Mexico’s Economic Diplomacy: Precedents, Strategies and Perspectives

Luis Videgaray Caso

Mexico’s Economic Diplomacy: Precedents, Strategies and Perspectives
The mercantile dimension of international relations now has —in the midst of globalization— an unprecedented weight. For countries like ours, who have strongly committed to free trade and have identi?ed in it a path to full development, the economic component of diplomacy is critical.

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In the globalized, interdependent and constantly changing world in which we live, foreign policy plays an increasingly decisive role in the prosperity and sustainable development of countries. Through foreign policy, countries relate to their environment, project their identity and values, and are counted among the community of nations.

Mexico is a natural bridge between the two extremes of the American continent, as well as between Asia and Europe, thanks to our access to the Pacific and Atlantic oceans. For this reason it has had a fundamental role in the construction of an increasingly interconnected world, with greater flow of goods, resources, services and people.

This article analyzes the actions that the Secretariat of Foreign Affairs, in coordination with other branches of the Government of the Republic, carries out in matters of economic diplomacy. From a brief historical background, an overview of its current situation is offered, as well as some reflections on its future.

Economic or commercial diplomacy is the use of the states’ political influence to favor their economic interests so as to penetrate international markets and show themselves as safe and trustworthy partners with whom to invest and do business. Among its chief objectives are: promoting exports, attracting investments, supporting the internationalization of national companies —through investments abroad, with strategic alliances or participating in global and regional value chains—, attracting and developing new technologies, international economic cooperation, promoting tourism and country-brand strategies. In short, any international economic activity conducive to growth and development.

 

Historical Development

 

The country’s geopolitical situation, especially its proximity to the United States, has made the increase and diversification of Mexico’s trade relations a constant aspiration. These elements, recognizable today in our commercial diplomacy, are found in the first foreign policy document of the Mexican state (Azcárate’s Verdict, 1822): both the center of gravity in North America and Mexico’s vocation to the Pacific.

Fifty years later, during the government of President Porfirio Díaz, the Secretariat of Foreign Affairs took a series of measures to position the country as an attractive and reliable business partner. In the last years of the nineteenth century a commercial section was opened in the Chancellery; the Mexican legate was elevated to embassy rank in Washington, D.C.; the number of consulates in Europe was increased; relations were established with Japan and China, and the participation of productive sectors (mainly agriculture and mining) was promoted at world fairs, as in the case of the Exposition Universelle in Paris in 1889.

Díaz’s government tried to stabilize Mexico’s trade balance with the United States and European countries such as Germany, the United Kingdom, Spain and France. Since those years, the United States has been our number one trading partner, the primary destination of our exports and the main source of our imports. In 1877, the us market received 42% of Mexico’s total exports and by 1911 that relative share had risen to 76%.1

This trend was accentuated in the first half of the twentieth century as a result of significant international events: the Mexican Revolution, the Russian Revolution and the two world wars. After the economic crisis of 1929, Mexico adopted the substitution of imports as a model for development. In those years, the country’s foreign trade focused on the export of raw materials, mainly oil, and to a lesser extent on manufacturing. As in the past, it sought to reduce the concentration of trade with the United States, especially after that North American country decided to increase tariffs. The strategy was aimed at increasing economic exchanges with traditional partners from Latin America —in particular with Central American countries— and Europe, as well as the conquest of new markets in the newly independent nations of Asia. During this period, the establishment of diplomatic relations with the People’s Republic of China in 1972 stands out.

In the last decades of the twentieth century, from a study of the changing international environment, Mexico opted to turn trade into one of the main engines of national development. The protectionist economic model gave way to accessibility, free trade and regional integration. The first step in this direction was Mexico’s entry in 1986 into the General Agreement on Tariffs and Trade (gatt), antecedent to the World Trade Organization (wto).

In those years, the idea of a partnership with the United States gained strength. The negotiation of the North American Free Trade Agreement (nafta), in the early 1990s, brought a radical shift in Mexico’s foreign and economic policies, and is often evaluated as the most crucial step of the twentieth century.2 In addition to increasing access to the world’s most dynamic market, the North American, tariffs and other non-tariff barriers were eliminated. This paradigm shift also sparked the interest of other traditional partners such as the European Union, with which Mexico signed a Global Partnership Agreement, which included a free-trade treaty. (See Graph 1.)

 

 

Principles, core and priorities of Mexican foreign policy

 

As a result of historical experience, in 1988 our Constitution established, in article 89, section 10, eight principles of foreign policy that are the axis of our actions in the world: the self-determination of people; non-intervention; the peaceful settlement of disputes; the proscription of the threat or use of force in international relations; the legal equality of states; international cooperation for development; respect, protection and promotion of human rights, and the striving for international peace and security.

Today, faced with accelerated international transformations, President Enrique Peña Nieto established as the fifth national goal of the National Development Plan 2013-2018 that Mexico be a player with global responsibility. In January of this year, the President highlighted two foreign policy priorities. Firstly, to strengthen the presence of Mexico in the world in order to diversify our political, commercial, investment, tourism and cooperation links with countries in Latin America, Europe, Asia-Pacific, the Middle East and Africa. Secondly, to establish a new stage of dialogue and negotiation in the bilateral relationship with the United States that allows the consolidation of the integration of North America. In short, the government of the Republic has assumed its leadership in undertaking an economic-commercial diplomacy that stands out thanks to its audacity, effectiveness and strategic sense.

 

Current overview of Mexican commercial diplomacy

 

Mexico is one of the principle advocates of free trade in the world, in response to its economic interests and its conviction to forge a better interconnected and more prosperous world. Today we are one of the world’s most open and globalized nations, with 12 free-trade agreements comprising 46 countries; 32 agreements for the Promotion and Reciprocal Protection of Investments (appri) with 33 countries, and 9 agreements within the framework of the Latin American Integration Association. With these agreements, Mexico has consolidated itself as the gateway to a market that represents more than one billion people (according to figures from the International Monetary Fund and the wto from 2015). In addition, our country has many international instruments in the fields of air transport, sectoral economic complementation and multilateral integration, among others.

For Mexico, free trade, global and regional integration, productivity, innovation and the training and development of human capital are key components in accessing the benefits offered by global markets, fostering greater opportunities, more employment and higher income for the entire population.

Mexico is an important player on the international stage and maintains as commercial strategies the diversification of preferential access to international markets and an increased participation of small and large Mexican companies in global value chains. In 2016, Mexico had a foreign trade volume of almost 761 billion dollars, and so far in the current administration it has attracted 144.312 billion dollars of foreign direct investment (fdi). The structural reforms led by President Peña Nieto have opened up new opportunities to stimulate trade and investment.

Today, most of the state, official and work visits of chief executives and high-level officials come with important business delegations. The participation of private sector representatives and the corresponding accompaniment of commercial or business missions has been crucial in advancing the objectives of commercial diplomacy.

To date, the President of the Republic has made multiple tours abroad with a business component. A prime example was the one made to the Persian Gulf countries in January 2016. In the same way, during the visits of foreign leaders to Mexico, business forums and economic promotion events have been organized, as during the official visit of the Federal Chancellor of Germany in June of this year.

The Secretariat of Foreign Affairs —through the Mexican Agency of International Cooperation for Development (amexcid)— promotes Mexico’s economic diplomacy supported by the 80 embassies and 66 consulates throughout the world. The Secretariat of Economy —through ProMéxico— practices its promotion efforts through 46 offices abroad. To make the work of Mexican commercial diplomacy more efficient and to avoid duplication, in 2015 it was agreed to combine the efforts of the two secretariats.

The purpose of this alliance is to share tools, documentation and business intelligence. Every Mexican representation abroad is today a real cell of economic promotion. Likewise, ProMéxico now has allies practically everywhere in the world and counts on the political clout of embassies and consulates having access to economic representatives at the highest level. From the instrumentation of the executed actions in the agreed collaboration between the two organizations, in just two years the number of business opportunities recognized by Mexican representatives abroad increased 800%. Several of these opportunities have already become realities.

This scheme has made it possible to enter new markets in countries in the Middle East, Central Europe, Africa and the Pacific Basin. To this diversification of target markets is added the registered one both in the type of products and services that are traded and the sectors in which it is invested. Today, around the world we have companies with Mexican capital that produce cement, tortillas, bread, glass, auto parts, appliances, fruits and vegetables, cold meats, pipes, fried corn, chemicals, containers and bottled beverages, among other products. Many other Mexican companies offer entertainment services, retail, transportation, logistics, consultancy, as well as film and television design and production. This growing presence of our country led to the investment of Mexican companies abroad surpassing the fdi that reached the country in 2012.

Mexico’s current promotion strategy considers the economic situation, the particularities of each region, and the emergence of new trends, including business models. In this sense, the country has put its energies into integration from the beginning and favorably towards the so-called “fourth industrial revolution” or “Industry 4.0”.

 

Conclusion: the future of Mexico’s economic diplomacy

 

In today’s globalized world, commercial diplomacy is one of the main tools of foreign policy in the world. Entrepreneurs, creators of wealth and generators of employment in and outside Mexico, contribute to the implementation of our country’s foreign policy, incorporating their needs and interests through dialogue and daily interaction with the Government of the Republic.

nafta’s coming into force was the watershed moment in the country’s development model. Since then, Mexico has advanced in the diversification of its imports (46.4% from the United States and 18% from China in 2016), but has maintained its concentration on the destination of its exports (80.9% to the United States in 2016) (see graphs 2 and 3). It has also increased its share of imports from the United States (from 6.9% in 1993 to 13.4% in 2016).

 

 

There is a noticeable change in the structure of Mexican exports. In 1985, exports from extract sectors (mainly oil and mining) constituted the majority of the country’s total exports (57.1%) against manufacturing (37.6%). Today, it is the other way around: Mexico’s main exports are manufacturing (89.9%), while oil and mining have decreased (6.2%).3

Free trade faces questioning in the world. Numerous discourses and political platforms in the various regions take up the unrest of large social sectors that feel excluded from the benefits of globalization. The advantages of free trade, integration, multilateralism and liberal democracy are questioned. Instead, economic and government programs that were thought to be surpassed are being taken up. Faced with this situation, we have the determination to continue defending openness and integration, on which Mexico has worked with great zeal.

It is our conviction that these projects offer benefits to our citizenship in the short, medium and long term. The modernization of nafta will enable the consolidation of North America as one of the most integrated, competitive and dynamic regions in the world. To the south, the Pacific Alliance (between Mexico, Chile, Colombia and Peru) will allow the utilization of historical coincidences in building a platform of global significance, oriented towards the Asia-Pacific region. Towards the Atlantic, the updating of the Global Agreement between Mexico and the European Union will be the spearhead of a renewed political, economic and cooperation alliance with the most successful and advanced integration model in the world.

Mexico will continue to promote in the world the benefits of the wto-based trading system, of open economies, free enterprise, as well as the integration and the formation of intra- and inter-regional value chains. In the Government of the Republic we are convinced that this is the most effective way to ignite prosperity and inclusion. As part of this vision, commercial diplomacy will be one of our most important strongholds.

 

Translated by Aidan O'Mahony

 

Luis Videgaray Caso is Mexico’s Secretary of Foreign Affairs.

 

1 Roberta Lajous Vargas, Historia mínima de las relaciones exteriores de México (1821-2000), El Colegio de México, Mexico, 2012.

2 Hermann von Bertrab, Negotiating NAFTA: A Mexican Envoy’s Account, Center for Strategic and International Studies/Prager, Westport, 1997.

3 “Estructura de las exportaciones,” Información oportuna sobre la balanza comercial de mercancías de México durante diciembre de 2016, INEGI, Aguascalientes, 2017.