heads the Trade and NAFTA Office at the Mexican Embassy in Washington, D.C., and last Wednesday he was one of four speakers at the GBD "China Mirrors" event, which looked at the trade and investment relationships between the NAFTA countries - Mexico, Canada, and the United States - and the People's Republic of China.
Mr. Smith began his presentation with a comment on just how important trade is to Mexico. Very. Trade accounts for roughly 63 percent of Mexico's GDP. Although most of that trade is with the United States and Canada, China is now Mexico's second largest trading partner. That is "up from 6th place in the year 2000, which is an increase of 23 percent over the last 15 years," Mr. Smith said.
Yes, Mr. Smith dealt with some of the well-known irritants in China's relationships globally, including China's tremendous overcapacity in steel. That came near the end of his remarks. We are putting it up front simply to get it out of the way, for as we listened to Mr. Smith, the things that really stood out were the elements of promise he saw in the Mexico-China relationship. And, even though China was not a participant in the TPP or Trans-Pacific Partnership negotiations, Mr. Smith convincingly connected the dots between TPP and China, while stressing the importance of TPP to all three NAFTA countries. More on that in a moment. Steel.
First, here is a bit of what he said about steel:
"You see world production is at approximately 1.6 billion tons, and it is perceived to have over 700,000 tons of overcapacity in the world. And 72 percent of that comes from non-OECD countries. So we need to continue engaging China and other steel producers in the world on these issues."
We assume much of that 72 percent is from China, which, although it has the second largest economy in the world, is not a member of the OECD. The work Mr. Smith highlighted to address the steel glut included a strong statement from the recent North American Leaders' Summit and the effort in the OECD to develop guidelines for reducing global overcapacity. Trade and Investment.
Looking at trade and investment between China and Mexico more broadly, Mr. Smith was upbeat even when he was addressing challenges. 2013 seems to have been a turning point. As Mr. Smith put it:
"Since 2013 and two state visits that President Peña Nieto made to China and a visit to Mexico from the Premier of China, we established a comprehensive strategic alliance, aimed at strengthening bilateral cooperation, increasing market access, and attracting investment, bilaterally." Trade.
On trade in goods, Mr. Smith highlighted two areas in particular: automotive and agriculture. "Last year,"
he said, "we exported $1.4 billion in vehicles and auto parts to China,
which is an increase of 124 percent over the last five years, alone."
As for agriculture, while Mexico has faced regulatory challenges in China, but China is a growing market for a range of Mexican product, such as tequila, strawberries, dairy products,
and frozen beef,
with work being done on protocols for the export to China of Mexico's blueberries, bananas, and avocados. Investment.
Here the bad news was followed quickly by the good. The bad news: China's current investment is not that large, only about $420 million, which is only one tenth of one percent of the FDI in Mexico. "There's not enough Chinese foreign direct investment entering Mexico,"
Mr. Smith said. In response, Mexico has put together a group focused on making their country more attractive to Chinese investors, with a particular emphasis on energy, infrastructure, and manufacturing.
And things are changing. Almost immediately after expressing his concern about the relatively small amount of FDI from China, Mr. Smith mentioned that Huawei,
China's giant electronics company, will be investing $1.5 billion in new facilities in the Mexican State of Querétaro.
Also, he said, the Chinese television set maker Hisense
will be investing in production in Mexico.
Moreover, those are not the only electronics companies from the Asia Pacific putting their eggs in Mexican baskets. Departing only slightly from the focus on China, Mr. Smith noted that:
"If you look specifically at electronics, companies such as Sharp, Sony, and Samsung now account for about one-third of investment in Mexican electronics manufacturing. The figure used to be only about eight percent a decade ago."TPP.
Included in Mr. Smith's comments on the Mexico-China relationship was a strong argument for the Trans-Pacific Partnership Agreement. "We're working actively on our front in Mexico to try to get it approved this year."
In talking about the importance of TPP, he took note of the 1.5 billion middle class consumers
that that are expected to be added in the Asia Pacific region in the next 25 years, a clear reference to the market access provisions of the agreement and the opportunities they represent. He also talked about TPP as "a positive blueprint for world trade rules."
Finally, TPP wasn't the only trade liberalizing project Mr. Smith discussed. The Pacific Alliance was another. Describing the Alliance, Mr. Smith said:
"We [Mexico] have negotiated with Chile, Peru, and Colombia a very innovative mechanism of cooperation ... One of its main components is eliminating 92 percent of trade barriers immediately, and working towards eliminating [them] completely over the next ten years."