A Look Inside Mexico

Speakers:
Randal C. Archibold

Deputy Sports Editor, New York Times; Former Bureau Chief for Mexico, New York Times (2010–2015)

Shannon K. O'Neil

Nelson and David Rockefeller Senior Fellow for Latin America Studies and Director of the Civil Society, Markets, and Democracy Program, Council on Foreign Relations

Arturo Sarukhan

President, Sarukhan & Associates LLC; Former Mexican Ambassador to the United States (2007–2013)

Presider:
Jose W. Fernandez

Partner, Gibson, Dunn & Crutcher, LLP

Description

Experts delve into the domestic politics of Mexico, analyzing the impact of corruption, the drug war, and Mexico’s bilateral strategy with the United States following disagreements over immigration, border walls, and the North American Free Trade Agreement.

Audio
Transcript

FERNANDEZ: Good afternoon and welcome. My name is Jose Fernandez and we are here to talk about Mexico in the post—in the Trump era, I suppose. We’ve got three very well-respected guests. You have their bios. I won’t go into their bios. Arturo Sarukhan, who was advisor to President Calderon and then the ambassador to Mexico for—until a couple of years ago.

SARUKHAN: The other way around, from Mexico to U.S. (Laughter.)

FERNANDEZ: Yeah. Shannon O’Neil, who runs the Council Latin America. And Randy Archibold, who I think has had the career that we’d all like to have, first as a—as The New York Times correspondent in Mexico and now deputy sports writer at the Times.

And let me just start really with a question for all of you. Trump and his aides seem to think that they have all of the bargaining chips when dealing with Mexico, and that they can in fact dictate many of the terms of a deal, basically by threatening to walk away. And he may be right. Mexico exports—about 80 percent of its exports come to the U.S. Over $2 billion a month in remittances come to the U.S. Is it true? Does the U.S. have all the bargaining power? And if not, what are some of the bargaining chips that you think Mexico can bring to the table in a—in a negotiation with the United States? Any of you. Arturo?

SARUKHAN: Ladies first.

O’NEIL: Thank you. Well, thank you all for coming. Thank you, Jose.

We’ve heard that a lot from the Trump administration, from Wilbur Ross, from others, that, you know, they’re softening up Mexico with the tough rhetoric that we’ve heard in the campaign, and then in the last several weeks. And I would say that, no, they don’t have all the power. And there’s a few reasons. One is, yes, on the trade side, Mexico’s economy depends much more on the United States than the United States depends on Mexico, though it’s not—there’s asymmetry there, but it’s not a zero-sum game for the United States. So it’s not an easy separation for the United States by any uncertain terms.

But we have such a broader relationship, right? Trade is just one part of it. We have security issues. We have border issues. We have flows of central American migrants and others. We have water issues. There’s a whole plethora of issues there. And so if you could isolate in a silo just the trade it would probably go more easily in the U.S. direction. But that is not Mexico’s bargaining strategy. And frankly, de facto that is not what will likely happen. So I think that is one of the issues.

The other issue is that, yes, NAFTA has been incredibly important for the Mexican economy, as well as for the United States economy, but it’s not the end all or be all. If you look at trade between the two countries before NAFTA, about 80 percent of Mexico’s exports went to the United States. Now that you have trade with NAFTA, about 80 percent of its exports come to the United States.

And when you look at the exports that come to the United States today, about half of those, the companies and others that are sending those exports, don’t bother to register with NAFTA. They don’t bother to do the paperwork, to process it with NAFTA because either, A, there are no tariffs, so it doesn’t make sense or, B, the costs of actually doing the paperwork to get the rules of origin and things are much more than what they actually have to pay.

And so you already have 150 billion (dollars) of the 300 billion (dollars) that comes up every year from Mexico—it’s already trad that doesn’t really rely on NAFTA in any way, shape or form. And so that part isn’t going to change just because if you would rescind NAFTA—which I don’t think actually the Trump administration or anyone will end up doing in the end. So overall, I’d say on the Mexican side they have a lot of chips.

And the final one I just want to put on the table is—though I don’t think Trump and his advisors yet have really taken this into account—Mexico has a narrowing electoral window, which makes it much harder for them to get into anything. And so we’ll probably talk about this more later on, but 2018, they have their own presidential election. Politics are playing into whatever Mexico can come to the table with, or whatever Mexico can agree to. And the further—or, the closer we get to the July 2018 election, the less I think the Mexican government can agree to anything, given their own domestic politics. So their internal window is narrowing, which will make—will really stiffen their spine vis-à-vis any negotiation with the Trump administration.

FERNANDEZ: Thanks.

SARUKHAN: Certainly Mexico, given that this is an issue that is in the papers today, Mexico does not have ballistic missiles. That doesn’t mean that Mexico’s toothless. And whether it’s on trade issues, remember this president—this current administration was elected on the back of the rural vote, and a number of very important states in the electoral college that are basically rural ag producing states. And, you know, the ag trade between Mexico and the United States is extremely important. And Mexico’s already signaled that it’s willing to look at Brazil and Argentina, for example, to substitute its imports of U.S. corn, meat, and grains.

And one of the reasons why I think we’ve seen a whittling down of some of these positions that the Trump administration came into office with regarding NAFTA, particularly in the draft notice that was sent to GOP leadership on NAFTA which was then 24-hours backpedaled and walked back by the White House saying, oh, no, no, that’s not our final position. But nonetheless, I think what I think you already see in this first draft is that some of the ag producers started to tell the White House: Don’t screw this up for us.

On an issue which I think this administration in particular has not fully comprehended, 9/11—regardless of the complexities that it injected into the relationship with Mexico and Canada because of our contiguous land borders with the United States, triggered a very profound realignment of the way Mexico and the United States engage on security and intel cooperation. And I’m not advocating that this is what Mexico should put on the table, but Mexico has very important cards to play in regards to some of the collaboration, some of the intel exchanges that have been happening since 9/11 in support of the relationship with the United States. And you don’t have to be Richelieu or Kissinger or McCarthy to figure this one out. If there were ever to be a terrorist threat that materializes across the border from Mexico that undermines U.S. national security, this edifice that we’ve been building for the past 20-plus years via NAFTA completely crumbles.

So the Mexican government, whether it’s on Central American transmigration through Mexico on its way to the United States which, by the way, started to move now into maritime routes which we had never seen in the past—another example of why walls create whack-a-mole effects—(laughter)—whether it’s on issues related to trade and the 6 million U.S. jobs that directly depend on trade with Mexico, whether it’s on these very important ag exports, whether it’s on why Mexico is today in Brussels renegotiating a revamp and a modernization of its own free trade agreement with the European Union, I think Mexico has a number of chips to put on the table.

And I fully agree with what Shannon has said. The closer all of this moves to the Mexican presidential election in 2018, the harder it’s going to be for the Mexican government to appear vis-à-vis a much more jingoistic, nationalistic Mexican public opinion, to be giving in or caving in to U.S. bullying, pressure, and the Sinatra doctrine of my way or the highway.

ARCHIBOLD: If I could just add one point to that. You know, the U.S., especially in rural areas, is having this incredible heroin crisis. And much of this heroin, you know, back in the ’60s, ’70s, as I understand it, came from Southeast Asia. It’s how shifted to Mexico, produced on the west coast of Mexico and sent up to the U.S., driven by U.S. demand. So this is clearly one area where you would think the presidential administration would want very close cooperation. And it’s a very vital security issue that plays into the political base of this administration. So it’ll be interesting to see, you know, what accords, agreements are reached.

And, you know, does it continue—you know, cooperation, as you guys know as well, better than I do—ebbs and flows. You know, it reached kind of a low point at the beginning of the Pena Nieto administration, when they came in and were sort of aghast at the deep involvement of U.S. security agencies there. And then slowly modified and moved in a way where there were closer agreements and cooperation. So, you know, this is one issue that doesn’t get discussed much, but is clearly one area where, you know, there’s some wiggle room for Mexico.

FERNANDEZ: Sure. As Arturo mentioned, last week there was a draft sent to Congress that was circulated, which laid out the goals of the Trump administration for renegotiating NAFTA. And a number of people remarked that it actually took a softer tone than they had expected. They didn’t mention anything about currency devaluation. They kept the clauses on investor-state arbitration. There wasn’t much there in terms of labor rights and things of that nature. What are some of the—of the goals on the Mexican, let’s say, wish list, if they wanted to renegotiate NAFTA? And what do you expect the friction points to be?

SARUKHAN: Well, certainly—and Shannon may have also her own red flags that she’s seen in the draft letter. In my book, the most important one is the elimination of Chapter 19, which is the dispute resolution mechanism, which will mostly likely—certainly from Mexico, but also most likely for Canada, be a no-go. And that is—that is where I think there can be severe pushback from—if this makes it into the final document that the U.S. presents Congress, after having formally notified Congress that it is initiating the 90-day consultation period, which it has not done yet because, remember, apparently they will not send it until Lighthizer has been confirmed.

And so far, Lighthizer is on hold because someone in the vetting process during the transition forgot that there’s something called the 1974 Trade Act, which prevents anyone who’s been nominated by a U.S. president to occupy the chair of USTR who’s done lobbying work for a foreign government to occupy the USTR chair. And Robert Lighthizer has represented two governments in his very illustrious and important career as a trade lawyer. So now the Dems are demanding that the White House provide that waiver so that Lighthizer can be confirmed. Once that is sent, I think we’ll have a much clearer sense.

I think there are some very important opportunities in the draft. Number one, as you said, the tone—I think someone finally realized that the slash and burn approach of the transition in the first month in office regarding NAFTA was going to blow up in their faces. There’s been a lot of pushback by corporate America finally coming to the table and saying: You can’t undermine what is a very important trade and economic relationship throughout North America.

And what I found hopefully promising is that Mexico’s approach has been, as you probably have seen or read, given that TPP has been discarded by the administration, let’s take advantage of those new disciplines that were negotiated as part of TPP, disciplines that did not exist when NAFTA was negotiated 20-plus years ago. There was no Amazon.com or eBay when NAFTA was negotiated in 1993. And so the whole idea of how do you bring in issues like e-commerce, data protect, data flows, IPR issues, biological drugs into the framework of NAFTA.

That’s in this draft. I think that’s something that Mexico will gladly engage the administration with, and can—if that’s the route, if this is more an upgrade of NAFTA than a renegotiation of NAFTA, the end result is that the three countries could end up with a win-win-win of a 21st century rules-based agreement as a result of these negotiations. But again, a lot of this will depend on the timing. That timing will depend on when the White House finally submits the notification. And then whether the negotiation of this does project over the Mexican electoral campaign, which will start in January of next year.

FERNANDEZ: Shannon.

O’NEIL: Right, one of the red flags is the dispute settlement. The other one, which maybe it’s not a red flag but I think is a warning sign that’s in there, is at least in the vague language that’s in this letter, the United States would have some wiggle room to insert tariffs if there was harm on particular industries. And the Mexicans are, I think, very reluctant to agree to something like that, because who decides what really is significant harm, right? I think that’s a decision. And as we’ve seen with this government, where, you know, there’s a tweet that goes out and then 700 jobs from Carrier are saved. That, you know, is one company.

It’s very hard to say what happens there. So I think that is an issue. Anything that inserts the right to put tariffs on in an easier way I think will be a challenge for Mexico. You know, when I look at what’s there, I think it’s pretty manageable, I would say. I think, of course, there’ll be differences on the two sides. But it does look a bit like TPP-lite, basically. And some of that stuff has already been agreed to. Mexico’s already actually changed legally its own labor laws and things to match up with TPP. So it’s already done. There’s nothing that they would have to do on their side.

But I think where the red flags come up are again in the politics, as Arturo alludes to. One is on the Mexican side. If you haven’t sent this year, and then Wilbur Ross says it’s going to take 12 months or so to negotiate this, you’re into or maybe even through Mexico’s electoral system. And it really depends who the next president-elect is. I mean, right now with this particular government I don’t see a lot of red flags. You could imagine with a Lopez Obrador government, if that were to pass, there might be a whole lot of red flags that we aren’t even thinking about.

The other side is, I think in the U.S. Congress and the red flags there. And I have a very hard time imagining the Republicans want to take a vote on NAFTA before the 2018 midterms, particularly in these districts, because either you side with your business lobby that funds your campaigns and you, you know, leave out the red-meat base who gets all upset; or you go with the red-meat base, and then you, you know, upset your business lobby.

And so this is a particular vote I can’t imagine a unified Republican Congress ever wanting to take, which then pushes it past October of 2018. So their red flag is just the vote in and of itself, which I think is probably the biggest challenge the Trump administration would face.

SARUKHAN: And just to add very quickly, they’ve already angered the Dem leadership in Congress because this draft notification was only sent to GOP leadership. And so the Dems immediately cried foul and said, why aren’t we getting the copy of that draft? And that’s already creating some backlashes to what the timeline of the eventual TPA authority that Congress has said it will apply as to its interaction with the White House on any future negotiation of NAFTA.

FERNANDEZ: Let’s talk about the politics. You know, you both mentioned the elections that are coming up in Mexico in 2018. The frontrunner so far, although he’s snatched defeat in the—from the jaws of victory several times already is Manuel—AMLO—Lopez Obrador. And there are many who say that he’s benefitting from the nationalist backlash caused by the Trump administration. At the same time your old boss, President Calderon, has spoken out in favor of his wife and said that she’s the best person to stand up for the interests of the United States. And the PRI hasn’t named a candidate yet. They have—there are a number of people that are still out there.

Talk a little bit about how the politics—how the U.S.-Mexico relationship and the renegotiation of NAFTA would play into the—into the 2018 election in Mexico.

SARUKHAN: Do you want to start, Randy, or—

ARCHIBOLD: Well, just one observation. You mentioned AMLO as the frontrunner, but I would not write off Margarita Zavala. You know, in some ways it could—Mexico could be headed towards a(n) establishment/anti-establishment dynamic. This is assuming that the PRI candidate, Pena Nieto’s ratings are basically in the cellar.

So I think at this point you could probably say that the PRI is—would be in third place or would have a big challenge ahead of them. So if it’s a contest between AMLO and Zavala, I mean, it sounds somewhat like a replay of sorts of this establishment/anti-establishment, AMLO more—probably more nationalistic; Zavala more pro-business, more in line with her husband’s efforts to enhance cross-border trade and agreements with the U.S., business ties.

So it could be a pretty interesting election to watch. And I would be the last person to make a prediction. Wouldn’t make predictions here anymore, right?

So—but you know, I think both candidates would probably exploit to a certain extent the U.S.-Mexico dynamic to their—to their bases. What are you—what do you guys think?

O’NEIL: One of the challenges I think all of the aspirants in Mexico have—and I—and I agree with you where AMLO has been able to lose leads two times in a row against fairly mediocre candidates to, you know, not be too—put too fine a point on it.

FERNANDEZ: Tell that to Arturo, by the way.

O’NEIL: Sorry. (Laughter.) Not as charismatic, let’s say. Would you agree with—you don’t have to agree with that. We’ll let that go.

SARUKHAN: I have no party affiliation, so—

FERNANDEZ: Yeah, not anymore.

O’NEIL: (Laughs.)

FERNANDEZ: You’re a (foreign servant ?), right?

O’NEIL: But one of the challenges—you look at the Trump campaign and what he’s done during this first, you know, several weeks in office. And when he gets in trouble or to sort of rally his base, Mexico has almost—has been at the butt of a lot of that, right. His main themes were build a wall, NAFTA is the worst deal; and you know, we’re going to stop immigration. He focused a lot on Muslims, but he also focused on Mexico and sort of the “bad hombres” that are coming across the border.

So we’ve seen his own political popularity fall, you know, depending on which poll you want to read. He’s getting into some trouble and unable to bring together the Congress. And so this, I think, is such an easy whipping boy to go back out to.

So, as you look towards the Mexican elections, this type of rhetoric, you know, at some level will continue from the United States. And I—it’s not going to be the only issue. And in fact, I don’t think it will actually be the most important issue in Mexico’s elections. I think the most important issues will be economic growth, which we can talk a bit about. And it’s starting to pick up. Particularly consumption has really been driving growth, which is something somewhat new in Mexico.

But the other big issue in Mexico is going to be corruption. And this is already playing itself out. And part of the reason I think why Pena’s ratings are so low is we have all these—we have some great journalism down there. Randy was a big part of this and many of his colleagues. His assessors are continuing this great journalism. They have more tools than they’ve had in the past. They have freedom of information acts. They have access to information that they couldn’t have had, say, a decade ago.

And they’re exposing really terrible deeds by all sorts of governors, by other public officials. And they’re putting it out there. And that is really influencing Mexico’s population and, I think, is influencing the vote. We saw it in the midterm elections last year. The PRI was voted out in many, many places—

SARUKHAN: Governorship.

O’NEIL: —particularly because of the corruption at the governor level. And I think the anger and—the justifiable anger that Mexicans are feeling is going to be a big issue. And so which candidate can harness that frustration with the system and particularly with the PRI, as many of these governors and others are from the PRI, I think will win the election.

So Trump and the rhetoric will feed into this, but I don’t think it’s the only issue there.

FERNANDEZ: OK.

SARUKHAN: There’s no—there’s no doubt that the—particularly the transition and the first month of the administration has created a profound impact on domestic politics and perceptions in Mexico. And Lopez Obrador’s rise in the early-year polls is clearly linked to this. There was a poll published by Mitofsky, which is a very respected polling firm in Mexico. The positive perceptions of the United States from the inaugural of Donald Trump to mid-February collapsed 22 points from 42 to 22 positive perceptions of the United States.

And at the same time, if you cross-reference that with how the polls of how people would vote today if the elections were today show the exact correlation between Lopez Obrador’s rise now. There was a poll yesterday that came out by Bloomberg El Financiero, which now shows Magarita Zavala three points ahead of Lopez Obrador. It’s still way too early. I would suggest don’t look at the polls until we’re probably at the end of the year.

But it’s going to be a very fluid process. The concern that I have, Jose, is that because Mexico does not have a second round, because it is a first-past-the-post electoral system, and because there is such a fragmentation and (agonization ?) of the vote, in part because, I think, the most important issue that Mexicans will be looking at as we tee up the presidential elections next year is precisely the issue of corruption impunity, lack of accountability and transparency. This is going to be the driving force of the campaign.

And in many ways, I think this explains why particularly between the PAN, the PRI, and Morena—which, remember is this extreme left-of-center party that Lopez Obrador created when he broke away from the PRD, which was sort of the mainstream party on the left—we could see a scenario in the summer of next year where whoever wins is going to win with between 28 (percent) and 31 percent of the vote.

And if you play a bit with those numbers, when you were mentioning—or Randy was mentioning, well, it’s going to be very hard for the PRI to win, well, I’m not saying this is what I want to see happen, but there is a distinct possibility—remember the PRI has a hardcore base of voters in Mexico that hovers around the 28 (percent) to 30 percent—if the traditional PRI machinery can turn out those hardcore voters, the PRI might win the presidency in 2018 with 30 (percent), 31 percent of the vote.

What reactions will there be in Mexican society because of how the PRI is linked to the issues of corruption and impunity? Remember, we’ve got two—now two fugitive governors of Vera Cruz and of Chihuahua. There’s a red—Interpol red notice out for both of them. They’re wanted on racketeering and corruption and money laundering. This is going to play into the hands of the electorate.

But A, whoever says that they know what’s going to happen in Mexico in 2018 is probably smoking too much of the stuff that we seize in Mexico; and B, it’s going to be a very fluid and very dynamic election where the U.S. factor will not be a driver but can at very distinct moments of the process have an impact, as we have seen during the first couple of months this year in the boost that this gave Lopez Obrador. There was—there was a gasoline price hike, which also didn’t help the government and helped Lopez Obrador. But certainly there has been so far a correlation between the Mexico-bashing coming across the border from the U.S. and Lopez Obrador’s traction in the recent polls.

FERNANDEZ: Yeah. And one thing that strikes me when I listen to Lopez Obrador is his disdain for the political class in Mexico.

SARUKHAN: It’s widespread and absolute.

FERNANDEZ: And I mean, he calls them corrupt, and it’s a combination of Trump and Sanders in some ways in comparison to the U.S. How does someone like that work in a divided electorate in a place like Mexico?

O’NEIL: I think that’s the challenge. If he were to win, he would probably win with 25 (percent), 28 (percent), some minority. And his party, Morena, would be a single-digit party, right, have a handful of candidates within the Congress. So definitely wouldn’t have a majority, wouldn’t be even a plurality in the congress. So you’re going to have gridlock.

And I think the challenge in Mexico—I have more optimism about Mexico than I do in, say, a place like Venezuela, where you could have someone come in—(laughter)—I mean, who isn’t more optimistic about it? (Laughs.)

SARUKHAN: Thank you.

O’NEIL: No, but if you—if you went back to Venezuela in 1999 when Chavez was just coming in, I have more faith in the checks and balances in Mexico between the congress, between the supreme court, between the presidency in those places.

SARUKHAN: Right.

O’NEIL: And if you had a president who began to push on those checks and balances, I think there’s enough of an institutionalization there to push back, which you—which you didn’t see in Venezuela. There was an open door for Chavez to come in and push on all of those. And as we saw, they all came tumbling down.

So there I think there are. But I think what you would get in Mexico is six years of gridlock, right, the term of the sexenio there, which is something Mexico can’t afford to have, right. The rest of the world is moving forward. We’re going to be well into the 21st century. Mexico needs to deal with automation. It needs to deal with globalization. It needs to deal with all these changes that are happening in its economy, in the U.S. economy, in politics around. It can’t wait for six years to really begin to make those changes.

ARCHIBOLD: I wonder what arguments will—would work against AMLO next time. I mean, the previous election, the—you know, the sort of theme was he’s unstable, he’s a loose cannon; he’s, you know, basically Hugo Chavez-like. And I guess now they would argue, well, look at Venezuela and Nicolas Maduro. So—but I wonder if those populist sentiments are enough to override that or just what the rub is, the winning argument against him would be for either the PRI or the PAN.

SARUKHAN: As a recovering diplomat, high in my book would be his world vision. And all you have to do is—there’s a gentleman by the very Mexican name of John Ackerman, who is Lopez Obrador’s—one of Lopez Obrador’s foreign policy advisers. The Mexican government has taken a very important—finally very important stance on Venezuela by speaking up and calling out what is going on in—long overdue, but they’ve finally done it, and I credit Secretary Videgaray for finally doing this.

You should have seen the article that John Ackerman wrote, where he blasted the position, ignoring what’s going on in Venezuela, saying that Venezuela is more democratic than Mexico. It’s how Lopez Obrador conceives of the world and of Mexico’s role in the world—which is, by the way, Jose, the reason why when I was consul general here in New York in 2006 I decided to ask for a leave of absence from the foreign service and joined Felipe Calderon, because I was flabbergasted by the vision that Lopez Obrador brought to the table as to how Mexico needs to relate to the U.S., how it fits into the hemisphere, what kind of global role Mexico has to carve for itself.

And this is an area I—we all know that foreign policy will never win an election, or seldom wins and election, and Mexicans won’t have this top of mind. But I think there will be a lot of people who will be closely looking at issues like this, a much more fine-tuning of what they like or don’t like of Lopez Obrador more than the 2006 slogan of he’s a danger to Mexico or some of the economic policies that he was advocating for in the 2012 election, which were what got him to lose the election again.

So I think a lot of this will certainly play out. Again, I think a lot of it will depend on what’s happening in the relationship with the U.S. If the relationship does go south, this will boost Lopez Obrador’s worldview and his ability to communicate that that’s the type of worldview that a country like Mexico needs. It’s going to be very fluid. We’re going to see.

FERNANDEZ: Good. Well, now let me invite members to ask questions. Raise your hand. When you—wait for the microphone, please. And when you—when you do speak, identify yourself by name and affiliation.

There.

Q: Josh Harlan, Harlan Capital.

When President Pena Nieto took office, he outlined some ambitious reforms in energy, financial services, education, and other sectors. Could you give us an assessment of how far did he get? And how entrenched are these reforms if there’s a populist turn?

O’NEIL: So he completed or he—all of these reforms were passed. And there’s a whole host of them that are quite important. And many of them have actually moved forward. So energy reform was one of the biggest. We’ve seen lots of options going forward. More will happen before the end of his term. And so that is moving forward. In that energy reform, too, is a fundamental transformation of the electricity sector, which I think is probably as important as some of the exploration, production, that side. So you’re seeing already, you know, more generation, more distribution, transmission, getting steady supplies. Part of that too is actually connecting to the United States, to the shale gas that’s in Texas. So numerous pipelines have been built and will be finished before you see a turn in government. So a lot of that will be put in pretty substantially.

You have also seen antitrust reform that is moving along slowly and starting to open up many of these markets. You’ve seen financial reform, which is starting to allow a little bit more lending. You’ve seen education reform, which is moving, though somewhat slowly with some setbacks. You’ve started to see a whole host of things. I think the question for a new government is, would you repeal the legislation? Probably not. But a new government gets to come in, as we’re seeing in our own country, and appoint the heads of agencies, and appoint sort of those that will regulate many of these industries, and decide whether to aggressively move forward, make it a priority, or not, and pull back.

And so I think that is the power that the new president would have, and could if not repeal these reforms—which, you know, is a possibility he would do legislation, but especially given gridlock I think that’d be hard—but really stop the spirit of them or the thrust. So I think that is what a new government might do.

SARUKHAN: I think we’ve got several flavors in terms of the success of the structural reforms that were approved as a result of a historical coming together of the three main political parties in Congress—PRI, PAN, and PRD—to support this reform agenda. Clearly, the one that Shannon was mentioning at the end, education, has been a miserable disaster. It’s not going anywhere, in part because of the vested and entrenched political clout of the teachers’ union—of a dissident union—or a dissident section within the teachers’ union. But clearly, energy and telco have been very important, very successful reforms.

I would say that probably—down the road, energy will be the most emblematic and profound reform that I think the Pena Nieto administration will inherit, because of the impact that this will have on everything from revenue to jobs to creating a North American—a true North American energy independence and energy security and energy efficiency paradigm. But telco is one that I’m very bullish about, because we’ve seen a very important change in the nature of the game because they’ve taken on the vested interests, they’ve broken monopolies. And it’s in telco where people who are citizens are starting to see the immediate impacts of the reforms.

Energy is still—you know, especially after the gas hike in January, people are saying this isn’t what we were promised, which is dangerous in terms of what may come in the campaign. But certainly the telco is people are seeing services improve, prices go down, quality improve. So there’s a direct connection between the woman or man on the street and one of the reforms.

To the more important question, which Shannon addressed, is this reversible—he’d have to so—whoever wins in 2018 would have to do constitutional changes. And because of what we’ve been talking about, as to the ability to wield a majority or not in Congress, this is going to be highly unlikely. So if the question is, can he roll back the energy reform? Very unlikely. But he can put in place administrative roadblocks in terms of how the tenders are put forward and the conditions and the—and how the tenders are processed, and whether this, I think, very important fluid and productive communication that has existed with the energy section—with the private sector in energy which has, as they’ve gone through the tender process, improved all of this—that’s where they can put up roadblocks and slow it down. And that’s what can have an impact on the energy reform.

ARCHIBOLD: I think that the victor would have to—will come under a lot of pressure to address the deep corruption and security issues. I mean, this really stalled Pena Nieto’s momentum. He had, you know, the issue of his wife’s personal residence, you know, through the hands of a contributor to the state government when he was a state governor. Other administration officials and their financial holdings and real estate holdings came under question. And really kind of the biggest—(laughs)—probably the disappearance of 43 teacher/college students in a very troubled state in southwest Mexico—not just the disappearance, but the, you know, international observers, you know, testifying to the bungled handling of the investigation, and no clear answers.

This has hung over this administration for going on three years now, with, you know, they just can’t kind of move forward on it. And that’s a big contributor to why his approval ratings are so low. So I think, you know, whoever the victor is, I think the populists will be expecting some concrete bold action on tackling these deep, really thorny issues. So that it—one presumes that they would have some answers that are different from what this administration has.

FERNANDEZ: One of the things that struck me when Pena Nieto came into office is how eager they were to work with the U.S. It was a different ball game from the traditional PRI. And when the students, the 43 students went missing, a lot of that momentum stopped. It’s amazing, yeah.

Jim.

Q: Jim Silkenat, World Justice Project.

My question has to do with energy. And you started to address it here in the last comments. Energy policy, energy regulation has always played a major role in Mexican politics and Mexican society. How will the different parties use the recent reforms in the campaign? How will they address it and make use of it in their campaign?

SARUKHAN: I think that because they voted in favor of the reform, it will be very hard for the PAN, the PRI, and the PRD to distance themselves or to pivot away from the reform in the campaign. There may be some criticisms emanating from the PRD and the PAN as to why the price hikes in gasoline occurred and what this—and how can this be solved going down the road. But I don’t see the three main parties fundamentally taking on the reform. MORENA might because of impact of the price hikes, because Lopez Obrador has generally opposed the opening of the energy sector in Mexico. MORENA might want to use this as a whipping boy of their campaign.

The challenge will—the opportunity and the challenge is that so far the president has been able to win both the public debate, and had been able to win the debate on the street. As a result of the price hike in January, the latter piece started crumbling, because you saw significant—some of it was driven by organized crime. Some of it was driven by political interests. Some of it was spontaneous. But you saw some significant social mobilization against the gasoline hike in January. How Lopez Obrador plays with this in the campaign, we’ll have to see. But he has—he was in New York—three weeks ago? Four weeks ago? And he gave an interview to Bloomberg where he clearly stated that he would look to re-tweak and to rethink the way energy policy is designed in Mexico. So there is a possibility that MORENA will use this as one of their banners.

FERNANDEZ: Jonathan.

Q: Hi. Jonathan Tepperman from Foreign Affairs, here at the Council.

I want to ask about justice and justice reforms in two senses. The first is, beyond the reforms that you mentioned, and in large part due to the scandals that you mentioned, the current administration has belatedly made some moves on corruption. In fact, I’ve seen it argued that Mexico, in a formal sense, in a legal sense, now has pretty good laws on corruption. And yet, nothing’s happening. And so the question is, what would it take for real change to ensure that accountability finally comes to the Mexican political establishment, number one. Number two, I’d like one of you to tell us a little bit about the recent criminal justice reforms, and the moves on things like rules of evidence, which seem—at least from my reading of The New York Times—to be a huge step backwards.

O’NEIL: I mean, Mexico has had a long history of beautiful laws and no implementation of those laws, right? So if you look at their constitution, their 1917 labor laws are some of the most progressive out there. And I don’t think anyone who follows Mexico would say that their treatment of workers is one of the most progressive out there. And that has been—that has been a real challenge for Mexico. And we’ve seen that in the rule of law side. And I think in the longer history there, when you think about that third arm of governance, right? You have your executive, you have your legislature, you have your justice system. Under the PRI for 70 years, those were all used by the party. And so justice was really just a carrot for those who were supporters of yours and a stick for those who might oppose you.

And so you had—for all of this time, you did not have a justice system that functioned the way it should, right? Sort of blind justice and fairness. And so it’s just since 2000, let’s say, when you see a transition to democracy, so less than 20 years, that Mexico’s really been trying to change its justice system and make it into something that, you know, one would want in a democracy, sort of the separate branch of government that establishes checks and balances and delivers—you know, delivers the right sort of convictions. You know, convicts the guilty and frees the innocent. So I think that is—just the background, there’s a big change that had to happen. And, there were also some real legal parts that needed to change in sort of the way the system works.

And so we have seen—to give Mexico some credit—we’ve seen some changes along the way. We’ve seen reforms through the Fox administration, the Calderon administration, and then a big reform that came into action just a year ago changing it—changing it from a system of written laws to one that’s much more like the United States, an accusatorial one, with juries and oral trials and cross-examination, and due process, and things that Mexico did not have before, and evidence that’s not based on torture, and all kinds of things that it didn’t have before.

It also has given prosecutors, which they did not have in the old system, the right to prioritize cases. So before, you know, they had to treat the same someone who had massacred 50 people and someone who had stolen a loaf of bread. You know, it was a very “Les Mis” kind of situation there. And now they can prioritize. So there’s some of those things that in terms of the rules are much better. The problem is, how do you get to implement that? Some states have moved ahead and were pilots. So the federal system changed a year ago, but some states had moved ahead.

And you actually do see some outcomes that are better. Trials move much more quickly, they’re able to prioritize the things that really affect the population and push down those that don’t. They’re able to do plea bargaining and some of those things, which help not just move away from the small fish but actually roll up and get to bigger fish. And that’s actually something—if people have been following the Odebrecht case in Brazil or Lava Jato there, one of the key things prosecutors have been using is this plea bargaining. It’s the way they’ve gotten up to the high-level people, rather than just those that carry money around.

So I think those things are good. But the problem in Mexico, to me, is that you haven’t yet—you haven’t yet had that fundamental investment from the political class, from the others, to make this work. And the biggest, most obvious frustration for Mexicans is what we’ve seen with these governors. You know, just terrible stories of blatant fraud, blatant misuse of funds, other—just terrible, terrible things. Their killing of journalists, killing of other people, and no one goes after them. They don’t have the political will to give the independence to an attorney general or to others to go out and do that.

And so Mexico has not yet—either the political class acquiescing and letting them do that, or you haven’t seen those people stand up and be—you know, in Brazil I would be Sergio Moro—but stand up and go against that political class. And until Mexico—until you see that at the top level, I don’t think you’re going to look with pride, frankly, at the way the justice is working there. But I don’t—just because they haven’t done that yet, I don’t want to downplay or not recognize, they really have made some progress. I think this is one of those two steps forward, one step back for Mexico. It’s going to be an evolving process.

SARUKHAN: There’s a very important story that I do want to highlight here, because it sometimes flies—tends to fly under the radar screen. And I think it’s a—as a Mexican, I think it’s a very promising development, which is a lot of what we’ve seen, the very positive changes that have started occurring in anti-corruption and transparency law are being triggered and pushed by civil society. It’s the NGOs and the civil society organizations and think tanks that spearheaded this very important push as a result of the conflict of interest—the alleged conflict of interest stories that broke at the sort of halfway—well, earlier, first couple years, of the administration.

It’s been civil society that’s been pushing and lobbying congress, and lobbying the government, and pushing, and mobilizing public opinion to change these laws. And even though they’re not squeaky clean and peachy and rosy and perfect, we have, for the first time, legislation that if the government embraces it would have teeth and would have a very important impact on the landscape of impunity and lack of accountability in Mexico. And I think the fact that this is spearheaded, not by the government, not by a political party, but by civil society, is a very encouraging sign in Mexico.

ARCHIBOLD: I’d like to just add real quickly, picking up on the civil society, you know, the social media and new independent news outlets, I think, are playing an important role. You see things like Corruptor, which is this bus that drives around to the scene of the crime, if you will—you know, white elephants, lavish mansions and stuff that politicians have used with, you know, corrupted money.

This is a level of awareness and exposure that, you know, is relatively new in Mexico. And, you know, people—when you had the case of the daughter of the consumer-fraud bureau, you know, throwing a tantrum in a restaurant, demanding a seat and having it shut down, and it was, you know, exploded on social media and it was exposed—the guy lost his job. I mean, this is stuff that didn’t happen four, five, six years ago. So, I mean, little by little, I think that transparency and exposure is increasing. It’s at a frustrating pace, I think, for a lot of people in society there. But, you know, I think the arc is in a positive direction.

FERNANDEZ: Right there.

Q: Alexandra Starr with the Russell Sage Foundation.

So Mexico has played an important role in impeding the flow of Central Americans to the United States. I was wondering if you guys could comment on whether you think that cooperation will continue going forward.

FERNANDEZ: And, Randal, you wrote about this a lot during your time in Mexico. Talk a little bit about also with—and I know you’ve got some views on this—what the wall would do—

ARCHIBOLD: Right.

FERNANDEZ: —on that score.

ARCHIBOLD: Well, you know, the Obama administration, you know, had this crisis of children coming up from Honduras, El Salvador, other really violent places in Central America. It was all over the press. They in turn asked, I guess—just the diplomatic way to put it—but, you know, I think some would argue pressured and kind of pushed Mexico to step up its own border-enforcement efforts on its southern border, which is way more porous than the U.S.-Mexico border.

And Mexico did respond. And it was somewhat of a debate and somewhat of a shift in position, but the bottom line is for a while they were cooperating. And detentions of Central American migrants shot up, and returns, deportations. Now, however, you’re asking about bargaining chips. (Laughs.) This clearly is one. You know, if Mexico—if the U.S. wants Mexico to continue to, you know, share in that cooperation, to slow down the flow, then that’s one thing they can do.

You know, the U.S. border—there’s obviously a lot of discussion about the wall that the new administration wants to build there. And I think what kind of gets lost, at least among people who aren’t—who don’t travel there much is that there actually is a lot there already. I mean, it’s probably a matter of semantics, but some would argue there’s definitely walls or a wall in certain parts, especially in urban areas; in the city of San Diego and Nogales, the bigger towns along the border.

And it was interesting, because, you know, when I was invited to speak here, I told Jose I felt like some days I’m in a time warp—(laughs)—because we’re back to talking about walls and border security and different types of fencing and so forth. And now proposals just went out yesterday or today. And you should really scroll through them. They’re quite elaborate, some of them. Some of them are a little on the zany side. There’s one with a monorail going—(laughter)—(inaudible). Yeah, this sort of fanciful—I think it’s on purposely fanciful visions there.

But the bottom line is for a long time, especially when the previous big border buildup occurred in 2006, ’07, ’08, around then, the sentiment from the Bush administration’s Department of Homeland Security was that, you know, a fence is a mix of—part of a bigger mix of deterrence and other measures. In fact, Chertoff—I wrote it down, because it kind of stuck in my head. Secretary Chertoff at that time said I don’t believe a fence is a cure-all, which is, you know, something I don’t think this president would say.

And the final point on that is people tend to also forget that Mexican migration has been plummeting for years, wall or no wall. It peaked in the year 2000 with some 200,000 detentions. It’s now down to—I think they just put out numbers yesterday like 20-something thousand.

And that’s a whole confluence of factors. Demographically, Mexico produces lots of things. Lately it’s not producing a lot of babies. Families are shrinking. There’s just fewer people, period, to move. And some of the economic and educational advancements that we discussed a little bit earlier are also having an effect. Fewer people are living. So there’s all sorts of—plus the recession, of course, dried up a lot of the construction jobs that a lot of migrants would take and other types of jobs like that.

So, you know, it’s really this very complicated, complex mix that determines migration flows. And it’s clear that Mexico could cooperate on a lot of measures, but it’s really a matter of will. And if you’re in an antagonistic relationship with your neighbor, maybe you’re not going to do certain things that you would have done in the past.

FERNANDEZ: Arturo, you’ve talked about maritime routes that would be used to circumvent the wall.

SARUKHAN: Well, it’s not that will be used or could be used. They’re already being used. We’ve already seen in the past month and a half a very significant increase in maritime smuggling routes of people coming up, hugging the Mexican coastlines on the way to the U.S.-Mexico border and beyond.

So this would add a completely new dimension to how we co-responsibly, as neighbors, tackle the issue of human smuggling and human trafficking. Some of it is smuggling, but some of it is trafficking of people.

Look, this was a hard one to tackle during my six years as ambassador, but one of the things I would always say is I’m not going to challenge how the U.S. thinks. It has to secure its national—its borders and enhance its national security. If you want to go and build a wall and spend $26 billion doing so, be our guests.

But, you know, look at Europe. You’ve got one of the most formidable natural barriers in the world called the Mediterranean Sea, and it has done diddly squat to deter patterns of either refugees or immigrants moving from Northern Africa and the Middle East into Europe.

The wall, as conceived by the Trump administration, if it were to be built—and I think there are serious challenges to that happening, everything from having to expropriate U.S. private land, because one thing is to build this in federal land or on border entry points, where the federal government controls; another one is building this in especially a place like Texas, where all the land on the border is privately owned.

And, you know, you go to the absurd of seeing the secretary of interior of the United States saying, oh, we’re not going to build this on U.S. soil because we’re not going to give away territory. We’re going to build it either in the middle of the river, the Rio Grande, or we’re going to build it on Mexican soil—talking about someone who doesn’t know what he’s saying. And I’ve said, look, Mexico and the United States have done and can do a lot of great things, but one of the things that we’re not going to do together is to build a wall. That’s clear. (Laughter.)

But I think that we have to understand that in this interconnected, fully globalized world, it behooves Mexico and the United States to work together, as we have done for the past 15, 20 years, despite the rhetoric and despite the alternative facts that were thrown out there in the campaign.

If we can understand that Mexico and the United States will improve their well-being, their prosperity, and their security by working together and applying available technology—yes, some physical barriers that are needed, remembering one key issue, which is our problem is not between ports of entry—people, drugs, in one direction, bulk cash and guns southbound, are not crossing between our ports of entry. They’re going across through the ports of entry. That’s where the main illicit flows are happening. It’s not in the desert in Arizona and it’s not in Big Bend-Boquillas National Park.

So if we can understand that we have to find a holistic, jointly responsible paradigm for ensuring security for the North American region, where we can match joint security and joint prosperity, we’re going to be playing Whac-A-Mole, as I was saying at the outset, where, you know, you do this and you simply change the traffic patterns, whether they’re drugs or people being smuggled. And we’re already seeing that effect as we speak today in something that we had never seen, which was maritime smuggling routes from Central America up north.

FERNANDEZ: Yes, ma’am.

Q: Thank you. Hi. Rosemary Werrett from Observatory Group. Well, thank you all for this great discussion.

I want to take the discussion for a minute back to the economy. And that—my question is, Mexico has been growing very, very slowly for many years now. And so how does it reignite growth in this era of doubt over NAFTA, political doubt? How do you hear that the policymakers are thinking about what to do about this lagging, long-lagging economy?

O’NEIL: I think that’s one of the questions about Mexico. Many people in this room or market-friendly people would say, oh, Mexico, it’s one of the most open commercially in the world. It’s signed free-trade agreements with 46 countries, more than in almost any other country. Why is it, if you look over the last 20, 25 years, growing between 2 and 2.5 percent, right, when other countries, Brazil and others, have grown much more quickly? They’ve had booms and busts, but overall have grown more. That is a challenge.

Now, one of the answers, which I think is right, is many of the domestic bottlenecks. So while you were commercially open to the world, you weren’t open in your own economy. And many of the reforms that Josh was referring to, that Pena Nieto pushed through, are beginning to change that. So whether it’s energy or antitrust or financial or telecom, all of these are starting to open up the economy.

And, you know, you see changes that will make it much easier for industry to operate there. Right now they had—you look back three or four years ago, and many companies, many of these big factories, were unable to get steady supplies of gas, right, of electricity. And now that is changing because of some of the energy reform.

But one thing I think when we look at Mexico that we forget is we see that topline number. We see 2, 2.5 percent, and we don’t actually see what’s happening. And really what we have is two Mexicos, or perhaps a couple more. When you look at many of the northern states, those that are linked to NAFTA, those that are linked to advanced manufacturing, they’re growing at 5, 6, 7, sometimes double-digit rates. Their levels of productivity are increasing annually by the same amount—5, 6, 7 percent. And it’s other states, mostly in the south, but others that are moving in the reverse, right. They’re either stagnating or they’re in recession. Productivity there is stagnant or in decline. So overall it looks like mediocre growth.

But you have one area that’s really fast-paced, that is comparable with the Asian tigers in terms of the growth and productivity and the skill sets, and they’re really engaging with the world. And you have another part of Mexico that isn’t and hasn’t yet been brought into this.

And so to me the answer for Mexico is more of what’s happening in the north and less of what’s happening in the south. And the way you get there is really implementing these reforms, really opening it up, connecting through infrastructure and other ways, improving education, which, as Arturo lays out justifiably, has not yet really happened. But that’s the way Mexico—you get more of the economy to enter that high-growth phase versus the others. And that is a challenge for the next government, frankly.

I will say one thing that I think is somewhat positive for Mexico, and it comes on the back of these reforms. We’ve seen over many years, but particularly over the last couple of years, a move in GDP growth from some of the exports and the like to consumption. And that is the growth of this middle that’s able to consume more.

And one interesting thing; if you look at foreign direct investment over the last couple of years, it’s been pretty stable. It’s come up a little bit as worries over NAFTA and the like. But what it has done, it’s shifted a bit from investing in things that are going to be geared towards the United States to investing in industries or sectors that are geared towards the Mexican consumer, right. So the retail sector, pharmaceutical sector, other type of things, that’s where you’re starting to see big investments come in, because they care about what’s happening. They see growth in Mexico. And I think that is another engine that could really lead Mexico to prosper.

FERNANDEZ: Well, it’s 2:00 and it’s time to end. Please join me in thanking our speakers. (Applause.)

(END)

This is an uncorrected transcript.

"...The closer we get to the July 2018 election, the less I think the Mexican government can agree to anything, given their own domestic politics. So their internal window is narrowing, which...will really stiffen their spine vis-à-vis any negotiation with the Trump administration."
- Shannon K. O'Neil
"[The Trump administration] was elected on the back of the rural vote, and a number of very important states in the electoral college that are basically rural [agriculture] producing states...Mexico's already signaled that it's willing to look at Brazil and Argentina, for example, to substitute its imports of U.S. corn, meat, and grains."
- Arturo Sarukhan
"...The [United States], especially in rural areas, is having this incredible heroin crisis. And much of this heroin...[is] produced on the west coast of Mexico and sent up to the U.S., driven by U.S. demand. So this is clearly one area where you would think the presidential administration would want very close cooperation."
- Randal C. Archibold

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