Arizona’s Emerging and Multidimensional Commercial Relationship with Mexico

We are about to get underway here in Rio Rico for our second U.S.-Mexico Regional Economic Competitiveness Forum. As we head into summer, we have been reflecting upon how 2014 is shaping up to be an extremely interesting year in Arizona on the issue of international trade. It is remarkable to see a number of developments around the state coming together at more or less the same time. They include the following:

  • The City of Phoenix issued a request for proposals earlier this year for a trade development specialist to be based in Mexico City.
  • The state of Arizona also plans to open an office in Mexico City.
  • Tucson Mayor Jonathan Rothschild was just awarded the Ohtli award by the Government of Mexico.
  • The state’s associations of government are beginning discussions with mayors in northern Sonora on creating a “megaregion” modeled on the CaliBaja megaregion comprising San Diego, Tijuana, the Imperial Valley and the Mexicali area.
  • The Joint Planning and Advisory Council of the state of Arizona’s associations of government is promoting an idea to make the entire state of Arizona accessible to Mexican Border Crossing Card holders, rather than just area between the border and Tucson.
  • Discussions continue with ProMéxico (the trade and investment promotion agency for the Government of Mexico) on a potential presence in Arizona for the agency.

Taken together this is really quite a remarkable turn of events, when you consider where the state was in 2010 in the wake of the highly controversial SB1070.

Beyond its diplomatic challenges with Mexico, Arizona’s current round of engagement with Mexico is linked to a realignment of the state’s economic priorities following the Great Recession. Much of this engagement proceeds from the assumption that increased international trade has the potential to drive future high-value added economic activity and create more high-paying jobs for the state’s citizens.

Activity around trade in the state takes place largely on four distinct yet related planes. The first plane is with our neighbors, Sonora and Sinaloa, which Southern Arizona economic stakeholders in particular continue to cultivate as vital, go-to customers in terms of crossborder trade (shopping, fruit and vegetable distribution, real estate).

The second plane of trade engagement is currently developing, is more long-distance in nature and comprises a type of trade diplomacy with political leaders and federal agencies in Mexico City (which makes sense, as Mexico’s tendency toward centralization is strong in all matters, including economic matters).

The third plane of engagement is in its infancy and has to do with linking existing Arizona companies as suppliers to the rapidly developing automotive and aerospace clusters in Mexico’s Bajío region.

The fourth plane of engagement is almost fully conceptual at this point but consists in cultivating Mexican foreign direct investment (FDI) in Arizona as Texas has successfully done. Currently, Mexican FDI in Arizona is utterly minimal but real movement on that plane would be an indicator that the state has moved into a new era.

All of Arizona’s rethinking and repositioning on trade with Mexico–its leading commercial partner–is taking place as a host of other U.S. states and cities as well as other nations intensify their presence in Mexico as that country enters an amazing and really unprecedented phase in its history of rapid and far-reaching economic reforms and international engagement.

What this means is that Arizona can no longer rely on geography as a natural advantage and instead must move toward diversifying its trading and diplomatic approach with Mexico, one of the world’s most important economies. Arizona leaders also need to understand that their discourse and policies on immigration are and will continue to be fundamentally tied to issues of economic development and particularly trade diplomacy, by Mexican partners. The state needs a safe and efficient border with Mexico but that approach in and of itself will need to be contemplated with a broader vision of all that it means to be fully pursuing a deep and sustainable commercial relationship with one of the planet’s most important emerging economies.

Michoacán and Public Policy: Never Let A Serious Crisis Go to Waste

Many thanks to Gabriella Sánchez for her interesting take on the local roots of the conflict in Michoacán, which serves not only as a dramatic example of public safety issues boiling over but also for the way it speaks to a number of public policy areas simultaneously, including environmental, agricultural and even fiscal policies, among others. Most directly, of course, the crisis brings attention on Mexican President Enrique Peña Nieto’s security policy, anchored by a focus on reducing violence, centralizing federal security efforts, a new communications policy and creating a national gendarmerie (I would highly recommend viewing analyst Alejandro Hope’s excellent review of the policy during the Mexico Institute’s recent event, “The State of Citizen Security in Mexico: The Pena Nieto Administration’s First Year in Review.”). In fact, watch the entire video.

The crisis in Michoacán has touched off a tremendous discussion in Mexico over what the next steps should be. The Saturday Los Angeles Times piece by Richard Fausset is one of the better articles in English on the crisis, with a focus on the difficult options for Mexican federal, state and local officials. To wit: How do federal forces work together with the grupos de autodefensa? Should Mexico incorporate some or all of the vigilante groups into formal law enforcement? What is to be done about the government officials who aided and abetted the Knights Templars? In other words, extremely tough public policy questions, but an impressive range of ideas from analysts that have the potential to impact the issues going forward. “Never let a serious crisis go to waste,” to quote Rahm Emanuel.

Though Michoacán is located hundreds of miles south of Mexico’s border with the United States and by no means has a direct impact on U.S. security, it does raise comparisons to the (binational) response to the violence in Tijuana and Ciudad Juárez during the truly dark days of 2009-2011. The security situation in Tijuana and Ciudad Juárez is now much improved; in both cities, the role of civic organizations and detailed state-federal political and policy agreements were critical factors in bringing the city back from the brink. The multi-issue, multi-level response to border security challenges is a clear indication that Mexico is more than capable of addressing security issues. These are solvable problems in the medium-term that require strong initial investment and then a willingness to take on significant institutional change.

Of course, a number of critically important security areas in Mexico need continuing attention, including public participation, police reform and judicial reform. Successfully addressing these issues will positively impact U.S.-Mexico border security, as Eric Olson and I wrote in our chapter on security in the State of the Border Report. Binational collaboration can help to a degree in certain specific areas, and through the Mérida Initiative, the United States has invested in rule of law efforts in Mexico, including trainings for Mexican judges, prosecutors, forensic experts and police coordinated by the Conference of Western Attorneys General. Our 2011 report on binational anti-human trafficking cooperation efforts highlighted some additional and important collaborative work on an issue of mutual importance to both governments.

Public security in Mexico is a complex topic of immense importance for Mexico and, indirectly, the United States and Central America. A quick list of recommended work in English in this area includes David Shirk’s recent policy piece on the state of public security in Mexico, Daniel Sabet’s Police Reform in Mexico: Informal Politics and the Challenge of Institutional Change and Robert Donnelly and David Shirk’s Police and Public Security in Mexico. In Mexico, the Instituto Mexicano para la Competitividad, CIDAC and México Evalúa are among many non-governmental groups doing important work in this area.

 

 

Robert Pastor

American University Professor Robert Pastor, a friend and colleague to many of us working on issues relating to North America, passed away last week after a long battle with cancer. Bob was very respected for his tremendous body of work on North America and Latin America; his most recent book, The North American Idea: A Vision of a Continental Future was simply the latest in a long and impressive list of publications. His advice and insights were always helpful and came from broad and deep experience. His colleagues, friends and former students were amazed at his tenacity and work ethic up until the very end of his life. For a full accounting of his interesting life—including his time as President Carter’s national security advisor on Latin American and Caribbean affairs—we highly recommend reading the Washington Post’s remarkable obituary. Rest in peace, Bob Pastor.

NARP Comments on the U.S.-Mexico High Level Economic Dialogue

The U.S.-Mexico High Level Economic Dialogue was inaugurated in Mexico City this past September by Vice President Joe Biden and Mexican Secretary of Finance Luis Videgaray and represents a concerted effort by the governments of the United States and Mexico to focus on the two nations’ enormous economic relationship, which now totals over a half trillion dollars annually in two-way trade of goods and services. The North American Research Partnership took advantage of an opportunity provided by the U.S. Department of Commerce to submit formal comment on the U.S.-Mexico High Level Economic Dialogue and its initial work plan.

The work plan’s three pillars are Promoting Competitiveness and Connectivity; Fostering Economic Growth, Productivity and Innovation, and Partnering for Regional and Global Leadership. In general we emphasized four principal points which we have summarized below:

a. Keep the big picture in mind. Economic security is real security. From the U.S. perspective, the raison d’être for the HLED is stated clearly in the Federal Register notice itself: “Mexico represents a critical strategic ally and partner of the United States.”
b. This effort will require numerous different types of expertise and a new way to work. This is a big challenge and calls for a type of “whole of government” (interagency) work for which there is no readily available and unanimously agreed upon, successful model. Other binational processes (Border 2020 and the 21st Century Border Management Executive Steering Committee) offer interesting lessons and ideas for the HLED.
c. Outreach will be key to the success or failure of the HLED. Stakeholders, policymakers and citizens need to understand the work of the HLED to appreciate its importance. Outreach on international trade is particularly challenging because as a topic it is simultaneously politically difficult, abstract and highly detailed, an unfortunate combination in public policy. Such a high-level dialogue will necessarily need to support and hear input from local- and state-level groups on a continuing basis; as such the HLED should consider a range of robust formal and informal mechanisms for outreach to these groups.
d. Selecting and communicating progress on real metrics will help the HLED and the two nations build better policy on economic engagement. Vice President Biden’s encouragement to reach two billion dollars per day in crossborder trade in 10 years is an ambitious but easily grasped starting point. Keep it simple.

We focused additional comments on specific topics within the second pillar, Fostering Economic Growth, Productivity, Entrepreneurship, and Innovation, which we look forward to sharing in future posts.

U.S.-Mexico Tourism and Taxes in the Media

Tourism is an underestimated economic driver for the U.S. and Mexico that tends to be taken for granted somewhat in the broader binational discussion. Two recent media reports highlight its importance. Associated Press reporter Elliot Spagat recently sought to draw out potential impacts to border communities from the Mexican government’s doing away with the preferential tax status of the border zone. On January 1, the federal value added tax was raised to the standard 16% after a decades-long policy of a reduced 11% rate in Mexico’s border region. As Spagat concludes, this is essentially an added incentive for Mexican crossborder shoppers to make their purchases in San Diego, El Paso, Tucson, Brownsville and other U.S. border communities rather than at retailers on the Mexican side of the border (retailers in the U.S. often have other advantages, including intense competition, generous return policies, and greater variety, particularly in apparel and electronics). Spagat quotes statistics from the University of Arizona’s widely cited 2008 study on the economic impact of Mexican visitors to Arizona; as the report notes, just over 48% of sales tax revenue in Santa Cruz County in southern Arizona are generated from sales to crossborder Mexican shoppers. This is a remarkable level of dependence on retail sales to Mexican consumers; some in southern Arizona believe that the real figure is even higher. As the Arizona Republic recently pointed out, policymakers at the local level throughout Arizona have become so interested in the potential economic value of Mexican shoppers that the Maricopa Association of Governments is spearheading an effort to include the entire state within the “border zone” (which currently extends 75 miles north of the border).

We have pointed out the importance of Mexican tourists to the U.S. economy at various times, including our March 2012 study, “Realizing the Full Value of Tourism from Mexico to the United States,” which we presented at an interagency meeting at the White House on travel and tourism to the United States. With the complete numbers for 2012 finally out, Mexico again tops the list of destinations for U.S. tourists, as the Los Angeles Times pointed out on January 1 in an article featuring the latest statistics on the issue from the U.S. Department of Commerce’s Office of Travel and Tourism Industries. Although the numbers of U.S. tourists to Mexico slipped somewhat in 2011 and 2012, Mexico still stands at the top of the list, ahead of Canada by a good eight million trips annually.

Mayors, Legislators, Governors and Trade Diplomacy in North America

The last couple weeks have brought some interesting news of state and local officials working on improving trade relations with Mexico. Today the San Diego Union Tribune reported on a trade delegation to Tijuana by California State Senator Lou Correa (D-Anaheim), Assemblymember Travis Allen, (R-Huntington Beach), and Assemblymember Rocky Chavez (R-Carlsbad) and retired state senator (and NARP board member!) Denise Moreno Ducheny from San Diego.  Other stories have included Tucson Mayor Jonathan Rothschild’s recent visit to Mexico City to meet with officials there, including Foreign Minister José Antonio Meade as well as a remarkably detailed Arizona Republic Fact Check of Phoenix Mayor Greg Stanton’s recent comments about the economic impact to Phoenix of air travelers from Mexico. And Nevada Gov. Brian Sandoval’s recent signing of an agreement with the state of Mexico to work together on issues that includes not only tourism but also manufacturing, mining and education is interesting for a number of reasons (perhaps chief among them that Nevada’s trade with Mexico has historically been so focused on Mexican tourism to the state).

The international impact of policies taken by state and local officials in North America is of particular interest to the North American Research Partnership as we analyze what works and what doesn’t work with the “bottom-up” models of governance and hence international engagement that are so strong in the West and Southwest.

Rick Van Schoik to speak at NPI tomorrow on North American energy

 

The possibility of North American energy self-sufficiency, aka security, through interdependence is as elusive today as it was in the past, the recently discovered reserves and technologies developed notwithstanding. One of the more active portfolios of both the North American Research Partnership and the US-Mexico Border Research Partnership is on energy. On Wed, July 24 Rick Van Schoik, director of NARP’s energy portfolio and Duncan Wood, director of the Mexico Institute, will share insights as respondents to Bill Richardson, Secretary of Energy for President Clinton when he speaks at an event in Washington sponsored by the New Policy Institute. Rick will talk about past failed energy initiatives across one or more borders and about eventual possible mechanisms  for moving forward on siting, environmental review, finance, and international permitting of energy projects and transmission infrastructure with emphasis on renewable and other clean energy sources.  Among the options he will describe is a regional/international greenhouse gas offset and reduction (RIGOR) program for North America. You can RSVP for the event here.

Ports of Entry, Lost in the Immigration Debate

Arizona Daily Star border reporter Perla Trevizo had a longish article from this past Sunday’s paper on how ports of entry fit in–or don’t fit in–to the current immigration debate. I commented for the article on this issue that is particularly critical for border communities and for the U.S. and Mexican economies more generally. Long story short, our 47 ports of entry on our shared border with Mexico are critical “membranes” that must do double-duty by providing both security and trade facilitation with Mexico (our third most important trading partner in the world), but they generally receive scant attention from policymakers and the public. Chris Wilson and I wrote on this issue in our trade chapter for the State of the Border Report. In addition, NARP is working on an ongoing initiative called “Realizing the Strategic National Value of Our Trade, Tourism and Ports of Entry with Mexico” with DC think tank NPI, and if you need an overview of the issue you can read the latest report for this initiative here.

San Diego launch/presentation recap

QandA San Diego

Just an excellent event yesterday in San Diego at the U.S.-Mexico Border Philanthropy Partnership. Our launch and the presentation of the State of the Border Report were attended by over 70 people, and the feedback we received from the Mexican and Canadian Consulates and the stakeholders in the room on the report was very, very high quality. Indeed, the San Diego/Tijuana region stands out for its large, sophisticated group of binational stakeholders in numerous issue areas. Mexican Consul General María de los Remedios Gómez Arnau specifically mentioned the Cali-Baja Megaregion Initiative as an economic development model worthy of analysis in our next State of the Border Report. In addition, we think it is often a good idea to include perspectives on the U.S.-Canada bilateral relationship when talking about the U.S.-Mexico border. So Canadian Consul and Trade Commissioner Lisa Stockley’s comments on the enormous U.S.-Canada bilateral economic relationship were particularly on point for the report, which emphasizes the sheer enormity of the U.S.-Mexico economic relationship, now at over a half trillion dollars a year.

Suggestions from the group for additions to future iterations of the report include a closer look at border deaths; a larger North American frame; a close look at health issues that affect the border region; a discussion of data differences between U.S. and Mexico; an analysis of border innovation clusters; and a look at border region newcomers and efforts to integrate these newcomers.

 

Ready to go in San Diego

Good morning all. It is a gorgeous midsummer morning here in San Diego, and we have a capacity crowd registered for this afternoon’s presentation of the State of the Border Report and the formal launch of the North American Research Partnership at the Malin Burnham Center for Civic Engagement in beautiful Liberty Station. We look forward to an engaging discussion with the numerous San Diego/Tijuana area border stakeholders who will be in attendance. Today’s presentation of the State of the Border Report follows two previous presentations in Washington, DC (May 23) and Mexico City (June 8).

We’ll check back in later with a recap of today’s discussion.