Rising Trade Barriers in Mexico Should Alarm the Biden Administration
Despite vehement objection from the U.S. energy sector and the greater business community, the Mexican senate just passed a bill to give preferential treatment to government-owned energy plants, thus discriminating against cleaner-energy plants built largely through foreign investment. Last month, the U.S. Chamber of Commerce said the bill “would directly contravene Mexico’s commitments” under the U.S.-Mexico-Canada Agreement (USMCA).
Another first-of-its-kind bill proposed earlier in the month would put the Mexican government in charge of deciding whether Facebook, Google, Twitter, and other platforms can operate in the country, as well as deciding which users are blocked or removed from the platforms. If passed, the Latin American Internet Association (ALAI) says the bill would put “unjustified trade barriers that are not required in the U.S. or Canada, generating legal uncertainty and limiting the cross-border flow of data.”
Not everyone is on board with these radical proposals. At a recent event hosted by Property Rights Alliance (PRA) last Thursday, Mexican Deputy Éctor J. Ramírez Barba said the trade barriers and regulatory state already in place come at a significant cost to Mexico’s innovation-intensive industries, such as pharmaceuticals and the energy sector. Some in the government “are breaking the mechanisms of free trade and of competitiveness that are agreed upon in the [USMCA] treaty, and that can affect the health of Mexicans who don’t have effective access,” according to Dip. Ramírez Barba.
U.S. lawmakers have also spoken out about the importance of keeping USMCA intact and ensuring that each partner lives up to their commitments. At the PRA event, Congressman Jodey Arrington (R-Texas) remarked, “USMCA, the improved agreement with Mexico and Canada, has leveled the playing field so there is true fair and reciprocal trade between the partnership countries.”
On the topic of Mexico’s trade barriers and other potential USMCA violations, Rep. Arrington posited, “I think they will affect our partnership and they’ll affect American opportunities to do business with Mexico, but I think they’re going to hurt the Mexican citizens more than they will America.”
Manuel Molano, Chief Economist at Instituto Mexicano Para la Competitividad (IMCO), concurs that free trade is the best choice for the wellbeing of Mexican and American citizens alike, noting that even the previous North American Free Trade Agreement (NAFTA) allowed some regions of Mexico to develop into significant manufacturing centers.
However, despite the upgrade from NAFTA to USMCA, Mexico’s trade profile already has significant trade barriers that international treaties can’t compensate for. According to Philip Thompson, Policy Analyst for Property Rights Alliance, Mexico’s record for property rights and logistics performance as shown on the Trade Barrier Index paint a picture of a country well-connected to the global economy but unable to police ports and supply chain linkages. This creates a ripe environment for illicit trade and trafficking.
Indeed, according to David Luna, a Senior Fellow for National Security at George Mason University, cartels and other criminal syndicates persist in large part due to a wide range of illegal trafficking activities. “Make no mistake: The trafficking of narcotics, opioids, weapons, people, illegal alcohol and tobacco, counterfeit and pirated goods, and other contraband further corrodes the rule of law and undermines social stability and security of countries.”
Joseph Humire, Executive Director of the Center for a Secure Free Society, further elaborated on the criminal fallout from Mexico’s trade barriers: “Because there are many barriers to trade, many companies do not overcome these barriers and they start declining. These businessmen don’t vanish or disappear, but go into the gray market and then into criminal enterprising.”
According to Dr. Roberto Salinas León, Director of the Center for Latin America at Atlas Network, this illicit trade is one of the major factors preventing Mexico from further developing economically, coinciding with the economic detriments resulting from the spontaneous trade barriers that have been erected.
Leroy Sheffer, Partner and CEO at International Trade Advisory Services (ITAS) flags barriers such as additional taxes and licenses required for tobacco and alcohol products: “There is no documented study have found proving that measures such as increasing taxes, imposing licensing requirements or new controls on an already regulated industry leads to a better scenario in terms of fighting illicit crime. Often, collaborative actions between authorities and legitimate industries may lead to a more palpable response.”
To this end, the Biden Administration should ensure that the Mexican government follows the USMCA both in letter and in spirit, improves its protection of property rights, and enforces trade rules at its ports. Only then will both countries be able to reap the full benefits of competitive, rules-based free trade.
The full livestream of the event, “U.S. and Mexico: Confronting Trade Barriers and Illicit Trade,” can be found at https://www.youtube.com/watch?v=srLm-VCnHYM.
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