Media Conference Call: Jorge Castañeda and Shannon O'Neil on Nieto and U.S.-Mexico Relations

Media Conference Call: Jorge Castañeda and Shannon O'Neil on Nieto and U.S.-Mexico Relations

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Listen to CFR Senior Fellow Shannon K. O'Neil and former foreign minister of Mexico Jorge G. Castañeda discuss President-elect Enrique Peña Nieto and the future of U.S.-Mexico relations.

In an op-ed that appeared this week in USA Today, O'Neil argued that the main obstacle to better relations between the two countries is Americans' perceptions of Mexico and its people:

"In Americans' psyches, drugs dominate. When advertising firm GSD&M and Vianovo strategic consultants asked Americans to come up with three words that describe Mexico, nearly every other person answered 'drugs,' followed by 'poor' and 'unsafe.' Other questions reveal Americans see Mexico as corrupt, unstable and violent, more problem than partner. Americans had more favorable views of Greece, El Salvador and Russia."

Read O'Neil's USA Today op-ed "Mexico Isn't a Gangland Gunbattle."

In the November/December issue of Foreign Affairs, Castañeda and historian Héctor Aguilar Camín claim that there is a political mandate in Mexico that calls for less corruption, greater rule of law, and improved economic justice:

"Mexicans' clamor for prosperity is no longer negotiable, and today, the country is less than a generation away from becoming the full-fledged middle-class society it aspires to be. But only if it gets to work now."

Read Camín and Castañeda's essay "Mexico's Age of Agreement."

BERNARD GWERTZMAN: Greetings, everyone. Welcome aboard. And I'm Bernard Gwertzman. I'm an editor for the Council on Foreign Relations website.

And we have two great guests here today to answer questions about the visit of the Mexican president to the United States and today to Canada. And I would like to introduce them. We have Jorge Castaneda, who is a professor of politics and Latin American and Caribbean studies at New York University and at one time a foreign minister of Mexico. And we also have Shannon O'Neil, who is a senior fellow for Latin American studies at the council and is an expert on Mexico and Brazil, among other countries.

I would like to start by saying there's been an emphasis since the election of the new president in Mexico on Mexico's economic power and saying that Americans are paying too much attention to the drug wars in Mexico. Are the drug wars really under control, or is it just an effort to cover it up? Shannon, would you like to deal with that?

SHANNON O'NEIL: Sure. Well, what we've seen in Mexico over the last six years is it's a drug problem, but really what it is is a violence problem. And so when you look at the term of President Calderon, the six-year term, you've seen at least 60,000 people killed, some independent estimates say upwards of almost a hundred thousand people. Some of this is because of drug trafficking and organized crime related to drug trafficking. But some of it is crime more broadly, so other types of organized crime, extortion, kidnapping, car theft rings and the like. And some is just your average day-to-day crime. So you look at studies and polls -- and Mexico actually, for regular types of crimes, is probably one of the most violent places or crime-ridden places in the hemisphere. And that is an issue that continues for Mexico today and will be on Pena Nieto's plate when he takes office in -- on Saturday.

GWERTZMAN: Mmm hmm. And Jorge, do you want to add anything to that?

JORGE CASTANEDA: Well, I agree completely with what Shannon said. I would simply add that I think the emphasis to be placed on Mexico's economy doing better than in the past is well-placed, as long as we don't exaggerate and turn Mexico into a new Brazil, and then three years from now we'll all have to say, well, actually, it wasn't such a big deal after all.

The Mexican economy is doing OK, period -- (inaudible) --

GWERTZMAN: Just OK? I mean, from what I've been reading, it's doing better than the United States economy.

CASTANEDA: That's what I mean, Bernie. (Laughter.) Actually, that's what I'm referring to. For a country that has a GDP per capita about six times smaller than that of the United States, the fact that it's growing a little more than the United States is not exactly surprising. What would be surprising is the opposite. Mexico's doing OK. Three and a half (percent) to 4 percent growth is not bad. It's been going on now for three consecutive years. That's not bad either. This is not China, it's not Chile, it's not Peru, it's not India, (just ?) OK. I think it would be useful, unless Americans want to, you know, once again, three years from now, have a conference call like this one about Mexico and saying, what did we get wrong? Well, you got it wrong from the beginning.

GWERTZMAN: I see. OK. Well, so you're saying I ought to just stay in the United States; I'll do better here than migrating.

CASTANEDA: Well, I don't believe this story of any Mexicans in the United States going back to Mexico. I'd love to meet one. If someone has found one, it'd be great. I'd love to meet one.

GWERTZMAN: OK. Well, Jeff, let's turn this over to our call-in audience. And do we have somebody online?

OPERATOR: Thank you. (Gives queuing instructions.)

Our first question is from Rafael Mathus from Reforma Newspaper.

QUESTIONER: Thank you very much. Hello, Ms. O'Neil, again, and hello, Mr. Castaneda. It's a really good idea to have this conversation with you.

What I'd like to know is about immigration reform. It's going to be on top of the agenda in the bilateral relationship in the next two years, specifically next year if the project that President Obama has said that might come into Congress actually comes into Congress.

What do you think would be the right strategy for Mr. Pena Nieto to follow, like, a more aggressive strategy similar to the one that the Mexican government followed in early 2000s before 9/11 or something more on the backseat, if you want to say it, sort of like the strategy that Mr. Calderon followed?

CASTANEDA: You asked -- (inaudible) --

GWERTZMAN: Go ahead.

CASTANEDA: Well, Rafael, besides good to -- good to be in touch -- we're colleagues in the same newspaper -- I think -- I don't think Calderon put it on -- in the backseat; he threw it under the bus. So there is no -- there was no Mexican immigration policy under this administration.

I think that the tone that Pena Nieto set yesterday in the published remarks of his meeting with President Obama was right: Mexico's very interested, Mexico wants to cooperate, and Mexico would welcome a comprehensive immigration reform in the United States. I think that's -- to get started, that's the right tone, and it makes -- marks a major change from what Calderon's attitude has been.

At some point it will probably be necessary to go further, first of all, because like we saw in 2006 and 2007, without Mexican cooperation, it is very difficult to implement any kind of comprehensive immigration reform in the United States. And secondly, given our 50 consulates in the U.S., we can either help or not help Mexicans, for example, right now, prepare their documentation or applying for deferred action, the executive decree that President Obama issued back in August or September, which has allowed some young Mexicans now to be -- not be deported and become, quote, unquote, legal.

GWERTZMAN: Can I just amplify on that question to Shannon? What are the chances of getting any legislation in the United States?

O'NEIL: I mean, I think this is something that once Obama officially is re -- you know, starts a second term in January, this will be one of the issues on the agenda as we look towards 2013.

But what the shape of it will be is still very much in dispute. Is it going to be another, quote, unquote, comprehensive reform that looks at those that are here unauthorized, those are here for a guest worker program, the enforcement side of it, both on the employer side and also on the border? Are we going to see all of those elements, or are we going to see little elements like starting with the Dream Act, making the administrative -- the executive orders that Obama did put in place, making those legislative -- making those law, those sort of things? So what happens? You know, it'll sort of be up in the air what we actually see try to get through Congress.

And in some ways, we'll see what happens with the other types of things that are on the agenda, and particularly the fiscal cliff is a big issue. The Congress has to get through that before it can hit any other sort of domestic policy issues. And so how quickly or slowly we move through the financial challenges that we have will affect things like immigration reform.

And let me just say, on the -- on sort of the role Mexico can play in immigration reform -- and you know, Jorge's been through this one round himself and had his ups and downs and probably has his lessons learned there. But there's a role for Mexico to play in terms of cooperation, in terms of support. But this is, in the United States, seen primarily as a domestic policy issue. And so any foreign government taking too active of a role, seeing it as a foreign policy issue, could be counterproductive, particularly when you're trying to create a bipartisan -- a fairly fragile bipartisan center to try to pass some sort of legislation.

GWERTZMAN: OK, next question.

OPERATOR: Thank you. Our next question comes from Judy Miller from Manhattan Institute.

QUESTIONER: Hi. Thank you very much for doing this conference. I wanted to ask what changes you anticipate in the war on drugs or, you know, drug violence under the new administration and whether or not you think that the anticipated changes that you see are likely to be more effective than what we've seen to date.

GWERTZMAN: Mmm. Who wanted to -- Jorge?

O'NEIL: Tell you what, Jorge, you want to start, and then I'll follow you?

CASTANEDA: OK. Well, I don't -- I think the main change regarding the war on drugs is to call it off. There's an excellent piece, I think, in tomorrow's New York Times by Alan Riding saying -- called "Safety First for Mexico." And I think that's where I would go. In other words, what can you -- what can we do about the war on drugs? Put an end to it, a little bit like the war in Vietnam. Well, what could you do with it? Get out. Finish. Over.

I think that if Pena Nieto does this -- now, whether he announces it, whether he makes a big fuss and strident fuss about it or just does it discreetly is a politically consideration, which I don't have enough facts to be able to support in one direction or another. But I think the main point is to just basically say Mexico is going to use its scarce law enforcement resources to combat kidnapping, extortion, the issues Shannon mentioned a little while ago. And I wouldn't say forget about drug trafficking, but certainly place it on a much lower level of priorities than under the Calderon administration.

Then what happens? We'll see. It's hard to say. Maybe there will be more violence than ever, though it's hard to imagine how there could be a whole lot more than there is right now in Mexico. Maybe there will be no leveling off and things will continue as are. Or maybe there will be a very significant drop in violence and not much of an increase in the volume of drugs entering the United States from Mexico, whether produced in Mexico or just trans-shipped through Mexico. We don't know that until we try. But certainly the idea of finding a different way to wage the war on drugs, I think, would be a huge mistake.

O'NEIL: Yeah, I agree with Jorge. I mean, I -- what we've already seen in the campaigns and in this transition period up until the inauguration at the end of this week is a shift in rhetoric. We've seen a shift away from talking about a war on drugs in Mexico to talking about reducing violence.

Now, many of the things you do to do -- for both of those things are the same. So the efforts to professionalize the police forces, efforts to strengthen court systems and make them work so they can convict the guilty and free the innocent -- both of those matter for fighting drug trafficking as well as fighting other types of crimes and reducing violence. But other things, as Jorge just said -- where do you focus your law enforcement resources? You don't necessarily go after kingpins. You go after local car thieves or those that break into houses or extort local businesses. And I think that we will see a shift.

The other sign we've seen so far -- signal, which we'll see if it carries through, is an effort or an aspiration to reorganize the security forces in Mexico and, in many ways, consolidate them. And many of the critiques one saw during the Calderon administration is the fragmentation of sort of command and control of the various police forces. And so there were often, you know, different types of operations working in parallel, even at times working in conflict. So I think the hope are -- those trying to design it to concentrate power is that bringing it under the Ministry of the Interior might sort of increase communication, make these things more effective.

Now the flip side, some would argue, is if many of these forces are corrupt or corruptible, some decentralization might be helpful rather than it all being centralized in one place. But whether that actually happens remains to be seen, but it has been proposed by the incoming government.

GWERTZMAN: OK. Next question?

OPERATOR: Thank you. Our next question comes from Eric Martin with Bloomberg News.

QUESTIONER: Thank you for taking my question. I wanted to ask you about Pena Nieto's priorities on day one. Does anyone know in what order he's going to proceed with all the things that he said need to be done? And do we know, you know, from December 2nd what his first move within, say, his first month, two months in office will be?

CASTANEDA: I'll try -- take a try at that, but it's going to be a real brief one. No, we don't. (Laughter.)

I think he's going to make a speech on Saturday, an inauguration -- inaugural speech or address, which will lay out much more of a broad vision for the future and a little bit about the state of the country he has received, rather than a detailed program of what comes next. He still has stuff that he has to get done which he tried to get done during the interim period between his election and his inauguration, which did not get done, whether it's the anti-corruption commission and law, whether it's the transparency law, whether it's a law regarding how the -- how political parties purchase air -- governments purchase airtime from the media. There's a lot of stuff that he wanted to get done during these months which he hasn't gotten done. So probably before he moves on to anything else, he will try to deal with that.

The only exception, of course, is the budget, which he has to get through and approved by the end of the month, by the end of December, and a lot of the things he said he wants it -- wanted to do during the first year have to have a appropriations, as of right now, in order for them to be done. In other words, he might not end up doing them, but if he doesn't have the money, he certainly won't do them.

So there we will see a little bit of what's going to happen in the budget. Other than that, I really don't think they have a clear game plan. The Pena Nieto people are very bright. They're very good. They're very experienced in certain ways. But they have already shown these five months that some of the things that they think are easier to do end up being a little more difficult.

GWERTZMAN: In other words, in Mexico there's this long period between the election and the inauguration, and the president-elect actually can take steps and do things, unlike in the United States, where there's a new president-elect who really can't do anything.

CASTANEDA: Just briefly -- (inaudible) -- the -- it's a five-month period for the president, but it's three-month president (sic) for the congress. The congress -- the new congress takes office on September 1st.


CASTANEDA: (The ?) new president takes office on December 1st. At least in principle, during those three months, the new congress, which reflects part of the mandate that the new president has, can do things that the president-elect would like them to do because they are already the new congress and they are in office, in the case of senators, for six years and in the case of house members for three years.


O'NEIL: And they have done things. I mean, they have passed labor reform during this transition governing period, working with President Calderon and working with the new congress. So there has been movement there.

I mean -- hi, Eric. Nice to hear from you. I'd say, as Jorge, no one really knows what they're going to do, but one is look at the budget and then two, when we come back after the holidays in the new year, the president now in Mexico has this sort of preferential initiative authority. I'm not sure -- exact translation -- but it's where the president can send two initiatives to congress, and the congress must discuss them and come up with something within about a month. And so we don't know what's going to be on those, but there -- that's what to watch, is sort of those are the two things that would see movement, what the president pushes forward.

And the other thing is we saw today the three political parties -- in of course vague terms, but all three political parties sat down and signed a pact or came up with a supposed consensus on what policy issues should be on the table. And they're the ones that, you know, Mexican analysts and others have been talking about for years. But they're issues of security, issues of corruption, issues of economic reforms, making Mexico's economy more competitive and the like.But at least there is a -- there is a broad range there of what people agree on putting on the table. Of course, how you solve those problems or at least move forward, there could lots of disagreements between the parties, but what should be discussed, there is at least some framework there that has been negotiated.

GWERTZMAN: The next question?

OPERATOR: Thank you. Our next question comes from Jonathan Blakley from National Public Radio.

QUESTIONER: Hi. Thanks for having me, and thanks for having this conference. I appreciate it. I just want to know if we can expand a bit more on the war on drugs -- and Shannon did a great job of expanding on it -- but when you talk about getting out of the war on drugs, you're just going to get out of it, I mean, what does that mean when you juxtapose that against a hundred thousand deaths? And how do you think that wouldn't be looked at -- or would that be looked at, especially on folks on this side of the border -- would that be looked at as surrender?

MR. : Jorge, you raised it.

CASTANEDA: Let me give you first a very concrete example then, then perhaps move on to the broader issue of surrender.

You can have -- let say you can post on a more or less permanent basis 2(,000) or 3,000 troops, military troops, in a city, let's say, like Zacatecas, which is about halfway between Mexico City and Ciudad Juarez or El Paso, a long road to the border and not the short one. It's an immigration-sending state -- not too violent, not too safe a state -- OK. It's not a big city, but it's not a tiny city, either. You can have your 2,000 troops, you can have them on checkpoints on the highways. It's a highway crossroads; you've got about five big highways going through the city -- or the same is Torreon.

You can have your troops on the highways with checkpoints stopping trucks, stopping cars, buses, et cetera, and not too many of them downtown protecting people. Or can you have a bunch of them downtown and pretty much just eliminate the checkpoints. If you eliminate the checkpoints, it will be a lot easier for people who are driving trucks full of cocaine, marijuana, methamphetamines, what have you, to roll up to the U.S. But you will have a lot of troops, you will be saturating the city with troops where there is no police, and you will be making people feel more safe and be more safe.

If -- in an ideal world, you've got enough troops to do both. In the real world, you don't, so you choose. Calderon chose the checkpoints. Violence in the city has got totally out of control. The traditional Mexican way has been to try and provide a sufficient degree of safety for people in the cities or where they live and contain violence or drug trafficking on the highways, et cetera, but it's a policy of containment, not a policy of all-out war. I think this may help illustrate a little bit the different between being at war and getting out of the war.

O'NEIL: You know, let me just add just a couple thoughts there is, you know, the United States is, in some ways, an example for Mexico to follow. I mean, if you look at the drug trade, we have more drugs in the United States than Mexico since we get them from other places, as well as our own country. We arguably have more guns than Mexico does. And we have more money in the drug trade because here because it wants (to get ?) across the border where it's really valuable. But we don't have the violence problems in the United States that Mexico has. We have -- but we have a trade probably as vibrant, if that's the correct word, as Mexico does. (Chuckles.)

And so there are -- there are lessons there. We don't stop -- we don't have a war on drugs in the United States, but we have a -- you know, for lack of a better term, some sort of regulation and containment policy that we use here, that we keep it from getting violent. And so in some ways, looking at the United States and the way we've dealt -- we've had episodes in our past where drug-related violence has been quite high, and we found ways to deal with it, which has not been to end the drug trade in the United States. And so there may be some lessons for Mexico -- and other countries, like Colombia, but (for instance ?), we're talking about Mexico here -- in terms of the way the United States deals with this sort of (insidious ?) problem that is not going to go away.

GWERTZMAN: Next question?

OPERATOR: Thank you. Our next question comes from Michael O'Boyle (ph) from Reuters.

QUESTIONER: Hi. Good afternoon. Thanks for taking the time to be with us.

Going back to the reform agenda a bit -- sorry to make you guys jump around -- how do you interpret, like, the cooperation that we've -- that we've seen so far, you know, on the labor reform? Was that a real landmark? I mean, are you more optimistic or still very skeptical on what's going to happen next year?

Could you say something about -- I know there hasn't been a lot said, but I mean, the -- about fiscal reform, about energy reform, are you very optimistic that we could get very substantial reforms under the new government?

And thirdly, is there just anything really key that you're seeing left out of the discourse in terms of, you know, maybe some of the most important reforms that Mexico should be looking at?

GWERTZMAN: Shannon, take a crack at it.

O'NEIL: Sure. I mean, we have seen some basic cooperation there. I think there is room for cooperation. Perhaps one of the biggest challenges or hoops the next government will have to run through is not that the PAN disagrees with their agenda, or at least the reformist side of their agenda, but the PAN is rudderless. Who actually is going to lead the PAN and be able to bring together the representatives, the senators and those to vote I think is still a bit unclear, who is actually going to be a forceful leader to bring that party back together after their rout in the -- in the last election. So I think that's a challenge for cooperation. But I think there is some area of agreement, and there's some electoral incentive for the PAN, if they can pull it together, and for the PRI to get things done. So there's area for cooperation.

Fiscal and energy reform, which likely need to go together, on that I would say I am cautiously optimistic. For those who say -- who see the next Petrobras happening in Mexico, I am very skeptical. I don't see that as being technically possible or politically possible. The changes Pemex would have to go through to make it into a listable company from the, you know, state-owned organ that it is today are quite significant, so I don't see that. But perhaps some opening where you allow risk-sharing of the costs and benefits in technologically sophisticated types of areas like deepwater drilling, perhaps there's some room for that.

And then the things that I think are off the agenda, unfortunately, for Mexico, I would put political reform there. That seems to have not been -- in the numerous speeches where we see a laundry list of things that need to be done in Mexico, political reform has been shunted. And there I mean re-election, I mean election of outside candidates, a lot of things that people have talked about that would be beneficial for rejuvenating and opening up and making Mexico's system more accountable. I haven't -- I don't think those are going to be, you know, on this long list.


CASTANEDA: I basically agree with everything Shannon said. I would add two things that I haven't been seeing recently, which I regret. One is this idea of a universal social safety net financed out of the central fiscal budget as opposed to a pension and health care system, which is what we have, based on employment, which by definition leaves out more than half of the population, although some patchwork solutions have been implemented over the past 10 or 15 years. Pena Nieto had committed himself very forcefully to this. My impression is that he's getting a little bit of cold feet on it.

The same is true on education. We've been very strong, very committed to serious educational reform. I'm not sure that that is going to happen, because as very often occurs with education, unfortunately, it's been one of those things that has long lead times, the political payback is way in the future, and the political costs are tomorrow morning.

GWERTZMAN: (Chuckles.) All right. Next question?

OPERATOR: Thank you. Our next question comes from Gabriel Stargardter from Reuters.

QUESTIONER: Hi, there. Thank you both for being here today. It's a very interesting discussion.

I have a question building slightly on what Mike said regarding the reforms that have already taken place. You both mentioned earlier that the Congress has managed to actually come together and do something in these last few months, weeks. And one of the fruits of that was the labor reform law.

I'm curious to know what exactly you both think will be the short- and long-term impact of that labor reform law, specifically on hiring. And will it be able to be successful in drawing people out of the informal sector, which is a big thorn in the side of both the Mexican tax man and also the Mexican politicians? And the other question I have is -- sort of looking the other way, is in terms of -- a lot has been made recently of Mexico's sort of -- there's a new narrative up here of Mexico as a sort of burgeoning manufacturing hub. What do you think will be the future direction in terms of Mexico's manufacturing experience? And how does -- how does that sort of impact countries like China, which already have a very strong, established manufacturing and export sector? Is there going to be any impact on those countries? That's it. Thanks.

GWERTZMAN: Who'd like to take a crack at that?

O'NEIL: Tell you what, I'll start, and then, Jorge, why don't you follow.

I think the labor law reform was an important step forward, in some ways more a political step that there could be a negotiation and two parties could come together and pass something together, so perhaps more politically important than immediately fiscally important.

I do think it will be -- have a positive effect on hiring and those things, but I don't think this is going to be an outsized effect. I don't think this is a revolutionary change in Mexico's labor structures or will immediately bring the, depending on your estimates, roughly half of Mexico's economic activity that's in the informal sector.

GWERTZMAN: What is the reform, for those who don't know?

O'NEIL: Sure, I mean, it's a reform that changes the way you can hire people and fire people. It makes it a little bit easier to hire people. It makes it a little bit easier to fire people. It limits the costs when you let someone go. It makes it a little bit more flexibility for employers, which the private sector says will enhance formal sector jobs because it'll make people more likely to hire in the formal sector, as opposed to now many people hire off the books or in the informal sector.

I mean, a big challenge on the informal sector for Mexico is not just do you bring workers onto a formal company payroll, but do you formalize your company in the beginning; is it on the books in the beginning. And there you see the tax evasion from informal businesses, you know, far outstripping, by most accounts, you know, drug money or other types of money that flow within the economy. And that, I think, will have to do much more with larger incentives, incentives that could be provided by broad financing that would incentivize people to come onto the books because then they could get loans to expand their businesses or things like that, as well as some sticks, i.e., the Mexican IRS, the SAP, actually comes after you if you don't formalize your business.

Let me just say one thing quickly on the sort of future of manufacturing and Mexico's role and where I think that will go. I mean, I think this is sort of the optimistic side of Mexico. And like Jorge said at the beginning, we don't want to blow this out of proportion. Mexico is not going to grow 10 (percent), 12 percent next year and for the following decade. We're not going to see China-like growth unless Mexico can make huge structural reforms that -- I think a good legacy of the Pena Nieto administration would be if they could get a few through or a couple big reforms through. They're not going to get all of them through.

But how does Mexico take advantage of this? When we think about these sort of supply chains and deepening of supply chains with the United States, I mean, that is been happening over the last 20-plus years, and I do think there's space for the two governments to work together to do things like have unified customs forms, to standardize regulations, to invest in the border. There's things that aren't, you know, big treaties and aren't big and important, you know, photo opportunities, but little changes that could make it much easier for companies to have operations on both sides of the border and let the flow go back and forth.

And a couple weeks ago I was visiting a plant outside of Queretaro, where there's two plants in Michigan and one down there. And they were telling me that, you know, they're happy to be down there, they may even put another plant down there, but every single shipment they send from Michigan down to Mexico, which then goes back to Michigan after there's work done in Mexico -- every single shipment has a problem at the border. There's some issue with the paperwork; there's some issue at the border. And that type of delay is something the two governments can work on that would actually make a difference, I think, in terms of -- both for Mexico, its growth, but also the United States.


CASTANEDA: Yeah, I agree completely with Shannon, both on the labor reform and on this specific issue. I'd add, on this second issue, that it's important to place things in perspective. I don't want to just quote any of our colleagues who are listening or not listening, but I read yesterday or today something about a new -- now Nissan is going to be making cars in Mexico. Well, when I was a child -- and (unfortunately ?), that goes back quite awhile -- (laughter) -- the Cuernavaca Datsun plant was in full -- full-blown, and this is back in the 1960s. The Nissan plant in Aguascalientes was inaugurated under the Salinas administration a little more than 20 years ago. So let's take it easy on these things. That some journalist found out that there is a Nissan plant -- that there were actually two Nissan plants in Mexico last week doesn't mean that they were built last week. (Laughter.) All it means is that the journalist found out about them last week, period.

Mexico has a strong manufacturing export base to the United States and has now had it since a little bit before NAFTA came into force, which was in 1994. This is now 18 years ago. It's gotten better the last couple of years for a series of reasons, among others, that U.S. demand for automobiles has increased. 2009 was a terrible year for the Mexican automobile industry, logically enough. And 2010, '11 and '12 have been better years. And this is improving not just in the automobile sector but in many others.

But as Shannon said, let's not overblow this. Let's not overstate it. It's going to be very difficult for Mexico become a manufacturing hub like China, because China exists. That's probably the main reason. At some point, wages in Mexico perhaps can become once again, as they're becoming more competitive with China than they have been, but that's not necessarily a great thing for Mexico. It means it's a race to the bottom a little bit.


CASTANEDA: And secondly, you can't have it both ways. You can't hope to reduce the wage differential, reduce immigration from Mexico to the U.S. and want to increase the wage differential by being more competitive with China. You sort of got to choose.

GWERTZMAN: Mmm hmm. Next question?

OPERATOR: Thank you. Our next question comes from Tim Johnson from McClatchy Newspapers.

QUESTIONER: Hi, a fairly quick question: What kind of influence do you think Carlos Salinas de Gortari is going to have on the Pena Nieto administration? And more broadly, will the PRI dinosaurs -- how are they going to balance out this play with the modernizers like Videgaray? Are they going to be ascendant, or are they going to be in the background?


CASTANEDA: I -- you know, in an ideal world, I think Pena Nieto would be able to form a Cabinet, which he will announce on Friday, and a broader team of people made up much more significantly by younger, more forward-looking, modernizing aides.

But in the real world, I think he's going to have to accommodate a lot of the dinosaurs. By the way, there are young dinosaurs and old modernizers. (Laughter.) And -- everywhere, including Mexico. And I think that there will be a balance. It won't necessarily be the balance that I would have liked or that others would have liked or expected. I think the fact that Pena Nieto was elected with less than 38 percent of the vote, 37-point-something, makes it difficult for him to do exactly everything he wants. This was not the mandate that he expected. And consequently, he has to be very careful with how he deals with the PRI governors, with the PRI unions, with the PRI old guard. And although he's skillful and very intelligent and very practical in all these matters, very pragmatic, he's going to have to take a -- in -- a lot of these people into account.

GWERTZMAN: Shannon, you want to add to that?

O'NEIL: I would just say I agree. And the PRI is probably the broadest umbrella in terms of the big political parties in Mexico and sort of who falls under it. And you have from, you know, technocratic, University of Chicago-type economists to very nationalistic, very, you know -- progressive perhaps is not the word, but very leftist. And they're all under one umbrella. And then there's also those -- you know, the forward-lookers or perhaps those looking back to the past.

And Pena Nieto, like his colleagues in the -- within the party have just come back into Los Pinos, are coming back into Los Pinos. They didn't like being away for 12 years, and they would surely like to stay there and, you know, remain in the house six years from now. And so electorally, how do they win? Well, probably the calculation is you keep this broad umbrella together because that's how you won this time around, is you were able to unify the party around Pena Nieto, something they couldn't do in 2006; why they had such a poor showing then is they didn't unify the party. And so unifying the party means bringing along all of these types of characters and all these types of positions, which means, you know, in short, they all have to be somewhere in the Cabinet or somewhere in there, which means a lot of compromise but also means a lot of barriers to pushing forward any real reformist agenda.

GWERTZMAN: OK, next question.

OPERATOR: Thank you. Our next question comes from Zach Cohen from Latin Pulse.

QUESTIONER: Hi. (Coughing.) Sorry about that. Thanks for having this call. I really appreciate it.

What do we see will possibly continue from the Calderon administration into the Pena Nieto administration? Do we see anything that he did with the drug war or with immigration or with trade that will continue or will be the basis for the next administration, or are we looking at really a clean slate?


O'NEIL: I don't think any administration ever gets a clean slate. You know, you build on what is there before, and, you know, you deal with continuity inertia, and you try to fight against it and make some changes, which are often at the margins. That said, you can try to redirect some things. So we've talked a little about security, how that may be redirected away from a war on drugs to reducing violence. On the economic side, you may see a redirection bringing energy reform back on the plate. Calderon tried to do that and made a -- some -- you know, a legislative reform on energy, but we may see that come back again, trying to redirect it or deepen it in some ways.

But overall -- so on the economic side you may see a few other economic things, a fiscal reform, come on to the agenda, but many of the things people hope the Pena Nieto administration will do, Calderon tried to do but was unsuccessful in doing. So that, to me, is not saying a break with the past but a continuity with the hope that perhaps the political constellations have aligned up -- are now aligned differently and/or this administration will be more politically adept or powerful in getting through many of the initiatives that have been on the overall Mexico reform agenda for many years.

GWERTZMAN: Jorge, you want to add to that?

CASTANEDA: Just that -- you know, not in any way contradicting, but complementing -- it will depend a little bit on what the new administration reveals or allows to be revealed about what of the things that Calderon did or claims to have done are true and which ones are not. In other words, if the successes he has flaunted turn out to be real -- so many houses, so many schools, so many hospitals, so many highways, so many policemen, so many all of this -- then I think they will be able to build on that and not necessarily have any serious breaks with the past. If it turns out that there was more simulation and more massaging the numbers than was apparent, it will be very difficult for there not to be a break between the two administrations.

And this is no longer, in Mexico, and I think it's a good thing, entirely in the hands of the new government. Given its druthers, I imagine Pena Nieto would not want to have too much dirt dumped on the outgoing administration. But if the press starts getting hold of things, if the new cabinet members and other aides are leaking things, if Calderon's enemies -- and he's got a whole bunch of them -- are also looking for and finding things and leaking them, it's going to be more difficult. And there -- I mean, as it stands right now, for example, one of the scandals of the last few days is that apparently the Department of Justice or the attorney general's office has 200 planes, part -- some of whom which were financed with U.S. money through Merida, which don't fly. Now, you don't necessarily want planes to fly, but most of the time it's better if they do than if they don't.

GWERTZMAN: OK. Any more questions?

OPERATOR: Sir, there are no further questions in the queue.

GWERTZMAN: All right. Well, with that, I think I'll thank our two hosts, and we'll sign off. Thank you very much.

CASTANEDA: Thank you, Bernie. Thank you, Shannon.

O'NEIL: Thanks.

CASTANEDA: Take care. Let's try and get together before I go home.

O'NEIL: That sounds perfect. Thanks, all.

GWERTZMAN: Great. Bye-bye.

CASTANEDA: Take care, Shannon.

O'NEIL: Bye.

CASTANEDA: Thanks, Bernie.


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