Mixed US-Mexico trade signals: U.S.-Mexico Chamber of Commerce
HOUSTON (Oct. 28, 2022) –– To judge from comments voiced during the annual meeting in Washington, D.C., on September 21, 2022 of the Dallas-based U.S.-Mexico Chamber of Commerce, there are mixed signals regarding the health of bilateral commerce.
A success story was told by ULINE, a family-owned distribution company based in Pleasant Prairie, Wisconsin. The company is unique in continuing to publish a thick catalog featuring thousands of products. “Why do we do that?” its representative, Mike Mally, asked. “Because it works.” From its warehouses in Monterrey and Mexicali, the company fulfills 90% of the orders from customers throughout Mexico by the next business day.
Consultant Jeff Cartwright, a former manufacturing manager, told how, after China was admitted to the World Trade Organization in 2001, he helped move American assembly plants in Mexico to China. He estimates that Mexico lost two million manufacturing jobs to China.
Two decades later, things changed. “Now,” he said, “90% of those companies want to move out of China, many to return to Mexico.” Companies are recognizing, he explained, that they had not fully assessed the “total cost of ownership” in China-based operations. He admitted that “None of us in 2001 factored in a company’s financial and market risk from intellectual-property theft.” He added that while there are many complaints about the Mexican operating environment, a state-supported pattern of intellectual-property theft is not one of them.
On the panel on energy and the environment, one panelist from Mexico was Jeffrey Jones. Born to American parents in the LDS confession in Chihuahua, he has Mexican citizenship. He was elected to Mexico’s congress during the Zedillo term, the senate during the Fox administration, and in the Calderón term, he was the deputy secretary of agriculture.
He commented on the ironies of the reforms of the energy sector in Mexico: The party that opposed the energy reforms in 2008 (PRI) was the party that approved the reforms in 2013-14.
Given that the Energy Reforms of 2013-14 would take years to show results, it was ironic that the party that passed the reforms would then lose to a rival party (MORENA) that would seek to reverse many of them. Worse, the current government in Mexico has been blind to the gifts to the economy and lives of the poor that these reforms represent.
George Baker addressed the July 20 request for investor-dispute consultations with the Mexican government regarding “apparent violations” of rules embedded in the U.S.-Mexico-Canada trade and investment Agreement (USMCA) of 2018. The complaints (the text is available on ustr.gov) alleged damages to American energy investors in Mexico in the renewables, fuels, and natural gas markets.
Two additional market segments were identified where likely violations have occurred: One is resource exploitation. In mid-2017, Houston’s Talos Energy announced the largest oil and gas discovery in a generation in Mexico, a reservoir named Zama, which was estimated to contain upwards of 700 million barrels of oil equivalent. Located in near-deep waters in the Bay of Campeche, the reservoir was discovered in Block 7 for the first bid round in mid-2015.
The reservoir that should be producing 160,000 barrels a day has been stuck in a Pemex-centric regulatory trap. Pemex claims ownership of half but without having drilled a confirmatory well to make its case.
The other market segment not identified by USTR is government procurement. Whereas NAFTA and USMCA require open international bidding, the AMLO administration has awarded 80-90% of contracts by direct assignment or restricted bidding. The public story is that the army is building a new airport outside Mexico City (as well as a tourist train in Yucatan). The Energy Ministry, meanwhile, is in charge of building a new refinery in Dos Bocas, Tabasco.
Industry stakeholders regard such practices as government contracting outside public review and in violation of NAFTA and the USMCA.
The audience, therefore, had reason to believe that these matters would be cleared up by the afternoon’s final speaker, Amb. Jayme White, a career public servant in his 50s, who serves as the USTR’s deputy director.
He was asked by USMCOC’s long-time president, Al Zapanta, about U.S.-Mexico relations in the energy sector. Alluding to his participation with Secretary of State Antony Blinken in the meeting with AMLO on September 13, Amb. White remarked, casually, that “energy came up only at the margin.”
Not once, however, did the ambassador even allude to the July 20 request for dispute-settlement negotiations. Nor did the moderator or questioners ask him about his agency’s sore thumb regarding Mexico. Time was allowed for a few questions. Mine would have been the last — but time ran out.
The day following the announcement of the USTR complaint, AMLO predicted that “it will go nowhere.” USTR, by its unwillingness to discuss its case against Mexico with vetted industry executives, sends the message that it too regards its complaints as going nowhere.
Leaving American investors to fend for themselves.
George Baker is the Houston-based publisher of Mexico Energy Intelligence (MEI), an industry newsletter. For more information, click About George Baker. Twitter:
