World Trade - November 2008 - (Page 20)

COVER STORY forced to bribe public ofﬁcials, sapping an average 5 percent from annual revenues. “Corruption,” concluded a 2008 Bertelsmann Transparency International report, “extends to all levels of relations between citizens and the public sector.” But perhaps because of a lack of faith in the legal system, only 40 percent of these cases were reported. Finally, there is Mexico’s poor physical infrastructure, especially outside the thin strip of the U.S.-Mexico border. Many U.S. drivers refuse to venture into Mexico, and even if they could, insurers usually won’t cover them. The lack of a truly national, modern limitedaccess highway system, with regular rest and refueling stops and credit-card-friendly re-supply points, makes operating deep inside the country a hazard. “Just climb in a station wagon and try to go to Mexico City and back,” said Schmidt. “I don’t know if you’d survive it. So imagine hauling goods.” There are some bright spots, though, in the Mexican economy. With the rising cost of energy, Mexico is looking increasingly attractive to manufacturers, and the opportunity to bring back industrial investors could provide a spur to further reform. But the best hope lies in the center-right President Felipe Calderon, who won a narrow, bitter electoral contest in 2006 and has since battled with the left-wing opposition to open up the Mexican oil monopoly and to pass a series of tax and regulatory reforms. “Calderon knows how to get things done,” says Atradiu’s van Laack. “He gets things done where his predecessors were unable to.” The Mexican oil giant, PEMEX, is state-owned and aggressively protected by a coalition of nationalists, leftists, and labor. But it is also incredibly inefﬁcient, resulting in consensus predictions that Mexican oil production will run out by 2018. Reversing course means discovering more supplies, but the lack of competition reduces incentives to take those sorts of risks. PEMEX’s status is written into the constitution, but Calderon has been pushing for a revision that 20 WORLD TRADE NOVEMBER 2008 would allow private companies to explore for new oil in exchange for a share of resulting proﬁts. Many critics fear that this is the equivalent of giving away the public’s birthright, and there is little chance that Calderon will get everything he wants. But after a decade of stalled reforms, he looks to be the best chance to get change moving. Calderon has also pressed for legal and regulatory reforms. Soon after taking ofﬁce he instituted the Quality Regulatory Agreement, which prevents the creation of new regulation except when required by law or in an emergency situation. He has also pushed to increase tax income rates from the current abysmal 11 percent of total government revenue, a position supported by even many businesspeople who see it as a necessary step in reducing the country’s over-reliance on oil proﬁts. Most signiﬁcantly, Calderon has overseen a multiyear commitment to dramatically expand the country’s infrastructure, with some $37 billion committed to be spent on rail, 12,000 miles of roads, energy plants, and ports during the next ﬁve years. This includes new airports at growing tourist destinations like the Sea of Cortes and Riviera Maya, as well as renovations and expansions of airports at established sites like Cancun and Toluca. Most impressively, it also means expanding operations at Manzanillo, Lazaro Cardenas, and other Paciﬁc ports in expectation of increased shipments diverted from the permanently overcrowded Southern California ports. And the Mexican government isn’t the only one pouring in money—over the last two years Kansas City Southern of Mexico has spent $380 million to expand its rail network and build an intermodal terminal at Lazaro Cardenas. But these are only beginnings; Calderon’s staunch opposition makes it an open question how much will be achieved. He will have to compromise heavily, said van Laack, in all his efforts. “You get solutions that many people say are useless, but are a lot better than nothing”—hardly the prognosis international investors want to hear. And despite Calderon’s heady promises, the results have yet to appear. For 2007 the World Bank clocked substantial reforms in only two areas, registering property and collecting taxes. Meanwhile, the country rang in 44th in the Bank’s global rankings for doing business, 75th in starting a business, 83rd in enforcing contracts, and 48th in getting contracts. None of this means that NAFTA has been a failure—it has greatly expanded the U.S. economy, and it has helped lock in Mexico’s public commitment to economic and political progress. But 15 years after President Clinton signed it into law, the unmet promises of the agreement mean that much remains to be done. WT Washington-based Contributing Editor Clay Risen writes about global economic policy and politics. He is the managing editor of Democracy: A Journal of Ideas. For reprints of this article, please contact Cindy Williams at williamsc@bnpmedia.com or 610-436-4220 ext. 8516.

Table of Contents Feed for the Digital Edition of World Trade - November 2008

World Trade - November 2008 Contents Unexpected Responses to Unanticipated Change Reading the States of Risk in Today’s Global Economy Supply Chain Watch Tradewinds Failed Promise: Mexico and NAFTA, 15 Years Later The Short Tale Marrying Trade Finance and Transportation into a Single Transaction Trucking Gets a Double Whammy Are We Safe Yet? Logistics Resurrects the Rust Belt Keep on Compressing

World Trade - November 2008

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