Mission Report

Report on the Mission to Mexico

The mission then continued on to Mexico City and spent April 12-13 meeting with top officials and policy analysts across a range of Ministries (Economy, Energy, Foreign Affairs), at the National Immigration Institute, the Mexican Senate, and with U.S. Ambassador Tony Garza and frontline officers at the U.S. Embassy. The content of these meetings covered five main issue areas—politics and foreign policy, national security, economic policy and performance, migration, and energy.

The following summary is organized around these five issue areas, and it includes the main substantive points that were made during these meetings as well as the ensuing discussion between the ambassadors and representatives of the various agencies that hosted this CAA mission. The mission’s main findings are highlighted at the outset of the report:

Mexican Politics and Foreign Policy

  • Mexico is moving toward a truly competitive political system for the first time in its history;
  • In contrast to his predecessor, President Calderón is proving to be a highly adept political negotiator, both in the congress and in the effective use of the powers granted to the Mexican executive;
  • The country’s foreign policy recognizes the crucially important U.S.-Mexico bilateral relationship, but also seeks independence in areas such as Mexico-Cuba relations, dealings with Venezuela, and the U.S. war in Iraq.

National Security

  • President Calderón has moved swiftly in addressing the rampant violence that plagues Mexico’s northern border states, targeting the drug cartels and extraditing more criminals than ever before to the United States in his first few months in office;
  • An effort is underway to unify the federal police force into one jurisdictional entity and to forge a more pragmatic relationship between federal and state law enforcement entities;
  • With one of the highest crime rates in the world, and a long history of internal corruption that plagues all levels of law enforcement, Mexican policymakers have some way to go in restoring a credible semblance of public security.

Economic Policy and Performance

  • Mexico’s closer integration with the United States and Canadian economies under NAFTA has produced concrete benefits, but slow growth and insufficient job creation confirm the need for a revamped development strategy;
  • A main source of poverty and inequality is the incomplete nature of microeconomic reforms in Mexico (e.g., a huge infrastructure deficit, weak property rights, high bureaucratic barriers, segmented credit markets, poorly trained human capital, and the failure to implement anti-trust policy);
  • The current reform focus should be the strengthening of smaller firms in prized sectors (auto parts, aerospace, metal mechanics, medical equipment, pharma-ceuticals, services), as these are the main source of employment.

Migration

  • Powerful push-pull factors are driving undocumented migration from Mexico to the United States, i.e. the lack of economic opportunities in Mexico and the growing demand for low-cost unskilled labor in the U.S. market;
  • Demographic projections show the aging of the Mexican population by 2050, meaning that U.S. shortages of low-skilled workers cannot be filled indefinitely by Mexican laborers, undocumented or otherwise;
  • Mexican politicians and policymakers see plenty of ground for compromise in crafting an immigration reform package, but they also bristle at U.S. endorsement of a higher wall at the U.S.-Mexico border and U.S. failures to uphold its own domestic immigration laws in the realm of employer sanctions.

Energy

  • The state’s monopoly control over oil and natural gas has left Mexico in the surreal position of ranking amongst the top five oil producers in the world, but with its hands tied in contracting private investors to undertake the prohibitively expensive tasks of exploration and development;
  • Although Mexico accounts for roughly 15 percent of the U.S. oil supply, the lack of modernizing reforms in Mexico’s energy sector has placed the sustainability of its oil and gas production at risk;
  • President Calderón’s campaign position was that NAFTA treatment should be expanded to upstream gas and oil activities, but without privatizing Pemex. He is now treading carefully with this proposal to forge links between Pemex and private firms, as it became a blistering issue in the 2006 presidential race and still hits a raw nerve within certain pockets of the Mexican congress.

 

Mexican Politics

Congressional, Legislative, and State-level Trends

After winning the presidential race by less than 0.6 percent of the 41,791,322 votes cast in last July’s national elections, President Felipe de Jesús Calderón Hinojosa of the center-right National Action Party (PAN) was sworn into office on December 1, 2006. At the time of his inauguration Calderón still faced stiff public opposition to his victory by those supporting the runner-up, Andrés Manuel López Obrador, candidate of the leftist Party of the Democratic Revolution (PRD) and former mayor of Mexico City.

Yet, despite this seemingly inauspicious start, Calderón has moved quickly to exert executive leadership, and this despite his party’s minority standing in both the 500-member Chamber of Deputies (the PAN captured 206 seats) and the 128-member Senate (the PAN won 52 seats). Unlike the PRD and the longstanding Institutional Revolutionary Party (PRI), the PAN succeeded in winning these congressional seats without having to form electoral coalitions with a number of small fringe political parties, which means that the president is only beholden to his own party.

Nevertheless, Calderón’s ability to successfully navigate executive-legislative relations and pass essential political and economic reforms in the congress will require a sound working relationship with the other two coalitional blocs led by the PRD and the PRI.

According to Luis Rubio and Juan Pardinas, two prominent political analysts from the Center for Development Research (CIDAC) in Mexico City, the Calderón administration has gotten off to a surprisingly strong start. During the CAA mission’s meeting with these analysts at a forum hosted by the U.S. Embassy they expressed at least three reasons for optimism: 1) despite the basically weak mandate of the executive office in Mexico, the new president is already effectively using those powers that have been granted to him. In contrast to his predecessor from the PAN party, President Vicente Fox (2000-2006), who never once met with the PRI congressional opposition, Calderón has already done so and the results are showing; 2) it took just 20 days into his term for Calderón to pass the federal budget, and within his first hundred days in office he had already brokered a desperately needed social security reform package and cracked down on rampant drug-related crime in the northern border states; 3) Rubio and Pardinas further argue that, due to this combination of statecraft and policy stealth, truly competitive party politics are finally coming to life in Mexico. Both are confident that this reform momentum will continue, with health and fiscal policy reform next on the agenda.

At the same time, Rubio and Pardinas caution that the Calderón administration faces immense political challenges. Although Mexico’s six-year presidential term (or sexenio) is the longest in Latin America, in fact, the Mexican executive can easily be reduced to lame duck status if considerable reform advances are not made prior to the mid-term elections. This means that Calderón has a short leash, until the 2009 mid-term elections, to show tangible progress in reform areas like energy, security, and un-documented migration, issues that have proved highly resistant to change in the past. Other challenges mentioned by these speakers, along with Francisco Guerrero from the Center for Studies on Public Opinion within the Chamber of Deputies, have to do with the anachronistic nature of the Mexican Constitution and with federal-state governmental relations.

While the Mexican Constitution is now ninety years old, it was not put to full practice until the unseating of the PRI by the PAN in 2000. This marked the end of the PRI’s 71-year reign as the single ruling party, and the country’s formal transition to democracy. However, this liberalization of politics quickly highlighted the ways in which the 1917 Constitution was tailored to support the idiosyncrasies of single-party rule, including a decidedly deficient legal framework to support a truly competitive political regime. The two biggest Constitutional gaps are the lack of a clear line of succession in the event of the President’s death, and no set guidelines on how to proceed if the federal budget is not passed by the designated deadline. 

On the congressional side, elected members of both houses are undergoing an important process of political learning which also pushes the legislative boundaries of an antiquated Constitution. In short, congress no longer answers solely to the president as it did under the PRI dynasty. Ostensibly, elected members now answer to their constituents, although a main Constitutional drawback is the one-term limit for members of both houses. This term-limit system is a deterrent to the accountability and policy efficacy surrounding a given incumbent’s term, and a main explanation for the highly variable development patterns across Mexico’s 32 states. Not surprisingly, local public opinion polls show that only the national police rate lower than the congress in the eyes of the Mexican electorate, although Calderón seems to understand the importance of boosting the prestige of the congress. At a minimum, this would mean addressing the huge technical asymmetries that now exist between the executive and the congress, whereby most of the expertise is heavily concentrated in the executive office. The end of strict term limits could also advance the professional standing of the congress, even if there are as many arguments in favor of this electoral reform as there are special interests to lobby against it.

Federal-state governmental relations in Mexico are in similar need of modernization. First is the outdated fiscal relationship that binds the central government to these sub-national entities. As Juan Pardinas put it, “the federal government does the taxing and the state governments do the spending.” In the 2000s the old PRI formula of strictly limiting the ability of the states to raise their own taxes has given way to a more flexible fiscal framework. However, few state governors have utilized this freedom to collect more local taxes, given the perceived political liabilities of doing so. Second, the developmental disparities between the 32 states are directly related to the highly uneven capacities of local policymakers to manage their share of the federal budget and hence deliver on crucial economic reforms. Finally, although some state governors have become key interlocutors between the executive and the congress in authorizing the federal budget, and in some cases (Hidalgo, Jalisco, Zacatecas) the initiators of innovative public policies, there are still too many instances of underdevelopment and political failure (Guerrero, Oaxaca, Puebla, Sonora). In the interest of political stability, higher growth, and overall national security, it is incumbent upon the federal government to provide the kinds of technical, financial, and policy assistance to those states that are still so far behind the rest of the country. In terms of Mexico’s foreign policy, the CAA mission attended a lunch hosted by Under Secretary for North American Affairs, Ambassador Carlos Rico, at the Secretariat of Foreign Relations (SRE) in Mexico City. Under Secretary Rico emphasized that Mexico’s foreign policy successes are strongest in the economic realm. Mexico, for example, is now the largest global trader in the Latin American region and the second largest market in the world for the export of U.S. goods. On the financial front, the country has implemented deep institutional reforms in the way of Central Bank independence and banking sector reform, meaning that the days of cyclical balance-of-payment and currency crises are behind them.

Foreign Policy

Politically speaking, Mexico’s foreign policy draws on that of the previous Fox administration: managing the vitally important U.S.-Mexico bilateral relationship, while also seeking to maintain and strengthen ties with other regions (Europe, Asia) and with neighboring countries in Latin America. Calderón’s appointment of the highly experienced Arturo Sarukhán as Mexican Ambassador to the United States, as well as his appointment of Foreign Minister Patricia Espinosa, a career diplomat who has served as Ambassador to Austria and Germany, reflects these political priorities for Mexican foreign policy.

However, Calderón has also made it clear that he will not pander to the United States on those issue areas where the bilateral relationship currently differs. At first glance, these would include Mexico’s preference to engage with Cuba as a main catalyst for change, rather than the U.S. strategy of isolation; to maintain diplomatic ties with Venezuela to the fullest extent possible; and, Mexico’s continuingly staunch opposition of the U.S. invasion of Iraq. 

But the overriding points of tension in the bilateral relationship are the questions of undocumented migration from Mexico to the United States and the related need for heightened border security (both issues are addressed in more detail in separate sub-sections below). Under Secretary Rico noted that the political and economic strands of Mexico’s foreign policy are most intertwined within these two crucial issue areas, and both have rendered the bilateral relationship “more complicated than ever.” In a nutshell, Mexico’s stance is that the northward explosion of undocumented migration is an economic issue, one governed by the laws of economic supply and demand across the U.S.-Mexico border. Yes, Mexico bears the burden for mitigating the supply of cheap Mexican migrant labor, which entails a more vigorous pro-growth strategy that will further reduce poverty and create better paying jobs at home. And, policymakers must encourage higher value-added production lines that can counter the fierce competition now coming from China. Yet, from the Mexican standpoint, the United States must take greater responsibility for quelling the demand-side of this equation, including the design of immigration policies that rely on more than just border security—a strategy that has clearly failed in the eyes of the Mexican political establishment. 

In the ensuing discussion, Ambassadors Gelb and Towell probed further into the question of undocumented migration by shifting the focus to Mexico’s southern border. In response to Ambassador Gelb’s question about the nature of migration from Central America into Mexico, Under Secretary Rico explained that these undocumented migrants either cross into Mexico temporarily in search of short-term work or they are in transit to the United States. Although it is technically illegal for Mexican employers to hire these undocumented workers, and although Mexico has an agreement with the Central American countries for the safe and humane deportation of undocumented laborers, “there is a huge gap between legislation and implementation.”

Ambassador Towell raised the question of the Puebla Panama Plan (PPP), initially launched under President Fox and meant to address the enormous and disproportionate development deficit that characterizes the southern expanse that runs literally from Panama up though the entire south of Mexico and into the state of Puebla. While Calderón has signaled his commitment to continuing this effort and has already hosted a PPP summit that included Colombia (at the latter’s request), Fox’s lack of progress in this area suggests that the current administration has its work cut out. It is obviously too soon to say whether Calderón’s team will succeed in raising development indicators along this stretch such that job growth can deter the northward flow of undocumented migrants from Central America. This theme of immigration policy was the main focus of the CAA mission’s meeting with nine members of the Mexican Senate, including the Chair of the Senate’s Committee on International Relations, Senator Rosario Green. Senator Ricardo Garcia Cervantes began with a pointed critique of U.S. policy. “We are offended by the wall at the border,” he stated, and although Mexico shares the same demographic and migratory concerns that have inspired the United States to build a higher wall, Senator Garcia would like to see the two countries arrive at “a more mutually beneficial strategy.” In this vein, Senator Green called for a “return to pre-9/11 levels of collaboration and respect. Since 9/11 we have been at odds, experiencing parallel dialogues with few bridges between the two countries for resolving common problems. It is time to seek fresh and imaginative solutions to the problems that now mark U.S.-Mexico relations.” Other comments made on the Senate side voiced similar concern about U.S. attempts to restrict its border with Mexico, rather than opening it further in accordance with the 1994 North American Free Trade Agreement (NAFTA). At the same time, the senators stated their shared concern for: fighting the war on terror, combating organized crime and the drug cartels, and raising Mexico’s economic competitiveness so as to expand employment and per capita wage gains. On all three points, the senators called for greater U.S. assistance and cooperation.

The Mexican Senate

Members of the CAA mission were quick to emphasize the points of coincidence on the issues raised by these Mexican senators. Ambassador Brown noted that he does not subscribe to a wall at the border, and Ambassador Price agreed that “a wall should not be necessary; however, fenced borders should be respected and protected. Strong prosecution standards for violators must be supported by both governments…security and protection against terrorist elements, since 9/11, is paramount.” Ambassador Price also expressed support for the establishment of a U.S. immigration policy that would set explicit criteria and uphold legal standards that would enable Mexican migrants to join the U.S. workforce as documented laborers. Ambassador Lambert acknowledged that Mexico’s emergence as the major transit point for drug trafficking into the United States warrants closer cooperation on both sides. Ambassador Gelb addressed the senators’ concerns for Mexico’s waning economic competitiveness, which has been exacerbated by the rise of China in the U.S. market: “Something has to be said or done to reflect that Mexico is on the move,” but it is largely up to Mexican policymakers and the country’s business sectors to signal this commitment. The questions of Mexico’s own national security, and its commitment to quell violent crime within neighboring northern Mexican states, were recurrent throughout this CAA mission. On the issue of public safety in Mexico, a number of the presenters mentioned that crime and the economy consistently rank as the top two concerns in national public opinion polls. The CAA mission was briefed by Oscar Rocha, a security and law enforcement expert who acts as senior advisor to Mexico’s Ministry of Public Security and to the Office of the Attorney General. Mr. Rocha acknowledged that Mexico has one of the highest crime rates in the world, a main reason being the long history of internal corruption that has plagued all levels of law enforcement—from the police and investigative units to the prosecutors and judicial system. It would thus be difficult to exaggerate the challenges that face the Calderón administration in the realm of public security.

National Security

On the upside, Mr. Rocha highlighted current efforts underway to unify the federal police force into one jurisdictional entity and to forge a more pragmatic relationship between federal and state law enforcement entities. Tensions have been especially high with regard to public security in crime-infested Mexico City, where the federal and local police have competed and overlapped in counter-productive ways. Mr. Rocha pointed to the 2006 election of the former Mexico City Chief of Police as the city’s new mayor as a promising step toward resolving these tensions. Still, politicians and policymakers operating at all governmental levels have a considerable way to go in producing concrete results in lowering crime.

An even greater downside to Mexico’s security scenario concerns the explosion of violence that has erupted over the past two years in the northern border states. This has been driven, first, by an all-out territorial battle between organized drug cartels and between the cartels and Mexican law enforcement, and second, by the heightened dangers facing undocumented migrants seeking to cross into the U.S. under increasingly strict U.S. border controls. In separate meetings, both Mr. Rocha and Under Secretary Rico applauded Calderón for having extradited more criminals than ever before to the United States in his first few months in office. However, like the Mexican senators that met with the CAA mission, both Mr. Rocha and Under Secretary Rico insisted that the eradication of the drug cartels in northern Mexico will require the contribution of greater U.S. law enforcement resources than have thus far been allocated. The Calderón team has started out aggressively, and more extraditions are planned, but Mr. Rocha argued that Mexican policy alone cannot counter the powerful economic laws of supply and demand that have spurred unprecedented northward flows of illicit drugs and undocumented labor. In neither realm, added Mr. Rocha, can “we pass laws that are completely mismatched with economic and demographic realities.” 

Ambassador Price triggered the discussion by asking what Mexico is doing to better secure the border? With regard to terrorist surveillance, Mr. Rocha reported that our two governments have done a reasonably good job. When pressed by Ambassador Towell on the percent of border enforcement that actually involves terrorist suspects (or “special interest aliens”) in the post-9/11 era, Mr. Rocha said the numbers were very difficult to gauge. But, he noted, apart from seeking to better secure Mexico’s southern border against terrorist infiltration, “terrorist identification is not the highest priority issue in U.S.-Mexico relations.” Rather, counter-narcotics operations have consumed the bulk of security resources along the border. When asked by Ambassador Lambert if Mexico makes a significant effort to combat the flow of drugs that enter the United States through the recently liberalized trucking sector, Mr. Rocha was emphatic that Mexico is upholding its side of the counter-narcotic battle at the border. When queried by Ambassador Holden about Mexico’s reluctance to extradite criminals that would face the death penalty in the United States, Mr. Rocha explained that Calderón must still tread lightly here, as Mexican public opinion bristles at the notion of capital punishment and the Mexican Constitution actually prohibits the death penalty. The performance of the Mexican economy in the 2000s was addressed by several presenters to the CAA mission: Laura Kirkconnell (Assistant Counselor for Economic Affairs, U.S. Embassy, Mexico City); Ambassador Martha Lara (Consul General, Mexican Consulate, San Antonio); Ellen Lenny-Pessagno (U.S. Commercial Service, Houston); Adela Márquez (Chief Advisor to the Under Secretary for International Trade Negotiations, Ministry of the Economy); Jerry Mitchell (formerly of the U.S. Commercial Service in Mexico); and, Luis Rubio (CIDAC). In sum, there was broad agreement that Mexico’s closer integration with the U.S. and Canadian economies under NAFTA has produced concrete benefits, but there was also consensus concerning the numerous shortcomings that still surround the country’s development model. The following is a summary of the main talking points and rich economic data that were presented to the CAA mission by this distinguished group of speakers. 

Economic Policy and Performance

Mexico’s decision to enter into the 1994 North American Free Trade Agreement was an attempt to both “lock in” an ambitious market reform program based on liberalization, privatization, and deregulation that had been implemented in the late 1980s, and it was an effort to position the country onto a high-growth track similar to those underway across Asia. The economic data confirm that neither of these goals has been met. The most successful aspects of Mexico’s economic performance have to do with the sound restructuring of macroeconomic policy. For example, some 13 years into NAFTA, Mexico’s main macroeconomic indicators (inflation, fiscal balances, interest rates, and exchange rates) have converged closely with those of Canada and the United States. The puzzle here is that growth, both aggregate and per capita, has not fully responded to these favorable macroeconomic reforms, and this despite the realization of much higher levels of trade and foreign direct investment (FDI) in Mexico since the advent of NAFTA. 

Under NAFTA, the growth of Mexican gross domestic product (GDP) has averaged three to four percent annually, less than half the average annual growth rates witnessed in China and India over the same time period. Mexico’s per capita growth has more than doubled since 1994, however, it still stands at less than 25 percent of per capita GDP in the United States. Obviously, this gap in living standards is the main “push factor” for the massive flow of undocumented migrants into the U.S. labor market. Members of the CAA mission questioned all of these presenters about the causes of Mexico’s sluggish growth and much lower living standards in North America. The collective answer: Mexican policymakers and politicians have dropped the ball and failed to follow through on the kinds of microeconomic reforms that are required to infuse dynamism into the domestic economy. Topping this list of incomplete microeconomic reforms is a huge infrastructure deficit, weak property rights, high bureaucratic barriers, segmented credit markets, poorly trained human capital, rampant corruption, and the outright failure to implement any semblance of an anti-trust or competition policy. In the absence of an all-out reform shock at the microeconomic level, all of the presenters suggested that Mexico is destined to hover indefinitely around its current low-growth equilibrium point—poverty, underemployment, periodic populist backlashes, and all. 

However, the presenters juxtaposed this bleak scenario with guarded optimism that the Calderón team will prevail in tackling the country’s pending microeconomic reform agenda. Already on the slate is a job creation program targeted in those Mexican states that have registered the highest levels of outward (undocumented) migration to the United States, as well as the promise of universal healthcare coverage for infants born since 2006. Moreover, Calderón has set the ambitious goal of catapulting the Mexican economy into the fifth largest in the world by the year 2050. For this goal to become remotely tangible, the presenters concurred that the most essential reform will be that of breaking up the country’s notorious monopolies. Be it bread, tortillas, cement, television stations, or telephones, Mexico’s monopolistic patterns of company ownership constitute a main bottleneck for job creation, productivity gains and the country’s overall competitiveness ranking (which now trails that of China in the World Economic Forum’s most recent company surveys). 

Paradoxically, while Mexican policymakers and the country’s highly organized business chambers rely on NAFTA as a main economic reference point, the agreement will have accomplished its prime goals by 2008. As noted by Adela Márquez, Chief Advisor to the Under Secretary for International Trade Negotiations, “we are at the end of NAFTA. This is the last year of tariff phase-outs, and 99 percent of NAFTA’s exports now enter duty free.” Since 1994, the stock of FDI in Mexico has increased five-fold and U.S.-Mexico trade has grown by 377 percent, rendering Mexico the third most important U.S. trading partner after Canada and China. Yet, as Ambassador Martha Lara remarked, “NAFTA has not helped Mexico modernize its productive apparatus.” At least on the Mexican side, it seems that NAFTA’s architects were relying heavily on the power of a free trade agreement to force a microeconomic restructuring, and in doing so overlooked the crucial role that institutional reform (property rights, transparency, rule of law) must play in this process. With NAFTA winding down, Mexico still has no cohesive growth strategy is place, nor does it have a clearly stated policy framework that directly addresses how the country can better counter the competition it now faces from China in sectors of the U.S. market that Mexico once dominated.

The presentations by Jerry Mitchell and Ellen Lenny-Pessagno addressed Mexico’s economic policy options in the post-NAFTA era. Mr. Mitchell referred to the 2005 Security and Prosperity Partnership (SPP) between the three NAFTA members as the most explicit initiative underway. SPP represents the first trilateral endeavor undertaken since the creation of the North American Environmental Cooperation Commission in 1993 and the first trilateral executive-level meeting since 2001. Of interest here is the “prosperity” side of this venture, whereby trilateral working groups have been appointed to promote regional competitiveness across nine designated areas, ranging from transportation to financial services to information and communication technologies. Yet, as Mr. Mitchell sees it, the SPP probably won’t have the “funds and political leadership necessary to move it forward.” 

A March 2006 follow-up SPP trilateral meeting held in Cancún, Mexico, did create the North American Competitiveness Council and assigned it a private-public consultative role meant to bolster sectors most at risk (autos and transportation, steel, manufacturing, and services). Ms. Lenny-Pessagno stated that “Mexican manufacturing remains strong, as growth of industrial GDP topped five percent over the past year.” However, with Mexican remittances from the United States outpacing FDI since 2004, the health of the economy, and the manufacturing sector in particular, is clearly at stake. Her policy advice is to target smaller firms in prized sectors (auto parts, aerospace, metal mechanics, medical equipment, pharmaceuticals, services), nurture them with affordable credit and export and investment incentives, and thereby lay the groundwork for the levels of job creation and competitiveness that the current situation warrants. The line-up of presenters on this subject was equally impressive: Ambassador Robert Krueger (Ambassador-at-Large for Mexican Affairs, 1979-1981); Ambassador Arturo Sarukhán (Mexican Ambassador to the United States); Dr. Andrew Selee (Director, Mexico Institute, Woodrow Wilson International Center for Scholars); Ambassador Abelardo L. Valdez (CAA Vice Chair); Mr. Roger W. Wallace (Deputy Under Secretary for International Trade, 1989-1991); and a panel of officials at the National Immigration Institute in Mexico City, led by Ms. Ana Cecilia Oliva (Director General for International Affairs). The main departure points for all of these presenters were the powerful push-pull factors that are driving undocumented migration from Mexico to the United States, i.e. the lack of economic opportunities in Mexico and the growing demand for cheap unskilled labor in the United States; the challenges intrinsic to border security, given that the two countries share 48 bridges and border crossings; and, the policy options available to the U.S. and Mexican governments to address the immigration issue in a more cooperative and effective manner.

Migration

Ambassador Sarukhán began by defining immigration as the most important item on the U.S.-Mexico agenda. As he sees it, Mexico must deliver economic growth and job creation at home in order to absorb those redundant workers that head for the U.S. market due to the lack of other options. However, while it is Mexico’s responsibility to more aggressively tackle its high levels of poverty and inequality, and to reform an antiquated immigration law that dates back to the 1930s, the United States must also uphold its own laws. Here, Ambassador Sarukhán referred to the failure of the U.S. government to prosecute those employers that knowingly violate U.S. law by hiring undocumented workers. He also suggested that the recent debate on immigration in the U.S. has focused too narrowly on security. From the Mexican angle, immigration reform needs to include enhanced border security but also circularity in labor mobility. In other words, the number of undocumented Mexican workers staying in the United States is increasing because the costs and dangers inherent in crossing back and forth across the border have risen so steeply. For Ambassador Sarukhán, the orderly restoration of circularity in labor mobility for Mexican workers (the ability to cross into the United States to work and to go back to Mexico to visit their families) should be a key component of any immigration reform package.

From the U.S. standpoint, both Dr. Selee and Mr. Wallace focused on the market aspects of immigration and on the policy implications. Although much of the immigration debate has treated the surge of undocumented Mexican workers in the U.S. as a “threat”’ to U.S. security and to the well-being of U.S. workers, recent demographic projections confirm that Mexico’s excess labor supply will begin to shrink over the next decade. Whereas 44 percent of the Mexican population is currently under the age of 20 and the median age is now 25, by 2050 the median age in Mexico will be 42. Mexico’s fertility rate, moreover, has slowed from 7.2 in the 1970s to 2.2 in the 2000s. This means that U.S. shortages of low-skilled workers, for example, in construction, restaurant services and trucking, cannot be filled indefinitely by Mexican laborers, undocumented or otherwise. The shortage of such labor in the United States means that demand will remain high, even in the face of its gradual diminishment on the Mexican side of the border. 

These stark demographic complementarities highlight the extent to which there should be common ground for a workable U.S.-Mexico immigration policy. The white noise of domestic politics has, unfortunately, been the prime obstacle to achieving this goal. Ambassador Sarukhán argued that the outcome of the 2006 mid-term elections in the United States, in particular the Democratic Party’s victory in the U.S. Congress, has provided a new opportunity to achieve immigration reform. However, “You need two to tango.” The White House has to work with the Congress to achieve immigration reform, and time is of the essence. He projects that if a viable immigration reform package is not passed in 2007, next year’s presidential race will delay this project until 2009. Clearly, no one will be 100 percent happy with the final legislation, but a compromise bill in the U.S. would be a major improvement over the current situation. 

On the part of the presenters, a full range of policy options were put forth. Mr. Wallace offered a set of policies that would properly capture the market aspects of the immigration phenomenon. These would include: Adjusting the amount of documented workers permitted to enter into the U.S. to the ongoing levels of private sector demand for such workers; enhancing the efficiency of enforcement so that border patrols can focus on counter-narcotics, anti-terrorism, and other illegal activities (consideration should be given to some form of electronic ID); upholding current laws concerning the penalization of U.S. employers who hire undocumented workers; and, seeking to legitimize the status of undocumented migrants already residing in the United States. Dr. Selee further emphasized that “resources should be directed to people who want to come to the United States to work.” This would entail provisional visas for Mexican workers who pursue this opportunity. He concurred with Mr. Wallace that enforcement of immigration laws should be strengthened, for example, by use of a national ID card, and policymakers should strive to offer some form of provisional citizenship to undocumented workers now living in the United States.

Broader suggestions for immigration policy reform were raised by Ambassador Sarukhán, all of which were debated as part of a “NAFTA-plus” strategy under the outgoing Fox administration. First would be the creation of the kinds of social cohesion funds that the European Union (EU) has offered to less developed members like Ireland, Spain and Greece—assistance targeted to support the costs of economic restructuring and ease the pain of adjustment in meeting the more competitive standards of the EU. Second, the United States and Canada could create the equivalent of a “Marshall Fund” for Mexico, perhaps through the North American Development Bank (NADBank). (Not surprisingly, neither Washington nor Ottawa warmed to these ideas when Fox floated them in 2004-2005). Finally, Ambassador Sarukhán called for grassroots NGOs and business organizations to play a stronger role in working to achieve immigration reform. Input from these groups was vital in hammering out the non-trade details of NAFTA, for example, in the negotiation of the labor and environmental side agreements. They were highly pro-active in the passage of NAFTA, he said, and should now be mobilized too in the effort to secure a viable immigration reform package. However, the bottom line for Ambassador Sarukhán is that “unless Mexico puts its house in order, the best immigration reform will not be possible.” The energy sector is another instance of the adverse effects of monopolization on the Mexican economy, as the state oil company (Pemex) has strictly controlled the development of hydrocarbons (oil, natural gas) by constitutional fiat since the 1930s. The nationalization of Mexico’s oil sector was a hallmark of the post-revolutionary state-building project undertaken by President Lázaro Cárdenas (1934-1940). Although many nationalistic policies dating from this era have been subsequently reversed (e.g. the ejido system of communal land holdings), successive administrations since the late 1980s have simply not been able to convince a majority bloc within the Mexican congress and the country’s electorate of the benefits of energy sector privatization. President Calderón, who served as Pemex Director under the Fox administration, is thus stepping gingerly in his attempts to forge links between Pemex and private firms, for fear of stoking a tenacious nationalist contingent that continues to staunchly oppose the opening up of Mexico’s energy sector to private investment.

Energy

During the CAA mission’s meeting with officials at Mexico’s Ministry of Energy, it became obvious that the pace of change in this sector remains highly constricted by this monopolistic arrangement, which precludes the entry of foreign investors into Mexico’s energy development. For this reason, Mexican trade negotiators were adamant that energy be excluded from the NAFTA agreement, as reform of the Mexican energy sector would require a constitutional amendment within the congress. Mexico thus finds itself in the surreal position of ranking amongst the top five oil producers in the world, but with its hands tied in contracting private investors to undertake the prohibitively expensive tasks of exploration and development. 


What’s worse, in the 2000s more than 60 percent of Pemex’s annual revenue has been taxed to cover the running deficit of the federal budget. Politically speaking, the gutting of Pemex’s annual revenues has perhaps been less painful than the implementation of a badly needed tax overhaul in Mexico, but even this strategy is running up against its own limits. The lack of fiscal and energy reform in Mexico has now placed the sustainability of its oil and gas production at risk. During the past 15 years most investments in Pemex were channeled toward increasing production for export. The result has been a serious decline in Mexico’s proven stock of crude oil and a deficit in gasoline and natural gas production for supplying domestic demand. Even more concerning is that most of the country’s current oil production is sustained by just one field, Cantarell, the offshore reservoir located south of the Gulf of Mexico. In 2004, 72 percent of Mexico’s oil production and 17 percent of natural gas came from this field, which by 2010 will have declined by half. Estimates from Mexico’s Ministry of Energy show that it will require at least US $10 billion in annual investment if oil production is to be sustained at present levels, and this clearly surpasses Pemex’s own investment resources. 

In the post-9/11 era both Canadian and U.S. leaders have sought to forge a continental policy for energy development, and this has been one of the main prongs of the 2005 SPP initiative. Yet, Canadian and U.S. proposals for bringing Mexico more closely into the North American loop on energy security are rooted in a market-oriented model that seeks to establish incentives for developing conventional and non-conventional resources in an era of historically high oil prices. This strategy, however, which also envisions strong regulatory intervention at the federal level and the development of non-conventional oil resources, is worlds apart from Mexico’s state-dominated energy framework. While there is broad political consensus in Canada and the United States that energy development should be guided by private incentives, in Mexico there is no domestic consensus on how to fully tap the development of the country’s energy potential. 

During the 2006 presidential race, Calderón promoted the idea of expanding NAFTA treatment to upstream gas and oil activities, but without privatizing Pemex. Tellingly, the losing PRD presidential candidate in 2006, Andrés Manuel López Obrador, argued for just the opposite: the preservation of state led-policies and minimal participation of private (foreign) firms. Calderón’s proposal best suits the interests of his NAFTA partners, since energy firms in these countries are eager to participate in new opportunities for private investment in Mexico. Under such a scenario, Mexican production could eventually increase and any surplus could be exported to the U.S. market. Further, any opening of Mexico’s energy sector that might be supported by a Constitutional amendment would be regulated by the principles and obligations of NAFTA. In this sense, Mexico’s energy markets would move closer to a market-based governance approach and could increase sales to the United States without requiring major political or strategic concessions. 

In the end, Pemex’s monopolistic grip on Mexico’s energy sector has deterred the development of alternative fuel strategies, not to mention other forms of policy innovation. Mexico is currently signing some technical assistance contracts with big oil companies like Exxon Mobil, but nothing more. Calderón is thus treading carefully with his proposal to forge links between Pemex and private firms, as this very notion still hits a raw nerve within a sizable segment of the Mexican congress. The main outcome of this mission was to reaffirm Mexico’s overriding importance to the United States, regardless of the differing opinions that may now divide policymakers and political leaders within the two countries. In terms of U.S.-Mexico relations, the various debates and discussions that occurred over the course of this mission drove home the extent to which Mexico’s reform progress in crucial areas like migration, national security and energy sector modernization will depend on close collaboration with the United States. While the current mood on Capitol Hill may seem to overlook this reality, at stake in each of these issue areas is also the economic welfare and national security of the United States. The good news for the latter is that Mexico’s political development and foreign policy capabilities are better prepared than ever before to tackle these policy challenges jointly with the United States.

Conclusion

On the regional front, and given the souring of U.S. relations with a new wave of nationalist-populist leaders in countries like Bolivia, Nicaragua and Venezuela, Mexico is increasingly emerging as both a buffer and a voice of reason in Latin America. Because of this, and in light of the various U.S.-Mexico linkages that have been emphasized here, this particular ally merits perhaps more attention and cooperation from U.S. legislators and decision-makers that it has received since 2001. Enrique Dussel Peters, Economic Opportunities and Challenges Posed by China for Mexico and Central America (Bonn: German Development Institute, 2005).

Suggested Background Reading

Christina Gabriel and Laura Macdonald, “Migration and Citizenship Rights in a New North American Space,” in Requiem or Revival? The Promise of North American Integration, edited by Isabel Studer and Carol Wise (Washington, DC: Brookings Institution Press, 2007).

Jonathan Heath, “Mexico’s Economy: Are Further Reforms Necessary?” in Mexican Governance, edited by Armand B. Peshard-Sverdrup and Sara D. Rioff (Washington, DC: Center for Strategic and International Studies, 2005).

Chappell Lawson, “Mexico under Calderón: The First Hundred Days and the Challenges Ahead,” A Pacific Council on International Policy Report (Los Angeles, CA: Pacific Council on International Policy, April 2007).

Benito Nacif, “Congress Proposes and the President Disposes: The New Relationship between the Executive and Legislative Branches in Mexico,” in Mexican Governance, edited by Armand B. Peshard-Sverdrup and Sara D. Rioff (Washington, DC: Center for Strategic and International Studies, 2005).

Manuel Pastor and Carol Wise, “The Lost Sexenio: Vicente Fox and the ‘New’ Politics of Economic Reform in Mexico,” Latin American Politics & Society 4 (2005): 135-160.

Oscar Rocha, “Civil-Military Relations and Security Policy in Mexico,” in Mexican Governance, edited by Armand B. Peshard-Sverdrup and Sara D. Rioff (Washington, DC: Center for Strategic and International Studies, 2005).

Security and Prosperity Partnership, “Report Submitted by the Economic, Security, and Foreign Policy Ministries of Canada, Mexico, and the U.S.” June 2005 (www.usembassycanada.gov/content/can_usa/spp_ottawa_report.pdf).

Sidney Weintraub and Rafael Fernández de Castro, “Mexico,” in Energy Cooperation in the Western Hemisphere: Benefits and Impediments, edited by Sidney Weintraub (Washington, DC: Center for Strategic and International Studies, 2007).

Carol Wise, “Great Expectations: Mexico’s Short-lived Convergence under NAFTA,” Working Paper 15, Centre for International Governance Innovation, Waterloo, Ontario, Canada, January 2007.

Tamara Woroby, “North American Integration: The Search for Positive-Sum Returns,” in Requiem or Revival? The Promise of North American Integration, edited by Isabel Studer and Carol Wise (Washington, DC: Brookings Institution Press, 2007).

Mission Date(s)

Apr 10, 2007 - Apr 13, 2007

Delegation Members

  • Henry E. Catto, Jr.
    Ambassador to El Salvador, 1971-1973
    Chief of Protocol, 1974-1976
    Ambassador to the United Nations European Office (Geneva), 1976-1977
    Ambassador to the United Kingdom, 1989-1991
    Director, United States Information Agency, 1991-1993
  • Bruce S. Gelb
    Ambassador to Belgium, 1991 - 1993
    Ambassador to United States Information Agency, 1989 - 1991
  • Carolyn M. Gretzinger
    Executive Director, Council of American Ambassadors
  • Glen A. Holden
    Ambassador to Jamaica, 1989 - 1993
  • Paul C. Lambert
    Ambassador to Ecuador, 1990 - 1992
  • John Price
    Ambassador to Mauritius, 2002 - 2005
  • Timothy L. Towell
    Ambassador to Paraguay, 1988 - 1991

Rapporteur

Carol Wise