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Mexico’s Bottom Lines

Spring 2017 Tête À Tête

Mexico’s Bottom Lines

Felipe CalderonGB sits down with Mexico’s former president to discuss his country’s possible counter to the new US administration

GB: What is your reaction to what is happening in the US?

FC: It appears that this is going to be one of the worst eras in living memory for American society and government. Of course, this will also be one of the worst eras in recent history for the relationship between Mexico and the US – and, I dare say, between the US and the rest of the world. For all intents and purposes, we now have an American president who, from his first days in office, has made decisions more emotionally than rationally. We are seeing clearly how protectionism and nationalism are returning with a vengeance to the most powerful nation in the world. This will affect much of the world economy, and also the development of very specific countries – in particular, Mexico. Let us see what will happen in the next few months, but thus far each day has been very, very bad for the global landscape.

GB: What should Mexico’s response be to the proposed new ‘wall’ between the US and your country?

FC: There are two issues that concern me most. One is the wall itself and the more general anti-immigration policy that President Trump is planning to carry out. The other is the impact of changes to the trading relationship – that is, changes to NAFTA. First and foremost, Mexico must reject – and must continue to reject – the very idea of building a wall, as that is a hostile act. This is not the kind of behaviour that one would expect from a neighbour, a friend and an ally. Beyond that, however, if you are going to build anything on your own territory, it is patent nonsense to demand that your neighbour pay for it. It is completely unfair, completely illegal, and therefore completely unacceptable. So Mexico must reject, by all and any means, such pretense and pretensions. As for the broader issue of immigration, it is important to note that the net rate of immigration of Mexican workers to the US over the last six years has been either neutral or negative. The number of Mexican workers travelling back to Mexico from the US is today larger than the number of Mexican workers going to the US. Perhaps President Trump does not know this, but it is obviously important that he be advised properly in this regard. Bref, this situation will be tough for Mexico in the short term, but I hope that things can change in the medium term, because American society and the US economy need immigrants – not only Mexican immigrants, but immigrants from all over, for a wide variety of critical needs. This means that Trump must address this problem in a different way, because to try to prevent and stop immigration by decree will ultimately prove impossible. After all, nearly 60 percent of the workers in the US agricultural sector are immigrants. Many more are probably without papers. The same is broadly true in the service sector.

As for trade, this issue is even more serious and difficult than the wall. But again, Mexico needs to react properly and robustly. Mexico should use all of the instruments available under NAFTA and under the rules of the WTO. The US cannot unilaterally establish a tariff of as much as, say, 20 percent, because such an action is a direct violation of the rules of the free-trade agreement and also of WTO rules. Mexico has the right to defend itself – in US courts or through the WTO dispute settlement mechanism. And so we must do that. According to the rules of the WTO or NAFTA, Mexico can retaliate. To this end, I would suggest a selected, targeted retaliation policy in which we can penalize the US with specific tariffs on certain products, targeting directly all of those states and regions in which Trump has significant support. I remember that we did so when I was president, when some members of the US Congress blocked support for some parts of the trilateral treaty – in particular, for transportation. We established selective retaliation on some 90 American products, including pistachios from California, and other products from states like Pennsylvania and Washington. We got the very same representatives who were blocking support for the free-trade agreement to reverse these actions. In short, we won. So it is eminently possible to apply such strategies to today’s trade conflict with the US.

Mexico must consider rebalancing the entirety of its relationship with the US. What does this mean? If the US wishes to block us on immigration or trade, then let us also talk about national security.

It is clear that what Trump is doing is putting into question the entire American relationship with Mexico. As such, Mexico must consider rebalancing the entirety of its relationship with the US. What does this mean? If the US wishes to block us on immigration or trade, then let us also talk about national security. Mexico is a key ally of the US in national security matters. Trump cannot take for granted the support of Mexico in national security matters. Let me tell you that when I was president, we had a criminal – a terrorist – on Mexican territory who was plotting to assassinate the Saudi ambassador to the US. Mexico helped to stop the plot. Mexico does a great deal of work, in very close collaboration with American agents, to fight the most-wanted criminals associated with organized crime in drug cartels in Mexico. Mexico, like Canada, was crucial to the US after 9/11. Bref, we have a safe border – regardless of what Trump and his people are saying. And Mexico has contributed immensely to this very safe border. It follows that this new president should definitely want to have Mexico as an ally on security.

But again, if Trump keeps up this aggressive attitude and posture toward Mexico, then we need to reconsider our collaboration with the US on drugs and organized crime. To be sure, organized crime is the more complex, underlying issue, because it involves the takeover of local territory and government – something that leads to delinquency, kidnapping, extortion and, of course, proliferation of the drug trade. But, building on my logic of Mexican reconsideration and recalibration, perhaps Mexico should adopt the rules of several states in the US in order to allow or regulate the use of drugs for medical or even recreational use.

GB: What is the Mexican reply to the American political claim that the wall is a response to illegal migration or crime and drugs across the border?

FC: It is clear that Mexico and Mexicans are among the most important scapegoats for President Trump. He is blaming us – Mexican workers and also Mexican products – in order to explain, in a very simplistic and false way, the various problems of American society. This is a cheap strategy. After all, he does not have enough courage to confront China. Surely, he understands that the trade deficit with China is some five times larger than the deficit with Mexico. And yet he prefers to bully Mexico because we are closer, and also not as strong as China in economic and strategic terms.

The case of the wall is very much the same. Mexican immigrants and immigrants from all over the world have contributed very substantially to the prosperity of the US. One cannot explain the development of the US as the still-leading economy of the world without the contribution of immigrants. Now, the wall is completely useless. We know that there are several parts of our border where a wall would be completely useless. We have some 3,200 kilometres of border, and there may be physical barriers – including rivers and deserts – for over 1,000 kilometres of that border. More fundamentally still, the problem of immigration is not about walls. The only way in which you can reduce or even nullify immigration is by creating opportunities in the source countries. In Mexico, we were able to create such opportunities in recent years. We grew twice as much as the US for many of the years of my presidency. We were able to create jobs, and also to offer education and health services for the Mexican people. To be clear: the more jobs Trump destroys in Mexico, the more immigrants American society will receive. President Trump needs to understand that very simple logic – and more than him, the people who supported him in the election need to understand it.

GB: Given the current pressures, what are some measures that Mexico can take, in terms of economic planning over the next 10 years, to increase the well-being of Mexican citizens?

FC: That is a great question. Mexico must think much more about its own world than obsess about the Trump wall. Hopefully, the Trump wall never will be built. We know that it is difficult, and that it will be extremely expensive. We know that no one will want to pay for it. It is a certainty that the Mexican people will not pay a single penny for such an absurd project. But the Americans will also not want to pay. Meanwhile, domestically, we in Mexico will need to straighten out our macroeconomic fundamentals. We need to reduce our deficit quickly, which requires reducing public expenditures in some areas – expenditures that have grown excessively in recent years. The government has already increased taxes in a very aggressive way. We need to persevere in order to meaningfully cut the deficit – even to zero – in the short term. We will need to do this in order to have credibility once again in the international financial markets, and to provide more stability to the Mexican peso.

Furthermore, regardless of what will happen with President Trump, Mexico must grapple with what is the country’s most serious challenge – namely, the rule of law problem. Mexico must be a rule-of-law country. For this to happen, we need to overhaul or rebuild our security and justice institutions. We need to fight corruption, which is spreading to both local and federal levels of administration, and affecting the work of many agencies. We need to establish a clear culture of enforcement. And, of course, we need to demand more commitment and responsibility from our elected representatives.

Third, Mexico has many trading opportunities. If some 80 percent of our total exports go to the US today, then this trade intensity exists for a very simple reason: it is easy to export from Mexico to the US, as the countries are next door to each other. But we can also export to Europe. We have a free-trade agreement with the EU. Of course, I would like to say the same about the UK, but I do not know when that country will resolve its status. Still, the fact is that we can export all over the world.

Mexico has become quite a competitive country for manufacturing. When I left office, Mexico was the fourth largest exporter of vehicles in the world. Mexico was the largest country in terms of the number of aerospace companies investing in the country. We are quite competitive in electronics, flat screens, and mobile phones. We can compete and trade with the rest of the world – not only with the US. That is why the government and the productive sectors must set about training exporters, priming them, and supporting and financing them in order to diversify our markets.

Of course, if there is anything like a mass deportation of Mexican people, then we will need to consider temporary relief programmes for these people. But let me emphasize that the Obama administration, too, was tough on immigration with us. It deported record numbers of people. So I am not expecting that Trump will be able to deliver much more than that – not only because the US agencies have already done whatever they could, but also because the Obama administration left the economy at near full employment – that is, at less than five percent unemployment. As such, if Trump deports massive numbers of poor workers, then the American economy, and specific sectors within it, will suffer significant losses.

Let me refer you to recent interventions from the US agricultural sector – major companies like Tyson and Cargill – asking President Trump to “take care,” because Mexico is a great market for the US, and for these companies in particular. After all, Mexico will be the fifth, sixth or seventh largest market in the world by the year 2050. It is a very promising market for any company in terms of consumption power. It follows that people will pay dearly for losing it. I therefore believe that there is a strong chance that leading American companies may deter or prevent, or will otherwise start to act in order to stop, such irrational, extreme experiments in policy.

GB: What is the strategy that Mexico can deploy over the next 10 years to seriously tackle narco-violence and the absence of rule of law in several parts of the country?

FC: One key vector must be to fight the cartels. In the past, the policy was always more or less to allow these groups to do whatever they wanted. That is why organized crime – not only for narco-traffic purposes, but organized crime more broadly – started to take over the control of police forces. This happened first at local levels – in the very small towns and villages – but afterwards also at federal or national level. In my time in office, I discovered cases of organized crime taking over gubernatorial offices, with the local police working for the criminals instead of the citizens. This happened in my own state of Michoacan. We did not have the judicial elements in place to go to trial, but afterwards many details emerged to the effect that one of the governors had been talking in a video with the leader of the criminals in his state in order to reach an agreement. Indeed, there have been several trials in the US involving several witnesses explaining how the Zetas organization takes control of local police forces. There is an order of arrest out now for the former governor. Nevertheless, the basic point is that we need to confront the criminals.

The second, arguably far more important axis of the strategy involves a complete overhaul, if not repeal, of Mexico’s security and justice institutions. To this end, for instance, in my time in power, we created a new process for getting into the police corps. Any candidate wishing to be a member of the federal police would need to pass a toxicological exam, a socio-economic exam, a psychological exam, and a polygraph exam. They would need to pass these exams every one or two years, depending on their professional responsibilities. The same regime would apply to the army and the navy. And I believe that the same must happen for the office of the attorney-general and any agency associated with law enforcement.

The other thing that we emphasize today is the importance of the local level, given that Mexico has a very complex federal system. When I was president, we had a budget to address local reforms – including reform of the security sector – even as we had to tackle leakages in local budgets due to corruption. Let me give you three examples of this reform work. One is the case of Tijuana, where we had started to repeal the municipal police of Tijuana. The criminals declared publicly that if the government continued to remove policemen associated with them, they would kill two policemen a week among the new recruits. And they started to do so. This was a very, very difficult path, but we continued to clean up the police. Eventually, crime in Tijuana decreased by more than 70 percent from its peak.

Now look at Ciudad Juarez. It was considered the most violent city in the world. However, there we deployed what we should call the third axis of our strategy – that is, the rebuilding of the social fabric through the provision of opportunities for education and services, sports and cultural events for children and young people. Indeed, Ciudad Juarez was a key case study for this social dimension of our strategy. We were ultimately able to reduce crime from crisis proportions within two years. And the same thing happened in Monterrey, in the state of Nuevo Leon.

In all three examples, the message is that success is possible, but you need to be severe, you need to have determination, and there must be political will to reform. But I want to stress that Mexico’s problems are not about drugs as such. That would be a conceptual mistake in understanding the situation. The key problem that Mexico has had from the beginning of this century is criminal takeover of local police forces, local mayors, and even governors – and beyond that, takeover of parts of Mexican society. That is precisely why such strong intervention must come from government both to prevent and eventually fix the problem.

We passed from authoritarian centralism to some kind of neo-feudalism with true impunity. Yes, Mexico had a democratic transition, but not a real federal transition.

GB: Is Mexico a bona fide federation today? How are the relations between the central government and the states today as compared with other federations?

FC: I have not experienced other federations intimately, but the problem in Mexico is that we had a very centralized political regime in the authoritarian era. When the transition took place in 2000, significant power disappeared from the hands of the president and reappeared in the hands of the governors. We passed from authoritarian centralism to some kind of neo-feudalism with true impunity. We have significant problems at the local level – notably, quality of education, as well as security. But the local level is beset, in certain cases, by significant local corruption, including infiltration by organized crime. And yet the federal government does not have the necessary instruments to enforce the law like it did in the past. To be sure, I have never claimed to want to return to the past, but what has happened is that we have undergone a democratic transition in terms of elections and votes, but without any accompanying transition in terms of accountability and the ending of corruption and impunity. In other words, Mexico had a democratic transition, but not a real federal transition.

President Fox and I, for instance, pushed hard for accountability in the use of all government funds. However, at the local level, governors who received millions of pesos from federal transfers, in accordance with Mexico’s federal regime, were not obligated to be similarly transparent. That is why we have major cases of corruption in Mexico right now. We have two or three governors running away from justice at this very moment. The former governor of Veracruz, Javier Duarte de Ochoa, is a case in point. He stole a lot of money.

GB: How do you see the Canadian position vis-à-vis Trump and the new administration, and how do you envision Mexican-Canadian relations in the context of what is happening in the US?

FC: The first actions of Prime Minister Trudeau were well received by the Mexican people – in particular, the removal of the visa requirement for Mexicans, even if it was complicated for both countries to get there. Of course, some Mexican people are disappointed by the fact that the Canadian government seems to have expressed, at least in passing, the idea of cutting a bilateral deal with the US on trade and immigration issues, thereby letting Mexico fix its own problems – as it were. Of course, there is rationality or pragmatism in this approach, and I can understand it. This is Canada’s prerogative. But in all honestly, we did not like this. We believe that Canada and Mexico are friends and allies – even in front of the US. And so while I can understand Canada’s logic in the face of considerable pressure, I certainly cannot applaud it, and hope sincerely that Ottawa will not pursue it.

GB: What would the Mexican arguments be for preserving the trilateral regime in NAFTA (as opposed to a bilateral trade format)?

FC: The North American region is one of the most promising and competitive in the world. Besides the free-trade agreement, we have areas of natural difference between our three countries that allow us to complement and compensate for each other. It is clear that many American companies, and indeed some Canadian companies, were able to survive the 2009 economic crisis precisely because of their investments in Mexico. But let me emphasize the Mexico-US axis, as it is evidently more developed, while there is still much room for improvement in free trade between Canada and Mexico. At present, nearly 1.4 million American jobs depend on US exports to Mexico. If we consider total two-way trade between Mexico and the US, then we are talking about five or six million jobs. Beyond that, there are 17 million Mexican people who visit the US as tourists every single year. Mexico is the second largest buyer of American products – after only Canada. We buy more American products than China and the EU put together.

Bref, the benefits of trade in the region are plain and multiple. And these benefits apply to all three countries. So we believe that the only way to continue to be competitive and dynamic in this space is to act together – trilaterally. Mexico has considerable complementarity with Canadian and American investment in companies in several sectors – from mining, where Canada is the peer leader in Mexico, all the way to manufactured products, electronics, computer software and call centres. Needless to say, it is not easy to build such solid trade relationships, and it will therefore be very difficult to successfully unwind this relationship, as it has been built over the course of nearly 25 years.

GB: What should Mexico’s strategy be vis-à-vis Central America and indeed Latin America more generally over the next 10 years?

FC: Trade will continue to be key. We have several free-trade agreements in the region. One is a free-trade agreement with several countries in Central America – Honduras, Guatemala and El Salvador. We are close to finishing an agreement with Costa Rica. Bref, we have one of the most important regions for trade in Latin America. We created the Alianza del Pacifico (Pacific Alliance), along with Chile, Colombia and Peru. We can integrate Panama or Costa Rica quickly, or even other countries along the Pacific coast. Alianza del Pacifico is the largest market in the region. It exports many more products than the Mercosur countries combined. The strategy in trade should be to aggressively diversify Mexican products and markets. I myself began negotiating a free-trade agreement with Brazil – in the Lula da Silva period. But this was cancelled by Dilma Rousseff. I think that it is time to restart that effort. Indeed, if you combine the two most powerful economies in Latin America – Mexico and Brazil – this will be an amazing market, full of opportunities for both countries. I know that Brazil has significant problems now. It must transform its economy to become more open. But the Brazilians will do that sooner or later, and we need to follow such a strategy.

In the political arena, we have been very active. We created, for instance, the Community of Latin American and Caribbean States (CELAC), which is the first formal organization in our region in the whole 200 years of independence of all of those countries. For the first time, we are together in our own organization, with significant capacity. Of course, the presence of less democratic governments and more authoritarian regimes and closed economies has prevented our community from being more successful in political terms. But I do think that we can prevail over the long term, and that we can use the institutional instruments that we have created to become a more solid and unified Latin America. Of course, in geographical terms, we in Mexico belong to North America, but in cultural terms we are very proud Latin Americans.

GB: What is the biggest strategic challenge for Latin America in the next 10 years?

FC: It is the rule of law. This applies to Mexico as it does to Colombia, El Salvador and Venezuela. If we are able to provide security for families, if we are able to provide justice for mothers, if we are able to provide certainty for business and investment, and if we are able to allow the people to work without anyone trying to extract rents from them – that is, if we can create a true rule-of-law state – then we will not need a nation like the US. We will not need oil or whatever you want. We will be able to build our democratic future for our own advantage.


Felipe Calderon was the President of Mexico between 2006 and 2012.


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