Chocolate Cars, Sales Taxes and a Bit of Donald Trump: The U.S.-Mexico Border in the 2018 Mexican Elections

(Also posted on the Mexico Institute’s 2018 Elections Guide.)

By Victor Remigio Martínez Cantú and Erik Lee

Politics at the Limits of Mexico
On May 20, the Mexican presidential candidates will hold a debate in Tijuana, whose city motto Aquí empieza la patria (“The Nation Begins Here”) subtly pushes back against Mexico City’s centralization of power and policymaking.

While the border takes up huge amounts of bandwidth in U.S. politics, it also appears in Mexican politics as a potent symbol of Mexico’s place in the world. But in this election, it’s not all about Donald Trump, all the time. The border also plays a more practical—and highly controversial—role in terms of national tax policy given the enormous amount of crossborder commerce that takes place in the region.

The Candidates and the Border: A Focus on Pocketbook Issues
As the 2018 candidates campaign in the northern border states, they have tended to emphasize “pocketbook” issues more than others. From a practical political standpoint, this makes sense, as northerners have often felt that their tax money essentially heads to Mexico City to fund social programs in the deep Mexican South. Well aware of this, most candidates have put forth “border region friendly” proposals for addressing rising gasoline prices, high value added taxes and even irregularly imported “chocolate” used cars purchased in the United States.

In particular, Mexico’s federal value added tax (known by the Spanish acronym IVA, normally 16% in most of the country and applied to sales of a huge variety of items) is a story with an enormous political impact in the North. The 2015 midterm electoral disaster for the PRI of the 2015 midterm elections stemmed in part from the Peña Nieto administration’s rescinding the North’s preferential tax status (IVA had been held at 11% for decades in border communities). The (predictable) response from northerners ranged from stunned anger to calls for secession.

With this background in mind, the candidates’ current proposals for border state residents can be summed up as follows:

Andres Manuel López Obrador (MORENA), the front-runner, has also come down on the side of reducing rental taxes as well as the value added tax in the border zone in order to spur development in the region. This is an unusual proposal for a leftist candidate but smart politics in the border states for a career politician who has not done well in the North in previous elections.

Ricardo Anaya, candidate from Frente por México, a peculiar coalition between right (PAN) and left (PRD), has been more outspoken with respect to Trump in spite of the fact that his family lives in Atlanta. He has also insisted that he has always opposed raising the value added tax in the border region and that if elected he would work to lower it.

José Antonio Meade, candidate from the PRI, is s former Treasury Secretary in the Pena Nieto Administration, which may explain his reluctance to push for reducing taxes. He has promised to review the status of so-called irregularly imported “chocolate” cars, a back-to-basics PRI attempt at reaching lower- and middle-class voters in the North’s spread-out, automobile-dependent cities.

Jaime Rodríguez Calderón, alias “El Bronco,” also running as an independent candidate, has also promised to reduce the value added tax. He has also promised to move more funds to the municipal level and to create a fund that would specifically help border communities. He is the only candidate from a northern state (Nuevo León).

What’s Missing: NAFTA, Border Security, Infrastructure and the Environment
A number of high-profile issues that touch Mexico’s northern border region have been absent from the debate due to this emphasis on pocketbook issues.. NAFTA has been largely left out of  candidates’ discussions in northern border communities, where employment in the maquiladora sector depends heavily on the agreement. None of the candidates have wanted to enter the complexities of trilateral discussions already underway, even López Obrador.

Candidates’ positions on border security issues are somewhat less defined as the discussion on security in Mexico tends to focus on broader issues of strategy, coordination (or a lack thereof), and corruption.

Border infrastructure issues—so critical to border communities—are also largely absent from the campaign as they tend to compete within the larger, extremely pressing set of infrastructure issues in Mexico. Water—a critically scarce resource in the North—hasn’t entered the debate at all.

Conclusion: Continuities in Conflict (and Cooperation?)
The debate on May 20 could see discussion in some of the areas outlined above. Whatever the content of the debate, in stark contrast to recent elections, the winner of the 2018 Mexican presidential campaign will immediately face not only a hostile U.S. administration in terms of issues such as NAFTA and border security but also a skeptical northern border region caught between the U.S. and a political class in central Mexico that has not managed their key issues well recently. The candidates would do well do carefully consider how best to cultivate and strengthen a region that is so strategic to national interests.

Erik Lee is executive director of the North American Research Partnership. Victor Remigio Martínez Cantú is a PhD candidate in regional development at Mexico’s Center for Research on Health and Development. 


The Río Sonora SEZ: Formulating a Plan for Rural Economic Development in a Crossborder Context

By Alma Bezares* and Erik Lee

One of our newest initiatives, the Rio Sonora Special Economic Zone Development Plan—commissioned by the North American Development Bank at the request of the state of Sonora—offers valuable perspectives on rural economic development issues that play out on multiple levels in Sonora, the USMBR and Mexico more generally. These include environmental, economic development, governance and civil society issues.

Rural Mexico and the Environment
The August 2014 mine spill near Cananea, Sonora saw the introduction of an enormous amount of copper sulfate and other toxic materials accidentally dumped into a tributary of the Rio Sonora, creating one of the most significant environmental disasters in modern Mexican history. This event serves as a clear example of the fragility of environmental conditions for communities throughout Mexico. Yet it also highlights the importance of generating sustainable economic activities that can generate development going forward. Beyond the threat of environmental disasters such as the August 2014 case, the effects of climate change, particularly changing rainfall patterns and the intensity of drought not only endanger the natural environment but increase the vulnerability of those sectors of the population that live in rural areas under constrained economic conditions. Policy proposals that carefully and comprehensively prepare for the new context are essential to ensure a sustainable future.

No Silver Bullet for Rural Economic Development
Rural economic development encompasses a set of challenges for Mexico that date back to the colonial period. In the case of the Río Sonora region, with critically important cross-border tourism choked off at Agua Prieta by restrictions on foreign vehicles, the region has struggled to emerge from its status as an economic hinterland of Hermosillo, the state’s capital. The development of external markets for regional products has not until recently been given priority. Outmigration has brought remittances but also drained the area of human capital. Critical infrastructure such as highways and bridges can allow an area to flourish or cause it to wither away if not built and maintained properly. From a tourism perspective, the state is a microcosm of broader challenges in Mexico, with relatively well-funded and connected beach resorts outcompeting rural tourism destinations that are critical for rural economies. While there is no one silver bullet to address this issue, our team outlined a multi-level approach to economic development that we hope will be helpful to state agencies and municipal governments as they address these issues.

Governance: New Jurisdictions for Disaster Conditions
The project also shines a spotlight on a range of questions surrounding local-level governance in Mexico. As we note in the development plan, Special Economic Zones are a newer construct in Mexico, and the Río Sonora Special Economic Zone is the first state government-designated SEZ in Mexico. Its location in northern Mexico—and particularly the border region—adds to its uniqueness. The state’s Interagency Commission on the Rio Sonora Special Economic Zone and its Technical Committee will lead the effort to develop the zone for the next 15 years. The larger policy question relating to SEZs is whether they serve as effective mechanisms for focusing government, private-sector and non-profit efforts on addressing economic development challenges.

In addition, the ability of municipal and state government agencies and policymakers to respond to an acutely sensitive issue such as an environmental disaster and all of its ensuing consequences—including the economic consequences—is an important test for citizens who have long questioned the efficacy and responsiveness of government at all levels in Mexico. Bringing in the North American Development Bank for technical assistance on the project shows a clear recognition of the importance of getting the policies, programs and projects right for the Río Sonora. Throughout the project, as we worked with and listened to various policymakers, our team found much in the way of ideas, political will and simple goodwill that promise a strong foundation for the development plan.

Yet there are even more basic governance issues in the Río Sonora region in terms of how budgets for rural communities are managed. Namely, how can policymakers effect the efficient allocation of public resources for small rural communities? Should some municipios join forces in an association of local governments (a mechanism that is relatively rare in Mexico) or should small municipios become absorbed into larger muncipios that can more efficiently manage staff and other public resources? These are questions facing state governments all over Mexico.

The Role of the Private Sector and Civil Society
The private sector and civil society have already played a fundamentally important role in this development plan. On the one hand, the plan highlights opportunities to develop new economic sectors in the region that leverage its current situation and its comparative advantages and potential. On the other hand, the question about the prospect to create spillover effects from the industrial areas across the state remains open. We consider both possibilities in the plan, tailoring economic development according to local needs but also taking into account the potential opportunity to enlarge industrial clusters, especially in sectors such as the textile and the metal-mechanic industries.

Civil society has also played an important role in the development of the plan. During the elaboration of this plan, eight town hall meetings were conducted to better understand the needs and priorities of the region’s population. In addition, input from academic and other civil society organizations was encouraged, and the level of interest and organization that already exist and which helped to generate many well-developed ideas was impressive. In that regard, this plan also serves as a snapshot of the state of the art in local economic development in the region as well as a communication and accountability device between the different level of government and the population.

*Alma Bezares is a PhD candidate in Economics and Politics at the Claremont Graduate School and is co-author of Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries (2015).

Interview on recent resignation by U.S. Ambassador to Mexico Roberta Jacobson

KJZZ Radio’s Steve Goldstein recently interviewed NARP Executive Director Erik Lee about the recent resignation of U.S. Ambassador to Mexico Roberta Jacobson. Below is the transcription of the interview of Lee by KJZZ’s Steve Goldstein. You can find a link to the audio of this interview here

Transcription by NARP intern Jaylia Yan.

Uncertainty Grows As U.S. Ambassador to Mexico Resigns From Post (Transcript)

Steve Goldstein, KJZZ: Tensions between the U.S. and Mexico have been heightened since President Trump took office in 2017 and uncertainty may be growing, thanks to U.S. Ambassador to Mexico Roberta Jacobson’s decision to resign her post—she’ll leave in May. Jacobson is one of the most experienced people in the State Department when it comes to Latin America. And with me to talk about Jacobson’s departure is Erik Lee, Executive Director of the North American Research Partnership. Erik, first, were you surprised by Roberta Jacobson’s resignation, and how significant is it?

Lee: I wasn’t surprised. I’ve seen ambassadors named by a previous president hang on by a year or two under a new president, so in many ways it’s not surprising in that way. Also Roberta Jacobson was one of the premier U.S. diplomats who focused on Latin America, bar none, particularly in respect to Mexico. And there was just an obvious clash there with President Trump, who is not a policy person but a politics person in every way.

Steve Goldstein, KJZZ: How much does this indicate the struggles we’ve seen between U.S.-Mexico relations since President Trump took over? Is this just another sign that there is a strong disagreement over what should be done or is there even concern over whether relations are really rough at this point?

Lee: I think the relationship is as rough as it’s ever been, as I’ve ever seen it. This is yet just another additional indicator that this is the case. I don’t think that is a surprise for anyone; we’ve seen a whole series of retirements within the State Department including senior diplomats who work on Mexico and Latin America, so just add this one to the list.

Steve Goldstein, KJZZ: We’re talking about a time where relations are especially tense between U.S. and Mexico. How important is it to have an experienced hand in there or frankly, is it more important to have someone that agrees with the President’s philosophies?

Lee: We never have a lightweight in that particular ambassadorship. The U.S. always sends heavies: either career diplomats–I’m talking about folks with 20, 25, 30 years of experience in the State Department and quite a bit of experience in Latin America, or major donors or bundlers who are very close to the President and have followed their political career over years and have the trust of the president, or politicians that are very close to the President. Tony Garza from Brownsville, Texas is a good example of this; he was named by President George W. Bush as the U.S. Ambassador to Mexico and he stayed in that position for many years and actually lives in Mexico City now. Jeffrey Davidow was named by President Clinton in 1998 and hung on until I believe 2001 or 2002 under President George W. Bush and then Garza came in. And Davidow was designated a career ambassador within the State Department. So it’s always somebody who has a lot of experience or a lot of money.

Steve Goldstein, KJZZ: So the fact of this comes on the heels of President Pena Nieto and President Trump having a long phone conversation and decisions were made to not meet or reschedule or cancel some meetings that were planned. What do you see? You did mention that this is the worst time as far as relations between the two countries that you’ve seen—are we at a perfect storm for the timing of this? Do you see this possibly getting worse?

Lee: Well, President Trump and President Peña Nieto never saw eye to eye and they never will see eye to eye. The collapse of their upcoming meeting is no surprise to me. President Peña Nieto is an extreme lame duck at this point, Mexico is heading to an election season here, and will have presidential and other elections this summer…This is a very complex relationship. The U.S. Ambassador does not call all of the shots. He or she has to contend with the National Security Agency, folks at the White House, folks at the State Department, and elsewhere in DC. So this is a complex management scheme we have for managing the U.S. Mexico relationship.

Steve Goldstein, KJZZ: And Erik, we’re aware that there are others are handling the NAFTA negotiations, does this put a crimp in that?

Lee: It is yet one more complicating factor. I would think that Ed Whitacre, who several news reports have named as the front runner for this position and who is a retired executive and lives in San Antonio Texas, would have a good idea of what this trade agreement means, particularly in the energy and trucking industries. It’s not a lucky bounce for Arizona in that it’s another Texan named U.S. Ambassador to Mexico rather than someone with a West Coast view of how this relationship runs or should run. 

Steve Goldstein, KJZZ: Alright, Erik Lee is the Executive Director of the North American Research Partnership. Erik, good to talk with you as always.

Lee: Thanks Steve.

NARP Welcomes Mignonne Hollis to our Board of Directors

NARP extends a warm welcome to Mignonne Hollis as the newest member of our Board of Directors!

Mignonne brings a wealth of non-profit, private-, and public-sector experience to NARP. She currently serves as executive director of the Arizona Regional Economic Development Foundation (AREDF) and has over 10 years of hands-on economic development experience, particularly in rural Arizona. Through AREDF—which received the prestigious EDDE Award for Small Organizations in 2017–she has taken the lead in Arizona’s unmanned aerial systems industry.

In addition to focusing much of her work on rural Arizona, Mignonne is dedicated to making an economic impact statewide by promoting and supporting industries such as aerospace and defense, small business, health care, Arizona/Mexico commerce, and transportation.   She has been appointed to the Arizona Commerce Authority Board of Directors, the Greater Arizona Development Authority (GADA) and the Aerospace and Defense Commission by Governor Doug Ducey. Mignonne received the 2013 Governor’s Excellence in Economic Development award and also sits on the board of the Arizona Association for Economic Development (AAED). She is also a Fellow of the Flinn-Brown Civic Leadership Academy and an active member of the International Economic Development Council (IECD). She also serves on the board of trustees of the Canyon Vista Medical Center.

Her work in the private sector includes serving as CEO of two businesses while also operating an entrepreneurial co-working facility and collaborating on a weekly newspaper advice column for business owners.

We are tremendously fortunate to have Mignonne join us and look forward to many outstanding and productive collaborations with her in the coming years!

Interview on developments with the TPP 11

Trans-Pacific Partnership Moving Forward Without The U.S.

KJZZ Radio’s “The Show” recently interviewed NARP Executive Director Erik Lee about developments on the Trans-Pacific Partnership. Below is the transcription of the interview of Lee by KJZZ’s Steve Goldstein. You can find a link to the audio of this interview here

Transcribed by: Grant Laufer

KJZZ: The Trans-Pacific Partnership, or TPP, is moving forward with eleven nations, even after the Trump administration decided to pull the US out of the agreement. The pact is now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. A lot remains up in the air, especially considering Canada’s hesitation and how NAFTA re-negotiations could complicate the new TPP. With me to talk about where we are at and what could be next is Erik Lee, Executive Director of the North American Research Partnership. Now Erik what are the eleven remaining nations been able to accomplish so far with these negotiations?

Lee: Well I think more than anything else they’ve been able to accomplish an agreement on moving forward. That is an enormous step forward particularly after the United States left in the early days of the Trump administration. Just saying, and agreeing, that you are moving forward without the United States in a trade agreement is a momentous step forward, without a doubt.

KJZZ: So what are the things they are working on, and even in this sense, what are some conflicts that have arisen between certain countries that may have been made more complicated by the US not being involved or less complicated by the US not being involved.

Lee: Well, I think a lot of the drama right now centers around Canada’s reluctance to move forward without specific language in place that looks at things like cultural protections. And, interestingly enough, a lot of that has to do with Canadian government subsidies for a lot of the activity that happens in the entertainment industry. Canadians are very, very sensitive about the role of Quebec and the role of French in Canadian culture. And really the Canadian government functions a lot more like European governments, South American governments in terms of its support, particularly in the film industry. That’s a big deal in Canada. The other drama here is Canada’s, and to a lesser extent Mexico’s, but definitely Canada’s role in the NAFTA discussions. This is an extremely sensitive time if you are a Canadian trade negotiator, without a doubt. A lot of the team has been pulled over to the NAFTA discussions which are on a fast track. So that work is pushing other work to the side. That side of discussions is moving very very quickly and running into a lot of road bumps. I mean, they were supposed to have it wrapped up, I think, in about a month. And no trade agreement has ever moved that quickly in the history of trade agreements.

KJZZ: So there’s no fear, by Canada or Mexico, of ticking off the US by trying to do NAFTA and TPP at the same time? None of that has come into play?

Lee: Oh I think so. I think so. Particularly, again in the Canadian case, we’ve got Prime Minister Justin Trudeau who I am sure is taking into account his father’s famous dictum that if you’re Canada it’s like sleeping next to an elephant. Anything the United States does will affect you. You have to be very, very careful in dealing with an ally as close as the US is to Canada.

KJZZ: So understanding that supporters of President Trump may not even like the premise of this question: are there greater pitfalls for the US to not be involved in the TPP then there is to do what the president has talked about: having more individualized agreements. To a lot of people it just doesn’t make sense.

Lee: Right, I think it’s a bad idea to have backed out of this agreement. I am not a completely, 100% pro-free trade guy. I think these are agreements you have to look at very, very carefully and they require a lot of public discussion. At the same time they’re quite secret. These trade negotiators sign non-disclosure agreements, and that is a conflict that is just welded in to what this thing is. I understand the anti-free traders and where they are coming from. These things are exasperating to follow. It’s like a black box, and very difficult to have influence on these things once they are in motion.

KJZZ: How long an agreement would this be? And could there be, obviously as you said they are secretive, but could there be little out-clauses in there for example that if the US decided in a year or two it wanted to get back in could it?

Lee: These are negotiated as if they are agreements forever, in perpetuity. That’s an interesting point you bring up because one of the points that the US has brought up in the NAFTA negotiations is that NAFTA would have a sunset clause after five years. Which if you are a trade negotiator makes your head explode, because you would immediately be renegotiating an agreement every five years, for five years. So you would be in a constant state of negotiation if you were a country that had just negotiated an agreement with the five year sunset clause.

KJZZ: Can TPP be compatible with NAFTA? Are there things that would apply to TPP that could apply to renegotiation with NAFTA?

Lee: I think that’s an excellent question and a lot more thinking needs to be done in that area. There is a danger that  TPP could scramble or reorganize North American supply chains, and that’s something we want to think through very carefully. I mean, the devil really is in the details on these things.

KJZZ: Erik Lee is the Executive Director of the North American Research Partnership. Erik good to talk to you, thanks.

Lee: Good to be here, thanks Steve.

How is the U.S.-Mexico Border Region Represented in the National Capitals?

How is the U.S.-Mexico Border Region Represented in the National Capitals?
By Erik Lee and Victor Remigio Martínez*

A few weeks ago we discussed how the U.S.-Mexico border region (USMBR) has issues with its representation in the two national capitals due to its geographical configuration and isolation. But how is its current political representation in the national capitals characterized? While mayors and state governors and legislators can draw attention to a broad variety of regional and federal issues, the most direct route to the national capitals from the U.S.-Mexico border is through the offices of federal Senators, members of Congress or Federal Deputies on the Mexican side. These federal elected officials are charged with taking the issues of their constituents and giving them a national hearing.

Although U.S. and Mexican federal systems differ in their makeup and emphasis on federal versus state and local power distribution, generally speaking power flows up to the capitals through local Senatorial and Congressional offices and staff (oficinas de enlace in Mexico) to the Congressman/Federal Deputies/Senators themselves and to the numerous, relevant Congressional and Senatorial committees. It is through this slow, deliberative and highly fragmented process that the border region makes its issues known to policymakers in Washington and Mexico City.

On the U.S. side, border issues are myriad and handled among numerous committees and subcommittees depending on which federal agency (State, Homeland Security, U.S. Environmental Protection Agency, Government Services Administration etc.) has business before its respective oversight committee(s). Exhibit A is the Department of Homeland Security, of which Customs and Border Protection is a key component. DHS is under the oversight of 108 committees (due to the fact that the department was created from pieces of 22 other agencies and carried committee oversight from each piece as a result), not just the House Committee on Homeland Security, chaired by Texas Rep. Michael McCaul. Other examples include the Subcommittee for Western Hemisphere Affairs, (which is part of the House of Representatives’ Committee on Foreign Affairs) and the House Transportation and Infrastructure Committee.

In the U.S. Congress, there is no one specific Senatorial or Congressional committee or subcommittee convened to take a broad look at issues relating to the U.S.-Mexico border region. The Border Congressional Caucus (one of many political caucuses convened by members of Congress to address myriad issues) consists of the members of the House of Representatives whose districts (each with approximately 711,000 citizens) touch the international boundary. The House members tend to skew Democratic, while the USMBR has even representation in the Senate (four Democrats from California and New Mexico and four Republicans from Arizona and Texas).

In Mexico, formal committees on northern border affairs exist both in the Chamber of Deputies and the Senate. Their relative power vis-à-vis other forces in Congress is limited. These committees are presided over by a member of the National Action Party (PAN) in the Senate and by a member of the left-of-center PRD in the Chamber of Deputies. Neither committee president is from a border state (they hail from Durango and Veracruz, respectively) nor belongs to the PRI, the party of President Peña Nieto. The border affairs portfolio in Mexico’s Congress, then, has more to do with internal negotiations of the political parties than either being from a border district or having knowledge about and/or interest in border affairs.

These challenges notwithstanding, in 2017 the Northern Border Affairs Commission of the Chamber of Deputies approved the Border Fund (Fondo Fronterizo) of approximately $42 million USD for all (northern and southern) border municipios (including all the border municipios of Baja California, Baja California Sur y Quinta Roo). The Fund was earmarked for costs associated with infrastructure needs related to the impact of immigration on these municipalities. In addition, the Fund was also seen as a way to compensate for a significant boost in the value-added tax (IVA) in the border region from 11% to the national rate, 16%. This sensitive taxation issue had a significant impact on the 2015 midterm elections in Mexico, peeling off votes from the PRI–which supported the tax raise in the border region—in favor of the PAN in Baja California and Sonora. Border congressional districts are dominated by the PRI from Chihuahua to Tamaulipas.

Federal elected officials from the two countries have a limited number of forums in which to connect with and influence each other. While individual members of Congress occasionally travel back and forth between the capitals in order to connect with their counterparts and other government officials, the U.S. and Mexico federal legislatures also have an annual “interparliamentary” meeting. Currently border issues are part of that agenda, mostly related to the wall proposal, though the group mostly serves as a forum to air ideas and differences while its influence over policy has historically been limited.

Numerous regional/subnational groups such as the U.S.-Mexico Border Legislative Conference and the U.S.-Mexico Border Mayors Association have traveled to the capitals over the years to advocate for the region, with mixed results. Some of these organizations’ former members are now members of Congress. The San Diego Regional Chamber of Commerce organizes a large and high-profile annual advocacy trip to Washington, DC and Mexico City.

So the USMBR, an enormous and elongated geographical space crisscrossed by numerous congressional districts and other jurisdictions, finds itself with numerous pressing issues (in the areas discussed in this report as well as others) handled at the federal level in an enormously fragmented fashion. The very structure of how the border is represented in the national capitals goes far in explaining the region’s relative poverty and neglect.

Victor Remigio Martínez has a master’s degree in public policy from ITAM and has been a scholar in regional and border-related issues at ASU and UCSD.

To Update NAFTA, Why Not Start at the Border?

This op-ed originally appeared in the San Diego Business Journal on August 24, 2017.

To Update NAFTA, Why Not Start at the Border?

By Erik Lee and Flavio Olivieri*

Now that the NAFTA renegotiations have begun, a lot of us that look at the U.S.-Mexico border economy are wondering how this will play out for the border region. Interestingly enough, so is U.S. Trade Representative Robert Lighthizer, who made reference to border communities’ “particular equity in the agreement” in his opening statement. Indeed, there is much at stake for border communities, whose economies are based to a significant degree on the idea of a broader North American economy and free trade.

Yet, at first glance, the U.S. Trade Representative’s 17-page document, “Summary of Objectives for the NAFTA Renegotiation,” does not appear to have much of a connection with the U.S-Mexico border…or any region or community in the United States or Mexico, for that matter. The word “border” only shows up as part of the phrase “cross-border data flows.” This is strange, as President Trump’s 2016 campaign was really all about the U.S.-Mexico border, and it would be reasonable to expect the document to connect the NAFTA renegotiation effort to at least some type of border management policy. Perhaps this is because the U.S.-Mexico border has facilitated trillions of dollars in North American trade over the last two decades, which makes it look like an economic success story that this administration simply does not want to admit.

But once you start looking at the document long enough, some interesting ideas begin to emerge. In fact, the document contains a number of elements that, if they come to fruition, have the potential to positively impact economic development along the U.S.-Mexico border region. And this really should be an important objective of these negotiations, as NAFTA 1.0 laid some of the groundwork for a more prosperous border region but left a number of areas wholly undeveloped, including urban planning, transportation planning and the development of cross-border industry clusters, among others. NAFTA 2.0 should help transform border communities from their current status as “pass-through” economies into far more connected, economically sustainable and technologically oriented local economies.

Though not specifically mentioned in the document, the future of the North American Development Bank may be the key piece of the NAFTA 2.0 puzzle for border communities. The NAD Bank—once derisively called the “NADA Bank” by an exasperated George W. Bush for its (then) inability to get key funding to border communities—has evolved into a key player in what continues to be an investment-poor region. Though recapitalization for the NAD Bank has been held up in Congress, the hope is that the NAFTA renegotiations might provide the impetus to re-fund the bank. If the two governments decided to expand the Bank’s mandate, funds might be used to fund basic improvements to border communities beyond wastewater treatment, storm water management and the like and expand into other areas that would boost economic development such as ports of entry funding, transportation systems, expanding local telecom networks, education, research or even health care.

The document also has some long-overdue language on boosting small- and medium-sized enterprises, an emphasis that is borrowed from the Trans-Pacific Partnership that President Trump pulled the United States out of upon entering office. While NAFTA worked well for major multinational corporations, one of the major criticisms of global trade agreements is that small- and medium-sized enterprises have largely been left out of global supply chains. This emphasis on SMEs is important to the border region because a number of the border states are very much small-business states. Arizona is a prime example of this, with its dearth of corporate headquarters.

Yet another area of opportunity that could emerge from the negotiations is services trade. While goods trade has—with some exceptions—continued to grow, services trade lags far behind in volume. This is an area with tremendous room to grow in North America and which could be extremely helpful from an economic development standpoint in border communities. As Erik Lee and Chris Wilson pointed out in Competitive Border Communities, what stands out for many sister city pairs is the lack of cross-border economic connectivity (advanced manufacturing in Mexican border communities which often does not have a local supplier or services base on either the U.S. or Mexican side, for example).

A final point on the importance of place. We mentioned the lack of a focus on the border region itself. All of the above points—financing, SMEs and services—might make more sense as a package if they were brought together at a specific place. Why not the border itself? Specifically, as we have argued elsewhere, a focus on border commercial areas—which could be upgraded through policy, infrastructure and other investments to border economic micro- or even nano-zones—could bring all of this together in one place. The current border commercial areas are responsible for much of the crossborder commerce yet also the negative image of the border itself (lots of congestion, chaotic transportation networks, a lack of public attractions and amenities, and public safety challenges). More cross border interaction between small- and medium-sized companies can be facilitated through a cross-border smart growth urban development program in commercial areas adjacent to land points of entry that in turn will help integrate complementary capabilities, as the large manufacturing companies do.   Sectors such as medical services, software development, video games, film, arts and culture in general could thrive in a more integrated, efficient and pedestrian-focused border environment.

The upcoming NAFTA renegotiation, then, is an opportunity to grow North America if the negotiators can ground the conversation at the community level, and in this case, the cross-border community level. The pieces are there in USTR’s document, but they need further integration.

Erik Lee is executive director of the North American Research Partnership. 

*Flavio Olivieri is executive director of Cali-Baja Bi-National Mega Region, Inc.

U.S.-Mexico Border Mayors: Close Neighbors Dealing with Distant Capitals

This week’s meeting of the U.S.-Mexico Border Mayors Association in San Diego comes at an auspicious time for the United States and Mexico. With the Trump Administration pushing forward on augmenting the already existing border wall and dragging Mexico and Canada to a renegotiation of the North American Free Trade Agreement, border mayors have a lot to talk about.

Decisions made at distant conference rooms in Washington and Mexico City tend to have an outsized effect on border communities, which have not really had a permanent seat at the table in these discussions. So with or without a Trump Administration, being a mayor on the border is a challenge. One of the principal and most challenging characteristics of the U.S.-Mexico border region simply has to do with distance, which manifests itself in a number of ways.

Border communities are first and foremost amazingly distant from the national capitals. San Diego and Tijuana are over 2600 miles from Washington and 1700 miles from Mexico City. But even Brownsville, Texas, the easternmost U.S. border community, is still over 1,700 miles from Washington, DC. That translates to an epic 26-hour drive or an inconvenient five-hour, one-stop flight. Brownsville’s sister city, Matamoros, Tamaulipas, is by comparison somewhat closer to Mexico City (via an 11.5-hour drive or a four-hour, one-stop flight).

In addition, with the exception of Mexicali, border communities are also remarkably distant from state capitals. On the U.S. side, Sacramento, Phoenix, Santa Fe, and Austin each are hours from the border and usually a long ways from understanding the unique dynamics of these communities.

And finally, border communities are often far from each other. In the United States, Interstate 10 is the closest thing we have to a highway that links communities along the almost 2000 miles of border, while in Mexico, east-west freeway infrastructure runs counter to both the country’s mountainous geography and basic north-south orientation.

The point is this: physical distance translates into psychological and political distance in which obsessions about the border in Washington, the interior of the United States and Mexico City can and do easily fester. Washington’s long-standing obsession with border security and Mexico City’s complicated relationship with the border wall, outmigration and its own border communities are products of this mutual isolation.

This is essentially why organizations such as the Border Mayors Association are so important. These diverse and dispersed communities have needed to come together and present a collective “ask” of the two federal governments basically since forever. In the absence of a functioning Border Governors Conference, this is more important than ever. The challenge will be to mesh the concerns, projects and programs of enormous binational urban complexes such as San Diego/Tijuana region and the El Paso/Las Cruces/Ciudad Juarez region with much smaller cities such as Somerton, Arizona; Ojinaga, Chihuahua; and Alpine, Texas among many others.

If the organization is able to accomplish this, interesting things could happen. These binational urban areas could start to get some long-overdue attention in terms of urban planning and federal project funding, infrastructure could get built, local economies could flourish and cross-border business clusters could be created, expanded and in the process providing much-needed employment. As these outcomes can’t possibly be engineered from meetings in Washington and Mexico City, the key catalysts going forward are mayors, who are uniquely positioned to articulate the specific needs of their complex, crossborder economies to the two federal governments.

KJZZ interview transcript – The Role of States in International Trade

KJZZ Radio’s “The Show”terviewed Executive Director Erik Lee about the role of states in international trade. Below is the transcription of the interview by KJZZ’s Mark Brodie. You can find a link to the audio of this interview at:

KJZZ: Governor Doug Ducey is in Providence, Rhode Island today. It is the first day of the National Governors Association Summer Meeting. Ducey will be taking part in a panel called “States’ Role in Attracting International Investment with the governors of Nevada, Virginia, and Rhode Island. So we wanted to look at how states are looking to boost their foreign trade. And for that we turn to Erik Lee, Executive Director of the North American Research Partnership. And Erik what strategies are states using when it comes to working more with foreign countries?

Erik Lee: I think the first strategy is to talk a good game on trade. I think you hear this from a number of governors around the country who are very aware that global trade, not just NAFTA trade, but global trade can bring benefits. It brings drawbacks as well but it can bring big benefits, particularly to large metro areas in terms of an increased number of jobs in the export sector, and these jobs tend to pay more. And those folks, with those jobs, tend to pay more taxes into local and state coffers.

KJZZ: For how long has this been going on? For how long have states really been looking to boost foreign trade?

Lee: Well, just here in Arizona, the Arizona-Mexico Commission has that kind of economic exchange at the heart of what it is trying to do, and that organization is over fifty years old. So governors have been aware of the importance of trade for quite a while. Now they also have to work with mayors of large and medium sized metro areas in their states, and trade has to land somewhere. So at the end of the day, it’s really mayors and local economic development people who really have to land this economic activity, to really make it happen.

KJZZ: You mentioned governors looking to mayors and other city officials, but I’m wondering if there are instances of states, not necessarily running afoul of federal trade laws or rules or anything like that, but maybe there is some level of conflict between what the federal government is trying to do on trade and what the states are trying to do on trade.

Lee: The irony of the Trump Administration’s pushing of an aggressive renegotiation of NAFTA, with their thinking being that Mexico and Canada are somehow taking advantage of the US, is that I would say for the vast majority of state governors the thinking is completely, 180 degrees the opposite. At this point, I think that state agencies, city governments, economic development professionals, are sufficiently up to date on what the statistics are, how important this trade is for their communities, and they talk to state governors on an ongoing basis. So I think there is that to keep in mind.

KJZZ: How important is geography in a state being able to foster trade and maybe with whom a state fosters trade with? Obviously Arizona and Mexico have a very strong trade relationship, they share a border, but does it work the same way with Washington state and Canada or some of the other northern states and Canada?

Lee: Absolutely. These states do think of themselves as containing megaregions that are important to the economic development of not just the United States, but Canada as well. Geography is really important. The other way geography is important is in terms of where industries tend to locate. Arizona, ironically, has quite a challenge even as a border state. Its geography is in some ways a blessing and in some ways a curse. It’s a blessing in terms of being next door to Mexico and for having a long term familiarity with Mexico. It’s tough being next door to California, where so many Mexican businesspeople are focused on entering the US market, and being close to Texas.

KJZZ: I wanted to ask you about the competition factor between states within a single country. And you reference all the various Southwestern border states that are all competing with each other to get business with Mexico. It sounds like it is a fairly competitive environment.

Lee: It is an extremely competitive environment. As I said at the end of the day, I think it really comes down to mayors and their economic development people in terms of going out and talking to their business partners in Mexico and Canada, and getting them to invest or getting them to locate their operations in a given community.

KJZZ: Can you foresee a time, or maybe this is already in fact happening, when foreign countries are looking more to individual states to trade with as opposed to a unified policy with the entire country.

Lee: I think that is already happening. I think that’s been the case with both Mexico and Canada for quite some time. The folks they have there in the trade agencies, at the federal, state, and provincial levels are very, very savvy about the US market. Very, very focused on places like Silicon Valley, the industrialized Northeast. Southern states, which now have the Tennessees and Alabamas of the world, that have a lot of automotive operations, very focused on those areas. I think a few weeks ago the New York Times had a really interesting story on the fact that Canada’s trading outlook and strategy, vis-a-vis the United States, has really shifted from the federal level to the state and local level.

KJZZ: Erik Lee is the Executive Director of the North American Research Partnership.

NARP commentary to USTR on upcoming NAFTA negotiations

June 12, 2017
United States Trade Representative

Re: Commentary by the North American Research Partnership re: Requests for Comments: Negotiating Objectives Regarding Modernization of North American Free Trade Agreement with Canada and Mexico

While the Request for Comments from the USTR understandably focuses on tariff-related barriers to modern trade between the United States, Canada and Mexico, we believe that a number of barriers to North American trade are not directly tied to tariffs yet are significant and should therefore be included in the upcoming negotiations. In particular, the U.S.-Mexico border as it exists today presents numerous obstacles to expanded and more just trade between the three countries, and these obstacles without a doubt adversely affect economic development in U.S. border communities. We have identified and expanded upon these in several recent works, including The U.S.-Mexico Border Economy in Transition (2015) and Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries (2015), both written in collaboration with the Mexico Institute of the Woodrow Wilson International Center for Scholars in Washington, DC.

As discussed in Competitive Border Communities, from the standpoint of U.S. border communities, the trade-facilitation approach of border management, while understandable from a macro standpoint as beneficial for the North American economy, has had a high cost for these communities in terms of foregone economic ties to their Mexican sister cities’ economies, which are generally more robust and built largely on advanced manufacturing.

Yet the economic vision of the border embedded in such a trade-facilitation approach can be limiting. The border essentially becomes little more than a point of friction in an otherwise seamless binational economy. Border communities aspire to be more than a node on a transportation network, more than what many of them have titled a “pass-through economy,” one in which too little value is added locally to the billions of dollars of commerce passing through its corridors each year.

In other words, U.S. border communities have a large federal security footprint, a tremendous amount of north-bound trade passing through their ports of entry, and not much to show for it in terms of local economic development.

As such, we present several recommendations below (many of which are from Competitive Border Communities) that touch upon these obstacles below for the USTR’s consideration. We believe that these are relevant to the upcoming discussions in that they are (a) “Relevant barriers to trade in services between the United States and Canada and Mexico that should be addressed in the negotiations,” and (b) “Issues of particular relevance to small and medium-sized businesses that should be addressed in the negotiations,” and (c) “Relevant environmental issues that should be addressed in the negotiations,” all important points in USTR’s Request for Comments.

The United States and Mexican federal governments must play an especially important role in cross-border economic development efforts. Given the fact that border economies have an international boundary running through the middle of them, stakeholder engagement efforts that build partnerships between federal agencies and local communities are invaluable in this process. U.S. and Mexican consulates can serve an expanded facilitating role in these cross-border economic development efforts.

However, given the enormous geographical expanse of the U.S.-Mexico border region and the numerous state and local jurisdictions along the international boundary, improved management of crossborder trade is really a multi-level, multi-jurisdictional task that includes the federal governments, bilateral organizations, state, regional and local governments as well as universities and the private sector. Based upon this understanding, we have the following recommendations.

1. Continue to support and grow the role of the North American Development Bank. The North American Development Bank (which was brought into being from one of the NAFTA side agreements) is one of the only institutions that we have that is specifically focused on infrastructure for the well-being of the border region. Many of the projects that it has funded have helped to mitigate the adverse environmental impacts of trade and underdevelopment in the U.S.-Mexico border region. As such, the bank plays an outsized role in the overall development of U.S border communities, some of which are among the poorest in the United States. In order to continue this important work, the bank needs to be recapitalized by the U.S. and Mexican federal governments, and the U.S. and Mexican federal governments need to continue to work together to find areas in which to utilize the banks resources and expertise.

2. Border communities should actively utilize cluster-based economic development, with its focus on collaboration among government, industry and educational institutions, as an opportunity to engage federal officials managing the border as partners in a joint effort. Too often, outreach efforts by border officials can be summed up as a process of receiving complaints from the local community.

3. Link up economic development organizations along the border through a variety of formal and informal mechanisms. As noted in previous work, the U.S.-Mexico border region is an enormous geographic space; this has, over time, served to make border-wide communication difficult. An annual meeting of border region economic development professionals and a robust online directory of individuals and organizations working in the field are two practical steps toward the sharing of best practices as well as addressing shared challenges and opportunities that could over time greatly enhance the capacity and awareness in the area. An annual advocacy day in each of the national capitals might also strengthen coordination among border communities while clearly communicating to federal officials that there are commonalities (albeit also differences) among the needs of the border subregions.

4. Minimize crossborder travel restrictions for university faculty, staff and students. University systems’ restrictions on faculty, staff and student welfare too often fail to reflect the actual risk inherent in crossborder travel. These concerns need to be weighed against their potential to hinder development of key faculty and student contacts, professional development, intercultural competency, and language skills; as well as the development of innovation ecosystems that are critically important to cluster development. University systems, state governments, and the U.S. Department of State (which issues travel warnings) must all work together to overcome this challenge and to lessen the formidible administrative costs associated with bringing students and workers across the border for even short-term student exchanges and internships. We found some border universities resistant to processing the substantial paperwork required in case of less-than-semester-long programs.

5. The two federal governments need to further harmonize (and localize) data collection across the border. This would allow better analysis of the crossborder economies of the southwest United States and northern Mexico, and it would improve the ability of border communities to communicate to potential investors their full range of assets and market size.

6. Update and streamline specialist, worker and student internship NAFTA visas to foster mobility. The NAFTA visa continues to be underutilized but could play a key role in building robust binational industry clusters. Firms and universities that want to develop internship programs utilizing the new binational Memorandum of Understanding on internships could benefit from a more useful NAFTA visa.

7. Create binational cluster councils with public, private and education sectors all at the table. Clusters need some level of organization in order to successfully employ cluster-based economic development strategies. This includes organization within a cluster or industry group and, potentially also the creation of a broader platform, or cluster council, through which the private sector, governments and universities pursue strategies to foster the development of a number of key industries (similar to the organizational structure currently used in Nuevo León). Creating binational cluster councils could foment the coming together of industry leaders and related cluster participants to create cluster-specific groups.
Furthermore, the role of mega regions should be encouraged to monitor the growth of emerging binational industries that could be good candidates for cluster-based economic development. A number of small industries—while not yet major employers— performed well enough between 2009 and 2013 in terms of percentage employment growth to warrant ongoing attention from mega regions. Subregional economic development organizations and government should keep close track of such emerging and dynamic industries, engaging them and exploring what they (the industry, not the individual companies) need to foster further growth.

See pp. 14-15 in Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries.

We thank you for the opportunity to submit comments for these important negotiations.