Mexico

Time to look east?

Print edition : March 31, 2017

A Petroleos Mexicanos (Pemex) truck in Veracruz, Mexico. In 2014, Mexico abolished the monopoly of the state-owned Pemex, inviting foreign investment. ONGC Videsh Ltd set up an office in the country in 2015. Photo: Brett Gundlock/Bloomberg

Vehicles in a lot before export from the port of Veracruz on January 8. Mexico's foreign trade, at 60 per cent of its gross domestic product, is higher than India's even in absolute terms. Photo: Brett Gundlock/Bloomberg

President Enrique Pena Nieto driving Prime Minister Narendra Modi to a restaurant in Mexico City on June 8, 2016. This visit secured Mexico's support for India's candidature in the Nuclear Suppliers Group. Photo: PTI

Recent developments, including Donald Trump’s aggressive actions, may make Mexico more receptive to emerging global economies, and it would be to India’s advantage to be ready should that country decide to look east.

LONG BEFORE THE UNITED STATES AS WE know it came into existence, Mexico was a colossal empire. Creeping colonisation resulted in the annexation by the U.S. of Texas, Utah, Arizona, Nevada, California and New Mexico: 1.3 million square kilometres, almost half of Mexico’s territory and almost 40 per cent of today’s India. The relationship has been unequal and problematic, though both countries have learnt to live with the inevitability of geography.

Mexico is the leading source of heroin, marijuana and methamphetamines for the U.S. and the leading transit country for cocaine from South America. Most of the guns in Mexico come from the U.S. Mexicans constitute the largest legal immigrant group in the U.S., nearly a third, and over half the 12 million illegal immigrants spread across the country.

Attempts were made to enhance Mexican prosperity through the North American Free Trade Agreement (NAFTA), which came into force in 1994 and was a new paradigm in security, trade and investment cooperation. Today, 85 per cent of Mexico’s exports go to the U.S.

U.S. exports to Mexico amounted to $236 billion in 2016. Mexico’s foreign trade, at 60 per cent of its gross domestic product, is higher than India’s even in absolute terms. It is the world’s leading exporter of refrigerators and flat-screen TVs; 80 per cent of its exports 30 years ago were oil, which it still possesses in plenty. The synergy between the U.S. and Mexican economies is obvious. What was not so apparent, until recently, was the extent of resentment of so-called Middle America to hard-working, low-paid “foreigners” now accused by President Donald Trump of, among other things, stealing American jobs. Trump’s insistence on a wall along the border, which Mexico would “indirectly” pay for, forced Mexican President Enrique Pena Nieto to abruptly cancel a trip to the U.S. at the end of January. In a reportedly offensive telephone conversation, Trump told Pena Nieto he may have to send U.S. troops to fight Mexican narcotraffickers. He wants to renegotiate NAFTA.

While much of this may sound like a pipe dream, reverberations resound. The car company Ford suspended a $1.6 billion investment plan in Mexico, while General Motors and Chrysler are treading cautiously after Trump warned that cars made in Mexico would face tariffs in the U.S. A low-profile visit by the new Mexican Foreign Minister, Luis Videgaray, to Washington in late January may have pushed some of the right buttons, but no light has been shed. Mexicans unanimously reject Trump’s declarations. The U.S. will have to pay a heavy price if Mexico halts cooperation on security, narcotics and immigration. Canada, the other partner in NAFTA, seems in no mood to alienate Mexico.

While India may have no dog in this fight, it should be ready if Mexico decides to look east. Mexico is India’s second biggest trading partner in Latin America after Brazil if one sets aside Venezuela, with which 98 per cent of India’s trade is oil imports. Mexico is also India’s largest export destination in that region: $2.86 billion in 2015-16 and $2.22 billion in April-November 2016. Corresponding figures for Brazil were $2.65 billion and $1.56 billion (dgft.gov.in). The export of refined petroleum products to Brazil amounted to $564 million, falling to $36 million in April-November 2016. This item has, along with imported crude oil, made Brazil India’s largest trading partner to date in Latin America. India’s exports to Mexico, on the other hand, constitute a more versatile mix of automobiles, pharmaceuticals, engineering, plastics, textiles and garments, and so on.

India’s trade deficit with Brazil was sizeable in 2015-16, largely because of the imported crude. On the other hand, India enjoyed a surplus with Mexico of $582 million in 2015-16 and of $510 million in April-November 2016 despite the import of crude oil worth $2.5 billion over the past two years. Mexico has free trade agreements with 45 countries. India has preferential tariff agreements only with Chile and the four Mercosur countries in South America (Argentina, Brazil, Paraguay and Uruguay). The Confederation of Indian Industry lists 45 Indian companies in Mexico in pharma, information technology, energy, chemicals, plastics, engineering, and so on. Several have made multimillion-dollar investments, in acquisitions or joint ventures, and appear to be doing well. In 2014, Mexico abolished the century-old upstream monopoly of the state-owned Petroleos Mexicanos (Pemex), inviting foreign investment. ONGC Videsh Ltd set up an office there in 2015. India hosts around a dozen Mexican companies, including the iconic Cinepolis, which expects to own and operate 400 movie screens in India this year.

Mexico’s politics has opened up as has its global orientation. Recent developments may make it even more receptive to emerging global economies. It is a member of the Organisation for Economic Cooperation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) and is a founder member of the Pacific Alliance, a four-country grouping that demonstrates Latin American determination to play a more active role in the global economy. A rival to Brazil in Latin America, it is a leading opponent of Brazil’s (and India’s) desire to expand permanent membership of the United Nations Security Council.

The visit of Mexican President Felipe Calderon to India in 2007 sealed a “Privileged Partnership”. The diplomatic conveyor belt has been active recently. Prime Minister Narendra Modi’s visit to Mexico last June secured its support for India’s candidature in the Nuclear Suppliers Group. Collaborative diplomacy in the G20, in climate change negotiations and elsewhere has given both sides a better understanding of their priorities and sensitivities. Mexico can supplement India’s weight in a scenario where emerging economies demand a greater say in global governance. Among India’s partnerships, Mexico should rank higher than it does at present.

Deepak Bhojwani has served as India’s Ambassador in Cuba, Venezuela and Colombia.

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