Wednesday, September 28, 2005

North America’s economies must band together to meet the challenge posed by China’s growing market clout, according to Mexico’s top diplomat.

The United States, Canada and Mexico “make a unique combination and we need to protect our intellectual property just as China has done,” said Luis Ernesto Derbez Bautista, Mexico’s secretary of foreign affairs, during a visit to Washington last week.

“The main idea is to find solutions to the problems common to the three nations and bring out the regional aspects,” he added.

In trilateral talks that began in March, the three countries have drafted a series of agreements with the goal of beefing up the 1994 North American Free Trade Agreement (NAFTA).

The Mexican government is trying to create a situation in which people do not feel they have to leave to find economic opportunity. The government is also targeting Mexicans who have left to return home to invest in their native country, Mr. Derbez said.

Armand Peschard-Sverdrup, an expert on Mexico at the Washington-based Center for Strategic and International Studies, said agreements such as the recent Security and Prosperity Partnership (SPP) are an attempt to shore up the NAFTA bloc by cutting trade costs even further.

“The goal of the SPP is basically taking baby steps toward deepening integration with the aim of hopefully impacting the competition,” he said.

Although trade relations are Mexico’s priority in the talks, the Bush administration is mainly looking at security issues, Mr. Peschard-Sverdrup said.

China, whose U.S. exports grew 20 percent last year, recently passed Mexico as the second-largest exporter to the U.S. behind Canada, said Marifeli Perez-Stable, vice president for democratic governance at Inter-American Dialogue, a Washington-based policy forum.

Exports of Mexican products such as textiles, toys and even religious icons have been hard hit after China took over these profitable markets in the United States.

Mexico is also looking at expanding its refineries to battle gasoline shortages.

“We are concerned that the rising oil prices will affect other exports and trade and we don’t have a good refining capacity,” Mr. Derbez said.

Mexican President Vicente Fox intends to push for a series of energy reforms next year, opening the sector to foreign investment to make it more competitive, Mr. Derbez said.

Experts think that if Mexico steps up its border security, the U.S., in return, could grant additional trade benefits to Mexico.

“But Mexico can benefit from trade agreements only by creating a lot more jobs if they want to reap the full benefits of NAFTA,” Ms. Perez-Stable said.

She said the Fox government must embrace tax reform, including higher taxes on the upper-middle class.

“Mexico is trying to create a knowledge-based economy like China and India and has realized that investment in human capital, science and technology is needed to transfer to a knowledge-based economy,” Mr. Peschard-Sverdrup said.

Despite losing ground to China in the U.S. market, Mexico hopes to capitalize on the shift by making Mexico a transit port for Chinese-made goods.

At a New York press conference last week, Mr. Derbez said Mexico must upgrade its ports and transit sites, according to Reuters news agency.

“If we can be as efficient as Singapore … we will be able to have a tremendous amount of jobs in Mexico, just by bringing in and bringing out merchandise from the United States and into and from China,” he said.

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