MEXICO

Mexico is the second-largest economy in Latin America, and is a member of the G20, the OECD and the WTO. After the USA and China, the European Union is its third-most important trading partner. Given its geographic proximity to the US and the economic, cultural and social interrelationships between the two countries, especially as part of the successor to NAFTA (North American Free Trade Agreement) which came into force in July 2020 – the Tratado comercial entre México, Estados Unidos y Canadá (T-MEC) – Mexico plays a special part in this economic context. In addition, Mexico and the EU have a close trading relationship as part of the EU-Mexico Trade Agreement, which came into force in 2000, and is currently being updated. Among the EU member countries, Germany is both the largest importer and the largest exporter of goods from and to Mexico. Germany’s strong industrial presence – there are about 2,000 German companies in Mexico – must be emphasised in this connection.

Accounting for about 80 percent of exports and 50 percent of imports, the US is clearly Mexico’s largest trading partner. This economic integration and dependence must be taken into account when considering the relevance of Mexico to Germany in safeguarding our prosperity via free trade and innovation. Geographically, economically, socially and politically, Mexico is part of North America, and should therefore be included as a matter of course when considering the transatlantic perspective.

Mexico is also a member the Pacific Alliance trade bloc. Its membership of this bloc represents a clear commitment to multilateralism and global free trade; this requires a nuanced appraisal, however, in the context of the current government of President Andrés Manuel López Obrador, who makes no obvious acknowledgement of international interests and adopts a negative stance on the open-market global economic model.

Like Germany, Mexico is a country with a federal structure in which the national government and the federal states have different jurisdictions and authorities. A distinction must therefore be made between the policy of Mexico’s national government and those put in place by the federal states, since there are sometimes significant differences and other nuances between them, and they therefore reflect differing levels of readiness to cooperate. Various federal states in Mexico have made it clear there is a gap between them and the policies pursued by the country’s President.

In particular, the strategy the President backs of setting aside the previous model of investment incentives aimed at creating an economy that is competitive on global markets in favour of an assistentialist model has caused concerns among the states of the Bajío (Aguascalientes, Jalisco, Guanajuato, San Luis Potosí and Querétaro) and the companies based there. The governments of the Centro-Bajío-Occidente alliance have therefore launched a technology platform, for example, to promote exports and investment. This is intended to further bolster the production chains born of trading activity with the US and Canada, which is also very important in terms of economic relations with Europe and Germany in particular, since that ensures continued market access for their products.

Thanks to its economic relations with its T-MEC partners (the US and Canada), Mexico has become a globally significant exporter of finished products, with particular reference to the automobile, electronics and aerospace industries. It must be remembered that Mexico’s production capacities are largely dependent on foreign direct investment (FDI), and on companies that establish a presence in the country in order to gain a foothold in these export chains for the North American market.

Germany is also the second-largest investor in Mexico, with only the US recording more FDI in the country in 2020. Mexico has thus become of increasing importance to German companies as a market and a location for investment. This investment is, however, not evenly distributed across the entire country but takes the form of regional clusters. The centre and the west of the country, in particular, are where important German companies in the automobile industry, such as Audi, Mercedes, VW und BMW, have a footprint.

As a consequence of these strong economic interrelationships, recent years have seen a number of joint initiatives that have bolstered the importance of Mexico as an industrial location to Germany. Particularly worthy of mention is the partnership with Deutsche Messe AG, which established its subsidiary Hannover Fairs Mexico in 2016 and has since then offered a broad portfolio of events including Industrial Transformation Mexico (ITM), which brings together the worlds of politics, economics and science in an annual trade fair setting devoted to topics of the digital transformation and innovation in Mexico.

A closer look at the updated EU-Mexico Trade Agreement, on which negotiations were completed in April 2020, reveals that this is one of the most extensive trade agreements the EU has had in place thus far in terms of values and transparency. It contains a very advanced chapter on sustainable development, linked to the implementation of the Paris Climate Agreement, and an anti-corruption clause, which has never been part of any other EU trade agreement. Although the Agreement is still awaiting ratification and subsequent implementation, there are enormous opportunities for Germany in this connection to prove itself a powerful partner in the context of a sustainable economic reconstruction in the wake of the Covid-19 crisis, principally at a sub-national and local level – at least during an initial stage, given the policy of the national government.

In view of the debate about the stability of global supply chains and the interrelationships of individual regions of origin, supply bottlenecks caused by the pandemic, and the resulting tendency toward diversification, it is also obvious that more focus should be put on Mexico’s potential as an industrialised nation, transatlantic partner and part of the T-MEC/Pacific Alliance trading area, with recognition for its strategically important role as a place to do business for German industry, and that these interrelationships should be taken to a new level accordingly.

The economic relationship between Mexico and the US is based on strong mutual interrelationships, and firmly established production chains have developed over the years as a result. These also involve the participation of players from other regions, such as Germany, whose growing involvement in the market for Mexican exports to the US has become increasingly important. 

Germany has an opportunity in this regard, as well as a need, to recognise the differences between the national government and the federal states, and to act on a more international level with a multi-layered network of partnerships at a federal and state level, with private-sector involvement. A long-term goal should be to encourage a more effective integration of the Centro-Bajío region into global supply chains and view the potential of Mexican producers as links in the supply chains of German companies. In this context, the alliance of T-MEC countries must be considered as an integrated North American economic area, and Mexico in particular must be understood and valued, viewed through German (and European) eyes, as a firm, or firmer, part of a new dimension in the transatlantic partnership.

As a minimum, the prospects of implementing the updated EU-Mexico Trade Agreement should give Germany the opportunity to define its own international role in Mexico more strongly, and make a name for itself as a partner in the implementation of structures and mechanisms that encourage stronger involvement by civil society. The private sector plays an important role in this regard, especially in the area of environmental and climate policy, and in questions of the power supply system at a sub-national level, and should definitely be given stronger assistance. 

Hans-Hartwig Blomeier heads the KAS Office Mexico.

Laura Philipps is a trainee at the KAS Office Mexico.