had increased by 45% in 2008. Amendments included 81 new rules, reported by eleven member states. In the same year, rule advancement reached 138 ratification measures, an increase from 197 in 2007 (WTO, 2010).
What this means in terms of trade custom, an attendant element to the rule of law and the settlement of disputes, is that the major part of agreements between NAFTA businesses and China will have to shift their practice of doing business in consideration of ‘fairness’ clauses. The redefinition of custom, or ‘how it is always done,’ however will not be easy, as foundation to business in the Americas is ostensibly linked to an entire history of global trade; with open reception to new products and new channels of distribution where cost cutting may be achieved. Where advocacy and litigation intensifies, so too are opportunities for capitalization as those disputes as protectionism typically signals increased regional competition. Mexico’s position as a third party to the DS340 auto parts dispute is interesting, in that it offers beneficial precision in trade policy without direct involvement in the complaint.
As strategic advocacy and legal propositions argue that China’s policy on labor is not adequate to ensure appropriate human rights adherence as criterion to U.S.-China trade agreement, the utilitarian model employed by the United States and its support of both China and Mexico’s maquilladora border industries persist. In an effort to buffer against the intense competition now experienced by China’s industrial sectors, American union workers of the AFL-CIO, publically announced an “unprecedented petition under Section 301 of the Trade Act of 1974” in denunciation of ‘sweatshop’ like conditions in Chinese work environments (Yu, 2007). Mechanisms of protectionist activism the union prospectus to the NAFTA market was already at present. There has been some international consensus on labor related elements within Chinese labor standards (i.e. $0.64 hourly labor cost), according to the UN OECD, Core Labor Standards which constitute the framework for the Fundamental ILO Conventions (Yu, 2007).
The UN OECD standards consist of four (4) basic provisions: 1) Elimination of exploitive child labor; 2) Abolition of forced labor; 3) Non-discrimination in employment; and 4) freedom of association (Yu, 2007). China’s response to the AFL-CIO complaint was critical, rejecting the grievance as Future benefits to trade negotiation between the U.S. And its trade partners inevitably supersedes all other rationale, however, and preemptive legal rules are more likely to be used as points of leverage in trade negotiations, rather than embargo.
Insightful to the remediation between the exercise of national law and international legislation is what Walter A. Rosenbaum (2008) calls a ‘Regulatory Thicket.’ Confusion reigns where federal agencies like the U.S. Environmental Protection Agency (EPA) attempt to build bridges between national and international mandates too quickly. This is important or think about the trade triangle between China, Mexico and the United States, in that expenditure of approximately 20-33% of the Superfund’s monies to clean up toxic waste per site is spent on litigation. This is either boon or bust for trade partners like China and Mexico, because the U.S. is looking for ways to mitigate against environmental cleanup caused by industrial manufacturing; yet if imported products exceed anti-dumping numbers then conflict ensues. N the case of toxic products such as tires the “end of the tailpipe” is nothing more than a feedback loop as the EPA is prompted to enforcement of recycling compliance at the after use distribution level. Illustration of tire industry imports to the U.S. In regard to anti-dumping complaints is depicted in Figure 2.
Figure 2: U.S. Tire Imports by country FY08 ($Billions).
While it is not uncommon for the United States to sell Chinese produced waste back to China, barges do little to stop the flow of monies linked to joint and several liability cases where government is ultimately responsible for clean up in a nation where Congressional decision making is crafted by attorneys cum politicians.
Official conduit for appropriation of global governance accorded funding international policy bodies are also responsible to entrench objectives in legal action at all times. The fact that governance agencies also serve as expert witness to constitution of legislative policy acts, like those of the WTO, clarifies the circular logic evidenced in the dispute system which at second glance begins to appear over-determined by virtue of structural and systemic fault. In short, international legislative practices would never be subject to the ideological constraints of one nation over another unless conclusively controlled by the biased interests of those states.
Response by China to anti-dumping disputes with the WTO has been not so much legally, but fiscally. Fears over the rise of the national currency, the Yuan has prompted a strong interest in revaluation of the currency. Some economists recommend that the currency be pegged to developed economies for circulation for exchange internationally. This is evidence that China is prepared to compete from a capital rather than mere protectionism position. China’s commitment to trade is obvious, and is reflected in the nation’s outcome as sole beneficiary to the global financial crisis of 2008. If WTO policy instruments have begun to reflect the convergence of national law with international legislative priorities, it is keenly fixed to U.S. interests at the moment. For Mexico this is significant, in that each fiscal audit related to bill of sale transactions from China disputed by the United States, reasserts its lead position as supplier of inexpensive goods.
In this section, I will propose new policies, agreements, and approaches to consolidate Mexico as Regional leader by uniting Latin American Countries in a multilateral system not only based in trade, but also in the political, cultural, education, health and security fields. Review of the recent history of devolution of currencies and investment in the region since 2008, and the convergence of current stimulus between Mexico and the trade of Central and South America will serve to strengthen the hemispheres prospectus as a unified market for export to both China and NAFTA, and encourage up-to — the minute innovative responses through collaboration on policy respondent projects (i.e. sustainable models) through regional research and development.
Even though, I will not explain in detail the following internal policy proposal in this paper, it is essential that Mexico that Mexican policymakers recognize that most of Mexico’s challenges are the result of failure in domestic policies. Mexico, in addition of the proposed policies below, will need to re-structure its internal policies in regards education, technology, poverty, and security by improving them in short, medium and long-term strategies.
At present, strategic alliance between Mexico and China, and China and the region lacks impact. In order to optimize trade relations, feasibility toward investment in regional interests must be at the forefront of diplomatic decision, so that Mexico might reap the benefit of the relationship as technology and other important segments from the Chinese manufacturing industries, and particularly scientific and technological advancements might be attracted to the nation as a door to Latin America in a partner in production and distribution.
For all the criticism directed as Mexico’s current government over corruption and retention of feudal relationships, upon reflection of the recent WTO disputes where its NAFTA trading partners have entrenched counter diplomatic strategies of protectionism, Mexico has inadvertently succeeded remaining open to China by way of tacit rather than overt support to the dispute process. Advocacy for a bi-ilateral Chinese-Mexican commission, if given strong political backing, will offer continuity in Mexico’s position as intermediary which is likely to be supported by China given the parallel structure of the two nation’s industrial economies.
Scholarly consideration to the project has drawn on three bodies of work: 1) Policy Studies on world trade and Mexico’s developing relationship with China; 2) Analyses of the relationship between international legislation and the development of domestic trade law; and 3) Business and finance queries directed the formative trade tensions developing between NAFTA countries and China’s command economic structure and its impact on anti-dumping restrictions in foreign markets. Since the 1980s, policy studies have come to reflect major shifts taking place in international marketplace as new trade relations develop in response to globalization (Wise, 2006, and Yu, 2007). Equally insightful, are studies dedicated to preemption in law and legislative policy, where international bodies are put to the responsibility of arbiter on agreements with member states in the context of late-capitalism.
Accelerated trade has led to a dense expansion of legal exigencies not earlier imagined within the history of Western law (Huang, 2003, Snyder, 2010, Wu, 2008 and Zhang 2009). The WTO dispute practice and its relation to the ideal and exercise of laissez-faire market practices edifies the general transition in the culture of economics as China’s command economy pushes the boundaries on capitalism’s assumptions. Analysis of the DS340 Auto Parts dispute with the United States underscores this new realm of extra-legal complaint, and reinterprets the core diplomatic mission of nation-states according to something as oblique as anti-dumping statutes.
Even though ‘fairness’ is the issue of all anti-dumping, amply addressed in articulation of the GATT, application of the GATT to DS340 and other related disputes involving U.S.-China trade will ultimately continue to entrench the two countries trade motives despite the U.S. dedication to ‘free trade. The question is: are remedies to the WTO disputes in fact appropriate in anti-dumping cases involving China? The response to this is of course the source of ongoing debate, and one which creates double bind criticism for nations like the United States that are in fact only partially signatory to the Basel Convention and its protocol on waste product sales. The United States has not, indeed, furthered its obligation to agreement to compensatory payment for dumping violations under the Convention, since the Summary of the Final Act of the Uruguay Round 1986 to 1994. Agreement to the Implementation of GATT Article VI (Anti-dumping), amendments as expressed in current signatory protocol is mostly in volitional agreement to liability and oversight by member states. China, not a signatory to the Convention, is cited often for violation of the treaty. The perspective of the WTO is predictably one of competitive market assessment.
On consideration of Mexico’s policies with China, the challenges faced by Mexico’s NAFTA partners shed light on potential problems that bi-lateral trade may elicit. Feasibility of such as compact will require that Mexico build a strong platform of decision making based on the terms of China’s performance on agreements, and Mexico’s stakes in retention of priority trade relations with NAFTA and Latin American partners. Gaps in interpretation of ‘custom’ in international trade law are outlined in the following issues in China’s brief membership at the WTO:
1. How are China’s decisions in WTO partnerships affected by its command structure of its economy?
2. Has China been effective in engagement with other members at the WTO so far, or is the body attempting to address circumstances beyond trade agreements?
3. Has the enormity of nation’s export record and its status as a communist state oversight been dealt with thoroughly in regard to interpretations of accord by the international Organization’s Western legal framework?
4. Since becoming a member of the WTO, China has been challenged with a number of disputes. The auto part sales dispute revealed volume inexpensive goods such as tires are already becoming persistent targets in China’s violation of anti-dumping legislation. How is this understood by the WTO and in complaint by the EU and NAFTA trading partners?
5. Is China capable of measuring risk in its own obligation to international trade? If so, what are the country’s current standards of meeting such responsibilities? How do those standards meet or fail to adhere with WTO policy and with international regulatory compliance to International Standards Organization (ISO) compliance?
6. How are disputes against China impacting its financial prospectus, as risk is generated in dispute with developed nations (i.e. how does China measure fiscal risk)?
7. Should the Mexican market opening to further investment toward distribution and volume sales by those companies involved in the WTO disputes?
8. As international environmental legislation develops, will Mexico’s adherence to those accords do any better than China? Will Mexico be able to compete with global tire sales by Chinese companies, for example, if reductions to price parity in the face of those restrictions are no longer available?
9. Will environmental legislation restrict the relationship between the nations to a bi-lateral agreement, or will Mexico be able to benefit substantially where China is eliminated in this regard?
10. Are the rights of Chinese workers sustainable for Mexico? Will full cost pricing overrule advocacy by NAFTA neighbors in response to extremely low wages of Chinese labor?
11. Are there dangers of involving Mexico’s currency stability in Yuan advances as a priority to national trade? Would an influx of Chinese investment benefit Mexico’s North American position in regard to the formation of a currency alignment policy?
12. How might China and the Mexico build more effective trade policies in regard to innovations in science and technology?
Mexico: Regional Leader?
Mexico cannot afford anymore to play a passive role among Latin American Countries. Mexico once had a firm foothold in U.S. sector but was displaced by China. Also, the increased loss of Mexico’s market share in the Latin American market where the U.S. is busy securing privileged access. My main proposal is a series of policies to change the structure of Mexico’s trade agreements in order to place Mexico as Regional leader by uniting Latin American Countries in a multilateral system not only based in trade, but also in the political, cultural, education, health and security fields.
In order for Mexico to assume a leadership role in integrating the Americas will have to propose a continental free trade zone. In order to form this new trade zone, Mexico will have join and/or deepen regional FTAs. This will raise the possibility of unifying Mexico’s own trade regime and subsequently replace the FTAA, where the U.S. is the leader. Ideally, the new free trade zone will have between ten to twelve-members where the U.S. is just a member and not the leader.
The following short-term strategy is proposed: Mexico will need to join unilateral liberalization and/or deepen its current trade ties with the following FTAs:
1. Central America, Dominican Republic and the United States.
2. Canada and Central America
3. Chile and United States
4. Canada and Costa Rica
5. Central America and Chile
6. Mexico, El Salvador, Guatemala and Honduras
7. Chile and Mexico
8. Mexico and Nicaragua
9. Canada and Chile
10. Costa Rica and Mexico
11. Canada, Mexico and the United States
12. Central American Common Market
13. Mexico and Bolivia
14. Mexico, Colombia and Venezuela*
15. Chile and the Andean Countries of Bolivia, Colombia and Ecuador
16. Andean Community
17. United States and Panama
*Venezuela dropped out in 2006
The following medium-term strategy is proposed: Mexico will identify countries or blocs (above) that have not trade agreement between them and propose to join each other’s FTAs. For example, Dominican Republic would have to join FTAs with Chile, Mexico and Canada. The proposed new free trade zone will have between ten and twelve members instead of the thirty-four at the FTAA.
Long-term strategy proposed: My proposal goes beyond of just creating a new free trade zone where a selected group of countries or blocs can trade, import and export their goods and commodities. My policy proposal for President, Felipe Calderon, is to create a truly attempt of regional integration for the Americas. This regional integration, unlike the Alba, will concentrate in truly helping its members by offering support in the next issue areas: Political, Economic, Cultural and Social Aspects, and Security.
A steering committee will be formed. This committee will have the same number of members per country. Each country will identify their members, where each member will be selected based in each issue area’s expertise. The possible items in each issue area are as follows:
Political: Consultation mechanisms, cooperation in International Affairs, local government exchanges, land reform, democracy and indigenous movements.
Economic: Trade, investment, financial, agricultural, industrial, resources and energy, customs, and tourism cooperation; Debt reduction and cancellation, economic and technical assistance.
Cultural and Social: cultural and sports exchanges, cooperation in science, technology and education, cooperation in medical and health care, consular cooperation, media cooperation, environment protection, human resources, disaster reduction, and poverty alleviation.
Security: Military exchange and cooperation, judicial and police affairs, non-traditional security issues, immigration, drugs, and gangs.
The appeal of this proposed continental free trade zone and regional integration lies in the much smaller number of actors at the negotiable table. The countries involved have already made a sound commitment to trade liberalization and regional integration. There is no obvious guarantee as to Mexico’s ability to successfully lead this process, as that will depend on governments, producers, and domestic legislatures in the countries involved. However, Mexico will emerge as the natural leader for such project, both in terms of its size and in terms of the sound leadership record it has shown in the context of free trade agreement negotiations in the region.
Has Mexico done enough to attract bilateral trade and investment with China in its global economic policies? Review of China’s involvement with GATT and the recent backlash by developed nations in a series of WTO disputes stands at the center of the China-Mexico trade evaluation. The DS340 Auto Parts Dispute has incited bad faith relations between China and Mexico’s NAFTA trading partners, with argument that the dispute has resulted in unfair accusations of ” dumping and subsidies remedies against China” (Griffith, 2010).
The anti-dumping legislation has literally instigated a diplomatic domino effect; prompting intense trade competition protectionism over the demand for China’s surplus of cheap exports already circulating on the international chain of trade. The hypocrisy to the dispute crisis has not gone unnoticed, and critics of the developed economies remind that where there is demand, there is no liability to those fulfilling the consumption on those markets. China’s contribution of subsidies to many of its export sectors has of course stimulated an exceptionally low price point on goods to the end that there is no competition. Where products like inexpensive tires flood the market, China’s government subsidized exports quite literally topple the investment and work of national brands in the process.
If Mexico is to remain a conscientious middle man in the global trade game, attention to the dumping of bulk goods by China will be necessary in consideration of multi-lateral trade strategies. Where the WTO is also careful in its handling of those cases with China at present is according to rules on “double remedy” (Griffith, 2010). Careful management of adverse legal history, where Mexico and Mexican corporations hold long standing or deep pockets investment shares in EU and NAFTA interests, will be critical points of negotiation not to mention diplomatic headaches at best.
The general climate of privatization instituted as a pan Latin America economic phenomenon era during the era structural adjustment in the 1990s, set the platform for increased corporate involvement in the administration of infrastructure and development of policy. Mexico’s experience in the public-private reconfiguration should serve national market interests well as corporations seek global investment by China and Latin American stakeholders. China has been going through a similar experience, in spite of its command economy structure, mergers and acquisitions have created a new landscape in business, and the country has opened its doors to foreign investment incrementally.
Abstract to the financial prospectus of nations, is the advancement of global market interests in not previously conceived ways that has dismantled nearly two centuries of taken for granted ‘custom’ in trade law as East meets West in the new market era where ecology meets technology, and labor attracts equity according to transnational capital flows. Mexico’s “mid range” index as a free market economy offers much in terms of potential, as long as it continues on the path of least resistance in response to international policies and evolving frameworks on protocols and commercial practice.
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US Trade Balance
US Trade Balance FY08 ($Billions) U.S. Trade Balance Trade
To resize chart data range, drag lower right corner of range.
U.S. Tire Imports FY08 ($Billions)
U.S. Tire Import FY08 $Billions
China 1,975 1,975
Canada 1,444 1,444
Japan 1,128 1,128
Asia 1,044 1044
To resize chart data range, drag lower right corner of range.
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