U.S.-Mexico High-Level Economic Dialogue: What Does It Mean for Your Business?

Ten days ago, U.S. Vice President Kamala Harris opened one-day HLED: High-Level Economic Dialogue (Diálogo Económico de Alto Nivel or DEAN, in Spanish) talks in Washington D.C., led by U.S. Secretary of State Blinken and Mexican Foreign Minister Marcelo Ebrard. The HLED was originally launched in 2013 by then-Presidents Obama and Peña-Nieto (and chaired at the time by then-Vice President Biden), but halted by President Trump almost as soon as he took office.

The goal of this month’s HLED was to reset bilateral economic priorities, with particular focus on supply chains, investment in Central America, cybersecurity, and workforce development. The United States and Mexico have committed to meeting annually at the cabinet level and semi-annually at the sub-cabinet level.

During the meeting, participants discussed the four pillars that form the joint vision of the HLED:

  • Building Back Together
  • Promoting Sustainable Economic and Social Development in Southern Mexico and Central America
  • Securing the Tools for Future Prosperity
  • Investing in Our People

1. Building Back Together is a regionalization of a program already being implemented in the U.S. by the Biden administration, and probably is the one that will deliver the most immediate impact for American and Mexican businesses alike. The goal is to build supply chain resiliency, guard against disruptions, and seek to promote competitiveness by reducing vulnerabilities.

2. Promoting Sustainable Economic and Social Development in Southern Mexico and Central America is an extension of the Biden administration’s policy of addressing the root causes of migration. The U.S. and Mexico agreed to have the U.S. Agency for International Development (USAID) provide strategic assistance to the Mexican Agency for International Cooperation and Development (AMEXCID) on addressing economic development challenges in Central America, with particular focus on helping farmers bring agricultural goods to market, promoting sustainable development and attracting foreign direct investment (FDI). The program will also strive to create jobs and opportunities in El Salvador, Honduras, Guatemala, and southern Mexico, increasing the trade potential of these markets and spurring investment.

3. Securing the Tools for Future Prosperity represents a joint commitment to supporting regulatory compatibility, enhancement and risk mitigation on issues related to cybersecurity, digital technology and infrastructure and cross-border data flows, as a way to protect global supply chains.

4. Investing in Our People is a commitment to improved worker productivity in pursuit of global competitiveness. The U.S. and Mexico recognized the importance of building a more inclusive workforce that is better educated, more competitive, and better trained with the necessary skills to meet the needs of today’s economy, as well as the value of better integrating small and medium enterprises (SMEs) into regional value chains to enhance their resiliency.

US. officials came into the meeting with the intention of persuading Mexico to adopt their interpretation of regional-based content for automobiles under USMCA, but that issue remains unresolved.

Mexican officials, on the other hand, had a different mission. Mexican officials intended to ask the U.S. for support for policies including further investment in public projects that improve cross-border trade flows and support domestic initiatives like “Sembrando Vida,” its forestation program to provide work and support agriculture, and “Jovenes Construyendo el Futuro,” a jobs scheme for 18-to-29-year-olds in Central America and southern Mexico aimed at offering alternatives to migration. They were also seeking U.S. agreement on the recruitment of Central Americans to work on the infrastructure plan recently approved by U.S. Congress under a temporary 6-month visa scheme, as a way to ease migration pressure on Mexico in the Southern border. Above all, Mexicans wanted badly to show that they were aligned to U.S. interests, by expressing that they share the vision of a unified, more developed North American region.

While progress was made during the relaunching of HLED, the definition of “progress” has been different on either side of the border, for the most part reflecting domestic political priorities.

In Mexican government communiqués and media, the emphasis has been on the need to sit down and determine what exactly should be manufactured in each country, particularly in key industries like semiconductors. U.S. government and media have reported that the two countries have only agreed to work together on joint initiatives, and on identifying opportunities for follow-up. The two governments did not discuss the U.S. “remain in Mexico” policy, formally known as the Migrant Protection Protocols (MPP) program, though the pillars described above indirectly touch on the issue. Reading between the lines, we can understand that while southern Mexico and Central America will receive economic aid, the visa program that was on President Andrés Manuel López Obrador’s (AMLO) wish list is unlikely to be implemented.

Coming out of HLED, it’s clear that a reform of global value chains in Mexico and the U.S. is imminent. [We have written about that here, and Bloomberg has written about it (in Spanish) here.] The speed with which change will occur will in large part depend on the construction of a welcoming business climate for American companies operating in Mexico, plus the introduction north of the border of measures that facilitate bilateral operations.

Another important ingredient for success will be the establishment of mechanisms that support the growth of small and medium enterprises (SMEs), which the White House noted, “are the backbone of both of our economies”. If American FDI is to flow into Mexico, Mexican SMEs will need help weathering the economic storm that started well before the pandemic. They also will need help internationalizing (something I have written about previously), in terms of e.g. compliance with foreign laws, customs rules, technical regulations and standards, managing technology transfer and protecting intellectual or industrial property. Helping Mexican SMEs do that before insertion into value chains is the job of the Mexican government (and will require restoring some investment in agencies – such as the now-shuttered ProMéxico – that provided trade and investment support).

The implementation of a bilateral tax, investment and labor policy will help the U.S. and Mexico “reshore” some of the supply chains that over the past 20 years developed in China and across Asia. With many companies exploring (or implementing) their options for shifting manufacturing out of China (see here), Mexico is almost certainly going to benefit enormously. Stay tuned for further reports on HLED progress and U.S.-Mexico trade relations.

 

 

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