Issue:The Financial Relations Between USA and Mexico

Forum: General Assembly Second Committee

Issue:The financial relations between USA and Mexico.

Student Officer: Jędrzej Kierys

Position: Deputy Chair of General Assembly Second Committee

Introduction:

In view of president Donald Trump's executive order (January 25, 2017) calling for the immediate construction of a border wall, the turmoil in the divided U.S. Congress, and the tension between Trump and the Mexican president Enrique Peña Nieto, we have to dig deep into how these and other issues affect the financial relations between those two countries. While the obvious political link here cannot be disregarded we should, however, try to understand the full background of this situation.
Background information:

Mexico is the United States' second largest EXPORT market, third largest overall trading partner and the top country of origin for U.S. immigrants. Despite the aggressive rhetoric of president Donald Trump, most of the data on the subject suggest that economic relations between the two provide benefits and create jobs on both sides. As can be seen on the graph below, Mexico and the U.S. are no longer merely selling products to one another - they are working together (each consuming over 110 billion dollars worth of goods). Production is taking place on a massive scale.

Another study shows that nearly 5 million U.S. jobs depend on trade with Mexico. To top it off, the fact that half of U.S.-Mexico trade is in parts and materials used as inputs for production suggests that the imposition of greater barriers to bilateral trade would raise the costs of production in North America.

One of the key problems why Americans might feel tricked by Mexicans is the never-ending recession or at least its aftermath. The real income of an American household is still below its 2007 level and the manufacturing sector has lost about 25% of its employees since 2000. The massive shift to services resulted in hiring less well-off Mexicans to perform some of the jobs of yesterday.

The state of the relations now.

There seems to exist a false presentiment that when U.S. entrepreneurs move to Mexico it is more often than not to avoid high taxation or find their way around whatever law doesn't suit them. In fact, U.S. operations in Mexico are associated with growth[1].

The auto industry, as we see above, is the biggest Mexican contributor to the U.S. market and it has provided millions of Americans with cheap and cost-effective car parts for decades. The food industry also plays a big part - one Mexican baking company employs over 27.000 Americans.

And of course a lot of this is about oil.

Definition of Key Terms:

ECONOMY
The United Nations’s definition of economy is an entire network of producers, distributors, and consumers of goods and services in a local, regional, or national community. There are various meanings presented by the law, nevertheless economy remains as key factor to lead a country.

NAFTA (North American Free Trade Agreement)
NAFTA is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada.

NAFTA has two supplements: the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAALC).

Most economic analyses indicate that NAFTA has been a small net positive for the United States, large net positive for Mexico and had an insignificant impact on Canada.

FINANCE
This term widely describes the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems. It is said that finance is divided into three distinct categories: public finance, corporate finance and personal finance.

TRADE
The United Nation’s believes that this term means a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties.

Major organisations involved:

High Level Economic Dialogue
This organization, which will be led at the cabinet level, is envisioned as a flexible platform intended to advance strategic economic and commercial priorities central to promoting mutual economic growth, job creation, and global competitiveness. There are three main areas which remain as priority of this organization:
1) Promoting Competitiveness and Connectivity

2) Fostering Economic Growth, Productivity and Innovation

3) Partnering for Regional and Global Leadership

The HLED will seek to engage and solicit input from the private sector and civil society as it develops its annual agenda.

High-Level Regulatory Cooperation Council
HLRCCwas launched by U.S. and Mexico in May 2010 and it focuses on regulatory cooperation in numerous sectoral issues including food safety;
e-certification for plants and plant products; commercial motor vehicle safety standards and procedures; nanotechnology; e-health; and offshore oil and gas development standards.

Possible solutions:

Without a doubt, there are some elements of the relationship that are zero-sum, but our profound ties, ranging from cross-border supply chains to migration to cooperation to prevent terrorist attacks, mean that at the deepest level the United States and Mexico truly are partners. Sure, these are mainly political, but the data speaks for itself and who knows what might happen if the executive order were to pass in Congress.

There are many institutions you should look into while researching on your own, for instance:

1. Mexico-United States Entrepreneurship and Innovation Council

2. The Merida initiative