J.O. Alvarez, Inc. Blog
MEXICO CITY, Feb. 11 – The relationship between China and Mexico is at its bestmoment in history, Chinese Ambassador to Mexico Qiu Xiaoqi said Tuesday.
In Latin America, Mexico is a major partner to China in the political and commercial fields,Qiu said in an interview with Xinhua
On Feb. 14, 1972, the two countries established diplomatic ties with bilateral trade totalling13 million U.S. dollars that year, recalled Qiu, adding bilateral trade value reached 40billion dollars in 2013.
At present, the strong bond between Chinese President Xi Jinping and Mexican PresidentEnrique Pena Nieto facilitates the development of bilateral cooperation in various fields,said the ambassador.
“The two presidents signed a series of agreements and major deals to promote trade andinvestment between both sides.”
The commercial area stands out in bilateral relations, said the Chinese ambassador, addinghe hopes other areas such as tourism would be promoted in the future.
“Mexico is one of the most important tourist destinations for Chinese citizens. We nowneed to work together to remove some obstacles in procedures, creating moreopportunities in the processing of visas for travelers, which will benefit Mexico and China,”he said.
China and Mexico signed a very important agreement in June 2013 to export to Chinatequila, which is a very typical and wonderful drink of Mexico, he said.
Investments between China and Mexico will grow rapidly in the following years as bothcountries are working hard to establish a working group to promote investment andbilateral cooperation in such fields as energy, finance, infrastructure and natural resources.
“I visited many states in order to promote Chinese investment in Mexico and Mexicaninvestment in China,” said Qiu.
As the anniversary of the establishment of diplomatic relations between the two countriesis approaching, “we have to work harder to strengthen our relations and cooperation,” theambassador added.
Sergio Munoz Bata is a syndicated Latin American columnist whose articles appear in 18 papers in 11 countries. He has been Executive Editor of La Opinion, the largest Spanish language newspaper, as well as a member of the Los Angeles Times editorial board.
Barack Obama’s position on free trade agreements is anything but clear. As a senator, he was one of the most outspoken opponents of the pact with Mexico and Canada but voted in favor of a free-trade agreement with Peru, which was modeled after NAFTA. He then voted against CAFTA, a free trade agreement with five tiny Central American countries and the Dominican Republic. Now, he’s asking Congress for fast track trade approval for two trade agreements, one with Pacific Rim countries and another with the European Union. The fact that Sen. Harry Reid of Nevada, the majority leader, immediately came out against the idea makes you wonder if Obama really wants the two trade agreements.
Obama’s hesitations remind me of the doubts Carlos Salinas de Gortari had about free trade when he was running for the Mexican presidency. I asked him if he agreed with Ronald Reagan’s vision of a common market and would enter into negotiations with the U.S. His answer said it all: “Do you want them to eat us alive?” I had raised the question at a campaign stop in Guadalajara in 1987, at a time when Salinas feared the asymmetry between the two countries was an insurmountable problem.
Three years later when I met again with Salinas in Washington, the doubts had disappeared. He had quickly learned that the fastest way to get people to invest in Mexico was to lure them with business in the United States via Mexico, and he was deeply engaged in negotiations with the George H. W. Bush Administration. Twenty years after the treaty with the United States and Canada was signed, we know that the bigger fish did not swallow the smaller, that trade between the three countries has tripled to more than $1 trillion a year and their integration has created a $19 trillion regional market with some 470 million consumers.
Thomas “Mack” McLarty, the former White House Chief of Staff for President Bill Clinton thinks the political climate in the U.S. is ripe for a new trade agreement: “I believe the odds are good. I say that because, despite ongoing partisan debates in Washington, American citizens already recognize the benefits and importance of economic engagement abroad.” He noted a recent Pew Research Center-CFR poll found that 77 percent of respondents feel increasing trade and business ties with the rest of the world benefit the United States. There is a solid reason for that, says Dr. Luis de la Calle, a member of the Mexican team that negotiated NAFTA and other trade agreements with Latin American countries, Europe, Israel and Japan.
“NAFTA has had a positive impact on the three countries,” said de la Calle. “Trade and investment volumes are higher than originally expected and the agreement has been fully implemented with few exceptions, such as trucking where the U.S. has not complied one hundred percent.”
“Canada and Mexico have become much more stable economies, in part thanks to the NAFTA,” he added. “Consumers have benefited in the three countries, but more in Mexico, which had a more protectionist economy before NAFTA.”
Furthermore, the elimination of tariffs and other trade barriers has allowed Mexico’s export industry to soar from about $60 billion in 1994 to nearly $400 billion annually in 2013. Mexico, considered a leading emerging market in the world, is now exporting an array of manufactured goods ranging from automobiles and refrigerators to cellular telephones. In 2009, Mexico was the largest exporter of flatscreen TVs in the world.
Of course, NAFTA has not been the panacea that its proponents promised. Throughout these years, it has not been a fundamental factor in the activation of the Mexican economy, neither has it been an important source of job creation. And while export jobs pay better wages, NAFTA has not uplifted the wages of other workers.
Above all, it has failed to stop illegal immigration to the U.S. But neither did it create the “giant sucking sound” of jobs that the ineffable Ross Perot and the unions and their spokesperson predicted to scare Americans. Indeed, the creation or reduction of employment in the three countries has had little to do with NAFTA. Contrary to the predictions of a sector of the Mexican left, America has not abused its power to impose conditions. In fact, it is amazing that in his twenty years of operation, there have been so few disputes and those that have arisen have been resolved in a civilized manner using the very mechanisms produced by the treaty. Among the benefits of the treaty there is one that stands out: the Mexicans lost their fear to negotiate with the neighbor to the North and the rest of the world. After NAFTA, Mexico has signed 12 free trade agreements with 44 countries and has now been invited by President Obama to enter into partnership with eight countries in the Pacific Basin through the Trans-Pacific Partnership, or TPP.
In November 1990, President Salinas told me the negotiations were at a very difficult stage because President Bush insisted that oil should be included in the negotiations while Salinas advocated that the free movement of persons was included. Finally, in Monterrey, Mexico they agreed that neither of the two topics was to be included in the draft. Both were nonstarters with their respective congresses.
Today, things have changed and it would be wise to include the countries of the Pacific Rim in the negotiations of the transatlantic alliance. Given the recent passage of the energy reform that will allow foreign private investment in the hitherto monopolistic oil industry, Mexico would be a very attractive partner of the U.S., the countries of the Pacific Rim and of the Transatlantic Alliance. It would be extraordinary if the taboo topic of the free movement of people in the Northern Hemisphere could be addressed with the same ease with which they can talk about energy exchanges.
Neither McLarty nor de la Calle believes the oil and migration mix would work.
“Forging or deepening these trade pacts do not need to specifically include a focus on energy and immigration, as these could weigh down potential agreements or even block their successful ratification,” says McLarty.
“Mexico should proceed with its energy reform only if it makes sense to do it unilaterally. Conditioning the reforms to other issues, such as migration, sends the message that it is worth doing only as a concession,” says de la Calle.
Still, Mexico should use every lever it has in its power to pursue a separate agreement to make the life of its people living in the United States less unpredictable and more secure. A little more than twenty years ago, NAFTA was just a daring idea that came true because a small group of people believed in it. We should keep on dreaming on the immigration front.
The Food and Drug Administration issued Jan. 31 a proposed rule designed to prevent the contamination of human and animal food during transportation by motor or rail vehicles. According to the FDA, the goal of this rule is to prevent practices that create food safety risks, such as improperly refrigerating food, inadequately cleaning vehicles between loads and failing to properly protect food during transportation, by establishing requirements for the following.
- the design and maintenance of vehicles and transportation equipment to ensure that they do not cause the food transported to become contaminated
- the measures taken during transportation to ensure food is not contaminated, such as adequate temperature controls and separation of food from non-food items in the same load
- procedures for exchange of information about prior cargos, cleaning of transportation equipment, and temperature control between the shipper, carrier and receiver, as appropriate to the situation
- training of carrier personnel in sanitary transportation practices and documentation of the training
- maintenance of written procedures and records by carriers and shippers related to transportation equipment cleaning, prior cargos and temperature control
- procedures by which the FDA will waive any of these requirements if it determines that the waiver will not result in the transportation of food under conditions that would be unsafe for human or animal health and that it is in the public interest
With some exceptions, this proposed rule would apply to shippers, receivers and carriers who transport food in the U.S. by motor or rail vehicle, whether or not the food is offered for or enters interstate commerce. It would also apply to a person outside the U.S., such as an exporter, who ships food to the U.S. in an international freight container by oceangoing vessel or in an air freight container and arranges for the transfer of the intact container in the U.S. onto a motor vehicle or rail vehicle for transportation in U.S. commerce, provided that the food will be consumed or distributed in the U.S. The rule would not apply to the transportation of fully packaged shelf-stable foods, live food animals, and raw agricultural commodities when transported by farms.
Small businesses (businesses other than motor carriers who are not also shippers and/or receivers employing fewer than 500 persons, and motor carriers having less than $25.5 million in annual receipts) would have two years after the publication of a final rule to comply, while other businesses would have one year. The proposed rule would not cover shippers, receivers or carriers engaged in food transportation operations that have less than $500,000 in total annual sales.
Comments on this proposal are due no later than May 31. The FDA is also planning on holding three public meetings concerning this rule: Feb. 27 in Chicago and March 13 in Anaheim, Calif. (by extending meetings already scheduled to discuss a proposed rule on the intentional adulteration of food) and March 20 in College Park, Md.
By Marc Lanthemann Marc Lanthemann, a geopolitical analyst at Stratfor.
The 20th anniversary of NAFTA’s implementation on Jan. 1 has revived some of the perennial arguments that have surrounded the bloc since its inception. The general consensus has been that the trade deal was a mixed bag, a generally positive yet disappointing economic experiment.
That consensus may not be wrong. The history of the North American Free Trade Agreement as an institution has been one of piecemeal, often reluctant, integration of three countries with a long tradition of protectionism and fierce defense of economic national sovereignty. While NAFTA was a boon for certain sectors of the economy, particularly the U.S. agriculture industry, the net effect of the world’s second-largest trade bloc remains somewhat unknown.
The debate over NAFTA can, however, obscure some fundamental realities about the future of North America and its three major countries. While the formation of the trading bloc represented a remarkable political achievement, NAFTA has remained a facilitating institution whose success has mirrored the ebb and flow in the slow but inevitable economic integration of the United States, Mexico and Canada. What lies ahead for the three countries will not so much be the result of NAFTA as NAFTA will be the result of the strong geopolitical imperative binding the three together. Washington, Mexico City and Ottawa are tied into major global and regional trends that Stratfor has been following over the years, trends that continue to point to a comparatively bright future for the North American triad.
Core North America
North America proper extends from the Arctic reaches of Canada to the Darien Gap, a thin, swampy strip of land linking Panama with South America. But given the idiosyncratic and fundamentally different geopolitical realities of the Central American isthmus — encompassing Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama — a simpler and more appropriate definition of North America would be the continental landmass from the Arctic to the southern Yucatan Peninsula in Mexico.
There is little question that North America, by this definition, has been blessed by geography. There are only three countries in an area more than twice the size of Europe. Each of them enjoys a coastline on both of the globe’s major oceans, providing critical buffers and serving as jumping-off points for domestic and international trade. Natural resources are abundant, as are overall arable lands, all facilitated by naturally integrated river transport networks at the heart of the continent.
The overwhelming beneficiary of these geographic advantages has, of course, been the United States, but its meteoric rise as a global hegemon was also in great part due to the fact that neither of its neighbors has posed a threat. The wealth of the United States, combined with the physical barriers of the three northern Mexican deserts and to a lesser degree the Great Lakes, ensured that America’s military power could preserve the borders dividing the three countries — yet those boundaries are not so insurmountable as to hinder trade. The definition of those borders with Canada and Mexico during the 19th century allowed Washington to concentrate on dominating the world’s oceans, eventually giving it control over most of the world’s trade and the ability to deploy its power to any corner of the globe.
Canada was not always a friendly neighbor. During the War of 1812, Canada was the launching pad for a British military campaign that resulted in, among other things, the burning of the White House. This stance changed definitively in the aftermath of World War II, when the British Empire — Canada’s previous patron — began its decline in earnest and Ottawa had to become more integrated with and dependent on the booming U.S. economy. By the time the United States and Canada signed a bilateral free trade agreement in 1988, the two countries had been each other’s largest trade partners for decades. Today, China is Canada’s second-largest export destination, and yet China takes just 6 percent of the goods that the United States does.
Mexico’s role and history in North America are a bit more complex. The country controlled the largest territory and had been the dominant economic and military power on the continent for centuries under the aegis of the Spanish Empire. But the Mexican War of Independence fragmented the already-weakening country and shifted the balance of power in favor of the United States. With the United States having received Florida from Spain earlier in the 19th century, the Texas War of Independence and the Mexican-American War allowed Washington to gain the vast swath of land between Louisiana and the Pacific Ocean — including the strategic ports of California and the approach to the Mississippi River. With the border settled (figuratively and literally), the two countries finally began economic cooperation in earnest.
With its large pool of cheap labor and its geographic proximity to the United States, Mexico became a vital economic variable for Washington. Setbacks did occur over time, in particular Mexico’s expropriation and nationalization of its oil industry in 1938 and the immigrant repatriation crisis of the 1930s. But geography and the economic complementarity between the world’s largest consumer market and its neighboring low-end manufacturing economy continued to make the relationship inevitable. Today, Mexico exports about $1 billion worth of goods per day to the United States, making it the United States’ single-largest source of imports and its third-largest trading partner. Issues do remain, particularly over the question of immigration, legal or otherwise, with both countries trying to find a balance between competitive growth and stable domestic employment.
Key Geopolitical Trends
The three North American countries find themselves at the epicenter of key geopolitical trends, which outline a relatively bright future for the group. Many of these trends have been playing out for decades, while others have been set in motion only in the past few years.
Stratfor has identified three major pillars that defined the global system following the Cold War. The first was the integration of Europe into the massive supranational entity known as the European Union. The second was the emergence of China as the center of global industrial growth. And the third was the uncontested U.S. position as the world’s only superpower.
Since 2008, two of these pillars have become increasingly fragile. The European Union continues to be mired in an existential economic, political and social crisis. It is unable to harmonize the divergent interests within itself, yet it also is unwilling to pay the price of rupture. The European Union has in fact become a cautionary tale for the proponents of a beefed up, more organized version of NAFTA.
Meanwhile, China has all but accepted that the time of double-digit growth rates based on cheap labor is gone. Beijing is now focusing on the delicate task of transitioning a 1.3 billion-strong nation with staggering economic disparities to a more sustainable model.
The United States, battered by the 2008 crisis, continues to recover economically and remains the strongest of the three pillars. It also remains the world’s overwhelmingly dominant military power. But Washington has also begun adopting a more nuanced (and cost-effective) foreign policy that shies away from direct entanglement in favor of creating balances of power to stabilize strategic regions of the world, particularly the Middle East, which has consumed U.S. attention for much of the past decade. It remains a near certainty that the United States will continue to dominate the global system for the foreseeable future, a position that will benefit its two neighbors as they continue to be tightly integrated with the American economy.
But while the United States’ continued global pre-eminence is a key provider of stability for North America, one must look south for the continent’s source of dynamism in the decades ahead.
Mexico’s Bright Future
Mexico’s demographic profile is among the world’s most promising. Its labor pool has been expected to grow by 58 percent between 2000 and 2030 while China’s is slated to decrease by 3 percent over the same period.
From aerospace engineering in Queretaro to footwear assembly in Guanajuato, Mexico is shaping up to be a competitive and flexible manufacturer. Mexico’s geographic proximity to the United States and high levels of internal wage and skill disparity made its manufacturing sector more competitive than China’s after 2012. Yet Mexico also seems to have found a way to avoid the Chinese curse of depending on low-cost manufacturing. High-tech exports accounted for 17 percent of Mexican gross domestic product in 2012, while cars amounted to a quarter of all Mexican exports that same year. The high tariffs on high-tech products manufactured outside of NAFTA give Mexico a notable advantage. Particularly noteworthy is Mexico’s booming aerospace industry. This sector has received the most foreign direct investment in the global industry for the past four years thanks in great part to the construction of a massive manufacturing plant by the Canadian company Bombardier in the central highlands of Mexico.
Challenges do remain for Mexico. Income disparity is a double-edged sword, and while the middle class grows at a slow pace, the country’s poor education system continues to create a shortage of skilled labor for high value-added manufacturers considering a shift to Mexico. Organized crime continues to be a high-visibility issue that slows foreign investment, even as the current Mexican administration seems to have toned down some of its predecessor’s more aggressive policies.
Still, progress seems to be on the horizon. In a rare display of political unity, the Mexican government passed a host of constitutional reforms in 2013 that may begin to address some of the country’s systemic issues, particularly those in the education, fiscal and energy sectors.
The importance of the last one cannot be overstated: Since the nationalization of oil in 1938, Mexico has been blighted by a steadily ossifying energy sector. The Mexican Constitution made it nearly impossible for foreign companies to participate in any part of the country’s energy supply chain, leading to technological stagnation and decreasing production and efficiency levels. The constitutional reforms passed in late 2013 are one of the first concrete signs that Mexico may be on the eve of a much-needed revitalization of its hydrocarbon sector — boosting the country’s competitiveness in the global arena. U.S. companies are likely to be deeply involved in this process, especially since they command the best technical expertise for the deep-water offshore and unconventional onshore production that Mexico will need most — yet again reinforcing formal and informal ties between the two countries.
Meanwhile, though Mexico’s energy revolution may still be some time away, energy revolutions are in full swing in its two northern neighbors. Canada is the sixth-largest global oil producer after its decade-long process of unlocking its unconventional oil sands deposits. Close to two-thirds of Canada’s oil production is exported via pipeline to the United States, making it by far the largest supplier of crude to the United States. As for the United States, the story of the shale revolution is well known. Advanced extractive techniques have revitalized mature fields and opened up unconventional plays at an astounding rate over the past five years. While revitalized oil production has served to shore up some U.S. energy trade balances, the greatest boon has been the tapping of immense natural gas reserves that have driven down domestic prices of the commodity (a helpful tailwind for the recovering economy) and put the United States on the path to becoming a global exporter of liquefied natural gas.
There are, however, limits to the benefits of such an energy boom. True energy independence, even on a North American scale, is unlikely to take place anytime soon. The Unites States will continue to depend on a reduced but still significant volume of oil imports from potentially volatile regions, particularly if Canada begins to export additional oil to the more lucrative Asian markets. In addition, any potential overseas hydrocarbon exports by either the United States or Canada would tie the two countries deeper into the global commodity market. The true benefits to the United States and Canada will be, as they have been so far, economic rather than geopolitical. Trade balances are likely to improve, yet again boosting the interlinked economies of the three North American nations.
Twenty years after its formation, NAFTA remains a useful, if incomplete, expression of the economic ties between these three countries. It has not been, and will not be, on par with the establishment of NATO and the 1803 Louisiana Purchase as one of the fulcrums of U.S. history, despite Al Gore’s hyperbolic claim in 1993.
The true bonds between the three countries are their aligned and complementary interests born of their shared geopolitical fate. Though the future of the United States, Mexico and Canada is by no means set in stone, there are strong indicators that the triad has what it takes to be both a stable and dynamic geopolitical grouping in the long term — something that currently seems out of reach anywhere else in the world
From: FDAImports.com and Ben England
Look out, industry: there’s a new way to get put on Import Alert. FDA is beginning to place firms on import alert based on traceability data collected by FDA and the Center for Disease Control and Prevention (CDC). Firms used to think they would only end up on import alert if testing revealed violations in the product; that is no longer the case.
After reviewing the traceability reports of some multi-state foodborne outbreaks, FDA determined that future product imported by the involved firms appears adulterated. These firms were added to import alert based solely on traceability data and epidemiological investigation reports.
When FDA places a firm’s product on import alert, it begins to automatically detain shipments of that product from that firm. FDA then requires the U.S. importer to prove the product compliant, which may require laboratory testing; otherwise, FDA refuses the product. FDA has the authority to refuse any product that “appears” violative – and there are many, many things which can make a product “appear” violative, such as a blemish on an importer or manufacturer’s import history. Any FDA staff or unit can recommend a firm or product for import alert – or for removal from Import Alert – when it believes that such action is warranted.
Traceability Reports linked to Outbreaks can Land you on Import Alert
Firms can now end up on import alert if traceability reports reveal that their products are linked to an outbreak. The recent outbreaks (cucumbers, pomegranate seeds, cantaloupes, etc.) have already resulted in Import Alert listings for some firms.
The best way to avoid this kind of import alert listing is to strictly assure the quality of raw material supplies and suppliers. Importers should verify the safety and compliance of their imported products with their manufacturers. By instituting these verification procedures, you can avoid the complications and expense caused by FDA automatic detention and refusals.
The Trucker News Services
Three of the five transportation modes carried more U.S.-NAFTA trade in August 2013 than in August 2012 as the value of overall U.S. trade with its North American Free Trade Agreement (NAFTA) partners, Canada and Mexico, rose 2.0 percent from year to year, according to the August NAFTA freight data released today by the Bureau of Transportation Statistics (BTS) of the U.S. Department of Transportation.
BTS, a part of the Department’s Research and Innovative Technology Administration, reported that pipelines showed the most year-to-year growth at 18.2 percent. The increase in the value of freight carried by pipelines reflects the rise in prices for oil and other petroleum products, the primary commodity transported by pipelines.
Truck, which carries three-fifths of U.S.-NAFTA trade and is the most heavily utilized mode for moving goods to and from both U.S.-NAFTA partners, rose 0.7 percent while rail rose 3.0 percent. Vessel declined 2.6 percent and air 2.4 percent.
Trucks carried 59.9 percent of the $96.5 billion of U.S.-NAFTA trade in August 2013 accounting for $30.3 billion of exports and $27.5 billion of imports. Trucks were followed by rail at 15.6 percent, vessels at 8.5 percent, pipeline at 7.4 percent and air at 3.7 percent. The surface transportation modes of truck, rail and pipeline carried 82.9 percent of the total NAFTA freight flows.
U.S.-Canada trade by pipeline, of which 90 percent was imported, increased the most of any mode from August 2012 to August 2013, growing 20.6 percent. U.S.-Canada pipeline trade comprises 96 percent of total U.S.-NAFTA pipeline trade.
Freight moved by rail between the U.S. and Canada decreased by 1.4 percent.
U.S.-Mexico trade by rail increased the most of any mode from August 2012 to August 2013, growing 10.1 percent. Freight moved by pipeline between the U.S. and Mexico decreased by 17.5 percent. However, U.S.-Mexico pipeline trade only comprises 4 percent of total U.S. NAFTA pipeline trade.
BROWNSVILLE — Lauded last year as a model of cooperation and a means to boost Texas’ robust trade relationship with Mexico, a rail project here in the Rio Grande Valley has hit a snag over the relocation of an X-ray machine.
And if Cameron County and United States Customs and Border Protection remain at an impasse, the opening of the Brownsville West Rail Bypass International Bridge — the first new rail bridge to connect the countries in more than a century — could face a monthslong delay, preventing an expansion at a crucial land port.
The Vehicle and Cargo Imaging System, which scans rail cars for narcotics, illicit cash and other contraband, needs to be moved to the new site from Brownsville, about seven miles away. Exchanges between local and federal officials indicate that neither side is willing to finance that project, which county officials said would cost about $1.5 million. It has added a twist in the debate over who is responsible for border security, and county officials worry the issue will delay the rail line’s opening. The project has already suffered a yearlong delay because of the relocation of gas transmission lines.
The new eight-mile rail line will connect a rural part of Cameron County and Tamaulipas State in Mexico. More than 10 years of planning and about $100 million have been spent on the project. Mexico has spent about $60 million and the county about $6 million, with the remainder picked up by the state and federal governments.
Pete Sepulveda, the Cameron County administrator, said Customs and Border Protection should pay for the relocation because its mission is to protect the homeland. “That equipment is strictly used by C.B.P.,” he said. “The county will never use that piece of equipment.”
The Port of Brownsville is part of the Laredo Customs District, which trades more with Mexico than any other port in the country. Through July this year, more than $138.6 billion in trade passed through the district, according to WorldCity, which uses census information to track trade data.
Federal officials say the State Department’s presidential permit for the rail bridge makes it clear that the onus to move the machine is on the county.
“I understand your office is well aware of both the language within the presidential permit and C.B.P.’s position on the relocation” of the system, Thomas S. Winkowski, the acting federal customs commissioner, wrote to Mr. Sepulveda in July. “That said, C.B.P. has an expectation that Cameron County will pay for or find an alternative way” to relocate it.
Like Mr. Sepulveda, United States Representative Filemon Vela, Democrat of Brownsville, said the responsibility should not lie with the county. The concern is not just about narcotics or cash, he added, but about chemical and nuclear weapons.
“Although it may have been technically permissible for the State Department to delegate that duty to the county, what we’re talking about here really does involve national security interests,” he said. “And it just seems to me a little awkward that the State Department would delegate that duty to the county.”
Mr. Vela is also concerned about whether the machine should be replaced. It has been in use for more than 10 years, its expected life, according to testimony from Dr. Tara O’Toole, a Department of Homeland Security undersecretary. Mr. Winkowski told Mr. Vela that a new machine would cost about $3.5 million and that Customs would not have those resources.
Mr. Winkowski wrote Mr. Vela and indicated that the machine was 11 years old, had recently undergone a radiation-source replacement and was 99 percent operational. Mr. Vela and Mr. Sepulveda dispute that assessment.
Mexico kicked foreign companies out of its oil industry in 1938; allowing them back in is an emotive issue for many Mexicans, including some in Pena Nieto’s own party
Mexico’s plans to break a 75-year state monopoly on energy could boost flagging growth and double foreign investment, potentially providing the biggest leg-up to its economy since the North American Free Trade Agreement two decades ago.
The government is finalizing proposals to lure private investors into the oil, gas and electricity industries in order to boost production and lower energy costs for manufacturers, which are up to twice as high as those paid by U.S. companies.
The plan is expected to be unveiled and sent to Congress this week. It is likely to include tweaking articles of the constitution that prohibit private ownership of Mexican oil.
The level of access to private firms, including foreign oil majors like BP and Exxon Mobil, will be crucial to the reform’s success.
A half-hearted effort could wreck high expectations that centrist President Enrique Pena Nieto has the will to apply shock therapy to an ailing energy industry and beyond to other moribund sectors of the economy.
But a best-case scenario could add between 1 and 2 percentage points to potential growth, economists say, a vital prop for an economy expected to grow just 2-3 percent this year while global demand for Mexican exports remains sluggish.
In the decade after Mexico joined NAFTA in 1994, exports to the United States and Canada tripled and foreign direct investment quadrupled. Growth rates rose to 4.8 percent or more in four of the first five years of NAFTA, although the impulse then faded.
The energy overhaul is the cornerstone of a far-reaching reform package that Pena Nieto hopes will ramp up growth, boost credit and formal job creation and modernize Mexico’s oil, gas and electricity industries.
“We have a great opportunity to improve the economy, to generate more jobs and to generate competitiveness for Mexican industry through the energy reform,” said Finance Minister Luis Videgaray, who is leading the design of the proposal.
There are three main options: to allow private companies the right to explore and extract at will with “concessions;” to grant them a share of oil produced – known as production sharing; or to allow them to share in oil sale profits, so-called risk-sharing contracts.
“They won’t call it privatization, but the sector will be opened,” said CIBC strategist John Welch. “The bare minimum is getting rid of the prohibition on risk-sharing contracts in Pemex and the same in the Federal Electricity Commission.”
Mexico kicked foreign companies out of its oil industry in 1938; allowing them back in is an emotive issue for many Mexicans, including some in Pena Nieto’s own party. A radical push might not pass Congress, although the government argues that bold action is needed to save the oil industry.
Mexico is a top crude exporter to the United States, but output has fallen by a quarter since hitting a peak of 3.4 million barrels per day in 2004. Private involvement would give the sector a much-needed injection of expertise and technology to tackle tricky deep water projects.
Lawmakers say the government’s proposal will likely also include constitutional changes to allow more private sector investment in electricity generation.
If Mexico’s existing state-run electricity monopoly is dismantled and market forces spark more competition and increased supply, experts say electricity costs could be halved.
While households get subsidized power, costs for big business have more than doubled over the past decade. Large factories pay the equivalent of 13 U.S. cents per kilowatt hour compared to 6 cents in 2003. U.S. industry pays less than 7 cents.
If the reform can bring gas and electricity costs in line with those of the United States, it could add 0.3 percentage points to potential growth, said Barclays economist Marco Oviedo.
“With energy reform you should expect more availability of cheap natural gas and electricity,” he said.
The biggest potential gain, however, is in Foreign Direct Investment. Net annual inflows have averaged $20 billion in the past five years and oil, gas and power has received just $360 million since 2008.
As a share of gross domestic product, or GDP, Mexico’s inflows are about a third of Brazil’s and a quarter of Colombia’s. Both those countries have partially privatized their energy sectors.
BNP economist Nader Nazmi calculates that the combination of increased public and private investment from reforms to the energy sector and Mexico’s tax system could boost the ratio of investment to GDP by 2 percentage points. Better energy supply will also encourage investment in factories and analysts such as CIBC’s Welch say FDI could hit $50 billion in 10 years time.
“Even if you just focus on the investment side, it’s huge,” Nomura economist Benito Berber said of the outlook.
Still, if Mexico fails to keep up reform momentum throughout Pena Nieto’s term, it could fall into the same trap as Brazil, where big reforms boosted the economy for several years but growth then stalled due to a lack of further progress.
“It could be an initial impulse as inefficiencies are weeded out of the system. But then after that you lose the benefits, and you have to think about something else,” said Goldman Sachs economist Alberto Ramos.
Amid a global oil boom, the reform may need to offer concession-like conditions – even if they are not called concessions because of domestic political sensitivities – in order to attract significant investment from global oil firms.
It will be uncertain just how big an opportunity Mexico will offer until the government unveils details such as royalty rates in a draft regulatory law which may not be presented until tax plans are being discussed later this year.
“A lot of the benefits depend on whether it’s the full thing. Half measures won’t get the results,” said Frances Hudson, global thematic strategist at Standard Life Investments.
Mexico will need to show substantial progress to have a hope of lifting its credit rating to the level of the most developed emerging markets, like Chile or Poland.
Moody’s and Fitch rate Mexico just short of the coveted A grade, while Standard & Poor’s is one step further down at BBB. S&P says it will not even consider an upgrade until it is clear that the planned reform will not be watered down in Congress.
“We need to see passage, not just a strong proposal,” S&P credit ratings analyst Lisa Schineller said.
© Thomson Reuters 2013