domingo, 29 de mayo de 2016


Reconciling with Sykes-Picot

May 26, 2016.

NEW YORK – This month marks the centenary of the Sykes-Picot Agreement, the secret British-French accord that launched a decade-long series of adjustments to the borders of the post-Ottoman Middle East. Most commentary on the anniversary has been negative, suggesting that the agreement bears considerable blame for the frequency and durability of the region’s conflicts.

That interpretation, however, borders on caricature. Mark Sykes and François Georges-Picot aimed to devise a plan that would enable Great Britain and France to avoid a ruinous rivalry in the Middle East. They largely succeeded: Their design kept the region from coming between the two European powers, and it managed to survive for a century.

To be sure, many of the Sykes-Picot borders reflected deals cut in Europe rather than local demographic or historical realities. But that hardly makes the Middle East unique: Most borders around the world owe their legacy less to thoughtful design or popular choice than to some mixture of violence, ambition, geography, and chance.

The unpleasant reality is that today’s Middle East is what it is because its people and leaders have done such a bad job in shaping it. Sykes and Picot cannot be blamed for the region’s pervasive lack of tolerance and political freedom, poor schools, or the unfair ways in which girls and women are treated. Other parts of the world (including those without enormous reserves of oil and gas) have emerged from colonialism in much better shape.

The factors accounting for the record of failure in the Middle East – history, culture, religion, and personalities – are worthy of serious examination. But the more pressing question that this anniversary raises has less to do with historical analysis than it does with current policy.

In much of the Middle East, a violent struggle for mastery is the new normal. In four – arguably five – countries in the region, the government does not control significant portions of the state’s territory. Lebanon has been in this condition for decades, Iraq for more than a decade, and Syria, Libya, and Yemen for some five years now. Militias, terrorist organizations, foreign fighters, and other armed groups have asserted varying degrees of local authority.

There are also the unfulfilled national aspirations of the Kurds (large numbers of whom live in Turkey, Iraq, Syria, and Iran) and the unresolved matter of how to reconcile the reality of Israel with the Palestinians’ political goals. The border between Syria and Iraq is for all intents and purposes gone. Millions of men, women, and children find themselves living in a country that is not their own.

What, then, should be done? One option would be to try to preserve – or, more accurately, restore – the Sykes-Picot Middle East. But attempting to reunify the countries that appear on the map – and to make the borders between them matter – would be folly. These countries will not go back to what they were; ties to region, religion, tribe, ethnicity, and/or ideology have in many cases superseded national identities.

A second option would be to try to negotiate the terms of a new Middle East, a successor to Sykes-Picot. This, too, would prove to be an expensive failure. Redrawing the map might be possible one day, but that day is decades away, at best. There is simply no consensus on what the map should look like, and no party or alliance that could impose or uphold it. As a rule of thumb, diplomacy can be expected only to work with facts on the ground, not to create them, and the facts on the ground stand in the way of a regional settlement.

All of this leads to a third option: Acceptance of the fact that for the foreseeable future the Middle East will not resemble what appears on maps and globes. This is not an argument for remaining aloof; as bad as things are, they can always get worse. To see that they do not, governments and organizations that meet certain standards can and should be strengthened; those that do not can and should be weakened. 

But no level of effort will alter the region’s basic reality: borders that count for little and governments that count for only a little more. Syria, Iraq, and Libya are likely to be countries in name only; important parts of each will essentially be autonomous and on their own, for better or worse. The fact that Turkey, Iran, Saudi Arabia, Israel, Russia, and the United States are working at cross-purposes more often than not further suggests a messy future without legal foundation.

In some ways, the pre-Sykes-Picot Middle East is coming back – but without the order imposed by the Ottoman Empire. As a result, the Middle East stands to suffer far worse in the next century than it did in the last – a reality that could well leave us nostalgic for the times of Sykes and Picot.

Struggling with oil prices

Resultado de imagen de Pozos de petroleo Saudi foto

Saudi Oil Policy Is Set in Stone

 MAY 24, 2016 | 08:00 GMT 

Next week, OPEC will hold its first meeting since talks on freezing production between the bloc's major producers and their non-OPEC peers fell apart in April. The June 2 convention will also mark the first time OPEC members have come together in Vienna since Saudi Oil Minister Ali al-Naimi stepped down, making way for Khalid al-Falih to take his place. Both events have raised questions about what direction Riyadh's oil policies will take in the months ahead, and how they will affect the kingdom's relationships with its fellow producers.

By all accounts, Saudi Arabia seems prepared to move forward with its original plan to protect its share of the global oil market, allowing concerns about low oil prices to take a backseat. Deviation, at this point, is not really an option; Riyadh's strategy has firmly committed the kingdom to riding out fluctuations in the market over the next five years. Saudi Arabia will have no choice, then, but to redouble its efforts to dramatically restructure its economy away from excessive spending and an overreliance on energy revenues. But whether the House of Saud will be able to get the country's younger generations on board with what is likely to be a painful economic adjustment remains to be seen.

A Painful but Logical Strategy

When oil prices plunged from $115 to $80 per barrel between June and November 2014, many of the world's oil producers and companies hoped that OPEC would step in to fix the situation. By collectively reducing their output, perhaps the organization's members could bring the market into balance and nudge prices back up. But Saudi Arabia, which has historically dominated the bloc, had other plans. Al-Naimi chose to increase production instead, intending to maintain Saudi Arabia's sizable share of the global oil market. By March 2015, Saudi output had risen by 660,000 barrels per day and oil prices had fallen even further, reaching as low as $45 per barrel.

Riyadh's choice was rational. After all, high oil prices — and the pursuit of more costly shale and the tight oil plays they encouraged — were one of the primary reasons new supplies flooded the market in the first place, putting downward pressure on prices over time. The technological advances that opened the more challenging basins to exploitation also reversed the seemingly terminal decline in U.S. oil production. (In January 2011, U.S. output was 5.5 million bpd; four years later, that figure had jumped to 9.3 million bpd.) Indeed, within the same quarter that Saudi Arabia chose not to scale back its production, U.S. output rose by 400,000 bpd, an astronomical amount considering annual demand for oil worldwide grew by just over 1 million bpd. 

Moreover, shale projects tend to have different timelines than their more conventional counterparts. Oil and natural gas production often does not begin until several years after companies' final investment decisions are made. In the Gulf of Mexico, for example, it takes an average of eight years for production to start after an offshore discovery is made. By comparison, shale resources can be tapped more quickly (even within a few months) but decline more rapidly once they come online. As a result, shale projects are more sensitive to short-term fluctuations in energy prices.

It thus made sense for Saudi Arabia to risk immediate financial pain by giving low oil prices time to edge shale producers out of the market, especially since cutting Saudi output could have easily subsidized such producers even more. At the time, U.S. shale companies were financially healthy and enjoyed access to plenty of cheap credit. There was no guarantee that they would not be able to continue ratcheting up production unhindered amid higher oil prices, until logistical bottlenecks or exhausted geological potential got in the way. In fact, estimates of the U.S. oil industry's maximum potential varied considerably. Some, including PIRA Energy Group and Rystad Energy, projected that U.S. shale crude oil and condensate production alone could increase by another 4.5 million bpd by 2020 if prices stayed above $100 per barrel.

With this in mind, Riyadh's best option was simply to wait for the market to rebalance itself. An adjustment of that kind would not be quick, but with over $700 billion in reserves, the kingdom could afford to hold its ground for several years. Raising Saudi production in the meantime would merely accelerate the corrective process.

That is not to say the wait-and-see approach would not come at a high cost. Even at prices of $60-$70 per barrel, some shale plays were still economically feasible to develop, and below that shale producers proved extremely resilient. As they continued to become more efficient, shale oil production kept rising until it peaked at 9.6 million bpd in June 2015. Meanwhile, other oil projects that were locked in before prices crashed continued to come online, adding to the global energy glut. The gap between supply and demand worldwide grew until the final quarter of last year, stopping only when output outstripped consumers' needs by 2.5 million bpd.

Coming to Grips With Reality

No matter what avenue Riyadh had taken at the end of 2014, it could not have softened the inevitable blow to its oil revenues. Fewer funds were simply part of a new reality that Saudi Arabia would have to adjust to, likely for at least the next five years or so. For a country that had become accustomed to the lavish spending high oil income enabled, that would be no easy task.

When oil prices topped $100 per barrel, Riyadh was able to count on receiving over 900 billion riyals ($240 billion) a year in revenue. But now, with prices unlikely to surpass $50 per barrel within the next few years, the kingdom can expect to collect only about half that sum. Its annual expenditures far exceed that amount; in 2014, they totaled about 1.1 trillion riyals. If oil prices continue to hover around $40 per barrel while Saudi Arabia's spending remains about the same, the result will be a budget deficit of about $150 billion each year. Against this sizable shortfall, Riyadh's $587 billion cushion in foreign exchange reserves no longer looks so large.

It is no surprise, then, that Riyadh's primary focus over the past year has been curtailing its spending and increasing its revenues from other sectors, though its Vision 2030 plan also emphasizes greater transparency and structural reform. The Saudi government has already reduced its natural gas, gasoline, electricity and water subsidies — all of which have become significant sources of tension among the Saudi public, even though the cuts lowered Riyadh's bills by 975 billion riyals in 2015. This year, Saudi officials hope to tighten their belts even more to meet a budget of 840 billion riyals.

But Riyadh has a history of spending beyond its budgeted needs, and sticking to its 2016 budget will likely prove to be just as difficult. Redefining the government's social contract with its citizens by funneling less money toward welfare programs will heighten the risk of political tension. At the same time, threats to Saudi Arabia's security do not appear to be shrinking any time soon, nor do the crises in Yemen, Syria, Iraq or Lebanon seem likely to stabilize in the near term. And yet the country's 2016 budget allocates only 213 billion riyals toward military spending, far less than Riyadh doled out in 2014 and 2015.

Still, the immediate constraints to adopting greater fiscal austerity measures will not be the most difficult or costly challenges facing the Saudi government. In the longer term, the structure of the Saudi economy — and the oil industry at its center — will have to undergo a fundamental change. This will not be easy or cheap to do, especially since obstacles to severe cutbacks in military or social spending will make expensive economic infrastructure and development projects more vulnerable to delays or cancellations in the short term. In theory, the envisioned $2 trillion Saudi Public Investment Fund and public-private partnerships are intended to liberalize the domestic economy in a way that protects these strategic projects from being shuttered, but it is not yet certain whether they will be effective.

The Kingdom Will Not Budge

Although Saudi Arabia is unlikely to change course on its policy, it could make a few subtle corrections in the coming years as it gets its spending under control. In fact, because the kingdom's actions have already begun yielding consequences for some of its competitors, Riyadh has dialed back its aggressive production hikes aimed at pushing more expensive producers out of the market. Since March 2015, Saudi output has averaged about 10.28 million bpd. Riyadh needs prices only to stay below about $50 per barrel for its strategy to work; continuing to raise output and force prices even lower would only drain its coffers faster and get in the way of its objectives. As a result, Saudi Arabia has shown itself far more willing to cooperate with other oil producers when prices are at $20-$30 per barrel than when they are near $50 per barrel.

And though Riyadh's strategy is working, it does not want to jeopardize its success. The global oil market is righting itself, albeit slowly, and it is possible that the current oversupply could become an undersupply by the end of 2017. Excess oil supplies have fallen, hovering between 1 million and 1.5 million bpd, and the Energy Information Administration predicts U.S. production alone will drop by another 500,000 bpd in the third quarter of 2016. Furthermore, low oil prices have led to the delay or cancellation of nearly $400 billion in new projects that now may not come online until after 2020, pointing to the possibility of a substantial oil shortage emerging within a few years.

Taken together, these developments make it likely that Saudi Arabia will avoid any significant upticks in production in the near future. Rather, it will probably hold its output steady at around 10.5 million bpd for most of the rest of the year, with the exception of a slight bump during the summer to meet higher electricity demand. Indeed, Saudi Aramco CEO Amin al-Nasser has said his country will make only limited increases in production this year compared with 2015.

But the same cannot be said for the long term. As global demand for oil rises and delayed investments create gaps in supply, Saudi Arabia will find ample opportunity to ramp up its oil production and exports. Nor will it be the only producer to do so. Riyadh's approach does not differ much from that of the Gulf Cooperation Council: By 2020, Kuwait hopes to raise production by 1 million bpd, while the United Arab Emirates aims to increase its output by nearly that amount. Whether or not they meet their goals, both countries — as well as Iran and Iraq — will try to secure a greater share of the oil market throughout the rest of the decade. Though these countries' strategy diverges from those of their OPEC peers, many of whom want to freeze or reduce global production, they have not changed much over time. For Saudi Arabia's part, its attitude toward OPEC has remained relatively consistent: When a crisis in demand causes prices to fall, Riyadh will use the bloc to stabilize the market. But those are not the circumstances of today's environment. Shale production has led to a substantial shift in supply — not demand — and unless the global economy falls into recession over the next five years or so, Riyadh will be unlikely to cooperate with its OPEC rivals to cut production.

Beyond 2020, the picture is less certain. Given the looming oil shortage, prices could eventually recover to as much as $70-$80 per barrel, if not higher. If they do, Saudi Arabia — facing less pressure to fix the flaws in its economy — will be more likely to slow its diversification and restructuring efforts.
For now, though, Saudi Arabia will push ahead with its reforms. And this time, it may have more success. Historically, the reforms have been heavily tied to Saudi Arabia's young prince, Mohammed bin Salman, and his ability to connect with Saudi youths could be the key to the policies' implementation. The country's younger generations have come to expect the type of government-subsidized support and employment that their predecessors experienced, and the promises of greater transparency and accountability woven throughout Vision 2030 are designed to communicate to the kingdom's youth that Riyadh is putting a better future in place for them.

With an eye toward reassuring its population, the House of Saud is keenly focused on ensuring that the country's younger citizens are along for the potentially tumultuous ride ahead. Saudi Arabia needs their buy-in and wants them to trust that the government's reforms will benefit them, even if they are uncomfortable in the short term. Should Riyadh gain Saudi youths' support for the social aspects of the reform as well as the economic ones, the government is far more likely to continue implementing them if, or when, oil prices recover.


The U.S. and Russia Plan for Conflict

MAY 25, 2016 | 09:00 GMT 

  • Despite genuinely wanting to resolve some of their conflicts, the United States and Russia's mistrust of one another is not going away. 
  • Both countries will focus on long-term security initiatives as they prepare for an enduring period of hostility.
  • Defense programs will center on key security areas, including deployments in Eastern Europe, missile defense and the strategic nuclear balance.

Hope for the best, prepare for the worst. That is the mantra the United States and Russia are abiding by as they plan for a tense few years ahead. In critical areas, including the conflicts in Syria andUkraine and arms control negotiations, both countries would genuinely like to negotiate viable solutions. Nevertheless, the mistrust between the two runs deep, and vast differences of opinion and outright conflicts of interest will continue to undermine efforts to reach a comprehensive deal. With little hope of a positive outcome, the strategic decision-makers in Washington and Moscow are cementing their security positions against each other during this period of significant hostility.

The critical 2016 Warsaw summit, to be held July 8-9 among NATO members, is fast approaching. Out of the summit, the United States hopes a clear, united purpose will emerge for the divided security alliance. The key challenge for Washington will be to reassure its Eastern European allies, especially Poland and the Baltic states, that they will be supported against Russia, an ever-increasing concern now that Moscow has invested itself militarily in Ukraine. The United States has already taken measures to bolster forces on NATO's eastern flank, but these forces are currently little more than a symbol of U.S. commitment.

The next step for Washington, and a key part of its long-term security plan for Europe, is to enlist greater support from crucial NATO partners for deployments on the bloc's eastern flank. The United States needs help from its European allies to carry some of the burden of deployments and to act as a united front to deter Russia. But as Poland and the Baltic states call for a permanent deployment of NATO forces, the United States is having a hard time convincing its partners to deploy significant rotational forces, much less a permanent garrison, to Russia's doorstep. Germany in particular has been difficult to convince, since its leaders hope to renew lucrative business ties with Russia. Moreover, the German population is generally wary of a confrontation with Russia and the prospect of sending forces to defend Poland and the Baltic states.

To bridge the gap between its Western and Eastern European NATO allies, Washington is pushing for a deployment model that eschews permanent basing in favor of permanent presence. In what is being called a heel-to-toe model, the United States is reportedly negotiating the presence of forces, which will consist of a battalion in each of the Baltic states plus Poland on a six-month rotation, to be announced in the Warsaw summit. The United States plans to offer two battalions but hopes its NATO allies will agree to provide the other two. From Washington's perspective, a long-term and unified NATO effort on the alliance's eastern front is the key to deterring further Russian action.

But what Washington portrays as defensive deployments and reassurance initiatives looks very different from Moscow's perspective. Given Russia's history of being invaded from the west, a growing NATO presence on its frontier is causing concern. Driven by these fears, Russia is already building up its forces to better position itself against NATO.

Initially, Russia began transitioning its military to a brigade structure for greater flexibility in dealing with unrest and insurgency to the south. But now Moscow has changed its strategy, rapidly restructuring its military into a division-level force that is focused on high-end conventional war against a potential enemy like NATO. Last February, Russia finished reactivating the 1st Guards Tank Army in Russia's Western Military District, a spearhead force built around heavy armor and artillery for offensive and defensive operations on the Great European Plain. Furthermore, Russia is transitioning at least three more of its brigades into division-sized units close to its western frontiers.

What Drives the Conflict

Beyond conventional force deployments, a core variable that drives much of the conflict between NATO and Russia is the development and deployment of ballistic missile defense technology. This is epitomized in the debate over the U.S. initiative to deploy ground-based missile defenses in Eastern Europe, a program known as the European Phased Adaptive Approach. The plan dates back to 2009, and NATO has insisted since its inception that the initiative is meant to protect Europe from a potential Iranian missile threat and is thus entirely unrelated to Russia. But Moscow has vehemently opposed the program, claiming it poses a direct threat to Russian interests. 

Essentially, the dispute boils down to Russia's concerns over its long-term strategic security. For all the current focus on Russian military modernization, Moscow is keenly aware of its overall conventional military weakness against NATO and a rising China. In response, the Russians have progressively leaned on their powerful nuclear arsenal as the ultimate deterrent. In fact, Moscow has explicitly outlined in its Defense White Papers its willingness to use nuclear weapons against an existential non-nuclear threat, such as invading armies.

As the European Phased Adaptive Approach is presently constituted, NATO is correct that it is far too limited to pose a significant threat to Russia's strategic nuclear arsenal. From Russia's point of view, though, U.S. investment in ballistic missile technology poses a serious long-term threat. To fully comprehend Russia's concern, ballistic missile development has to be conceptualized in conjunction with other technological developments. In the future, for instance, Russia fears that the United States could field a deadly first-strike capability, in part oriented around hypersonic missiles. Specifically, an increasingly precise U.S. nuclear arsenal coupled with a reliable anti-ballistic missile network could enable Washington to launch a decapitation strike, which would severely damage Russia's leadership structure and its nuclear arsenal in a first strike. It would also leave the United States able to intercept and destroy the surviving missiles that Moscow would launch in retaliation.

These fears are driving protests in Russia as well as Moscow's defense spending. Despite its considerable nuclear arsenal, Russia continues to prioritize its strategic missile force. Last year, the Russians tested eight intercontinental ballistic missiles (ICBMs), and in January, Russian officials announced plans to test 16 ICBMs in 2016, 14 of which will be entering service in Russia. On the testing schedule are the recently introduced Bulava submarine-launched ballistic missiles, which had considerable development problems, and other land-based ICBMs, such as the new SS-X-30 Sarmat. Moscow is counting on these missiles as well as new deployment tactics to ensure its nuclear arsenal can survive the U.S. anti-ballistic missile network.

Still, the United States and Russia have a joint desire to reach an understanding. Their negotiations over Syria imply as much. But given the high level of mistrust between the United States and some of its key NATO allies on one hand and Russia on the other, both Moscow and Washington will continue to invest security against the other. Given the high-tech missiles, anti-missile developments and the deployment of troops by both sides, the little Cold War, as it has been called, should be viewed with a long-term perspective, because it is unlikely to end any time soon.

lunes, 23 de mayo de 2016

miércoles, 18 de mayo de 2016

Hace décadas se hablaba de “pelea de lavanderas” ante la aparición de afirmaciones absolutamente incalificables por su incoherencia y estupidez.

Resultado de imagen de fotos delcy rodriguez

Pero esto no califica ni de “pelea de lavanderas” porque las lavanderas lavan ropa y se ganan  honestamente la vida trabajando

Canciller Rodríguez rechaza comunicado de Almagro donde “destila su odio contra Venezuela y sus autoridades”

La ministra del Poder Popular para Relaciones Exteriores, Delcy Rodríguez, rechazó este miércoles, el comunicado del secretario general de la Organización de Estados Americanos (OEA), Luis Almagro, donde “destila su odio contra Venezuela y sus autoridades legítimas”.

“Señor Luis Almagro cada vez que declara destila su odio contra Venezuela y sus autoridades legítimas. Usted forma parte de la escoria imperial”, escribió Rodríguez en su cuenta en Twitter.

Este miércoles, Almagro emitió un comunicado donde arremete contra el pueblo venezolano y el presidente de la República Bolivariana de Venezuela, Nicolás Maduro, a quien ha calificado de traidor y pretende darle ordenes.

“No soy traidor (…) Pero tú sí lo eres, Presidente, traicionas a tu pueblo y a tu supuesta ideología con tus diatribas sin contenido, eres traidor de la ética de la política con tus mentiras y traicionas el principio más sagrado de la política, que es someterte al escrutinio de tu pueblo (…) Debes devolver los presos políticos a sus familias (…) Debes devolverle a la Asamblea Nacional su legítimo poder (…) Tú tienes un imperativo de decencia pública de hacer el referéndum revocatorio en este 2016”, reza el texto de Almagro.

Al respecto, la canciller venezolana indicó al secretario de la OEA que él “jamás dará órdenes a Venezuela”, al tiempo que aseveró que “la palabra pueblo no cabe en su boca que solo repite libretos que le dictan sus amos imperiales”.

“Ante su indignidad y falta de coraje solo le queda cobijarse genuflexamente en las botas bélicas de su dueño estadounidense”, manifestó Rodríguez.

PS. Recomendamos fervientemente la lectura diaria del ”CORREO DEL ORINOCO”. La calidad intelectual de sus artículos lo transforma en un medio de consulta obligada en el mundo global.

sábado, 14 de mayo de 2016

Asia Economic Ties with Latin America (2)

Asia’s economic ties with Latin America: NAFTA and China (2)

Second of two parts

In the first part of this article, I recounted the story of the unlikely creation of NAFTA after Mexico ditched half a century of inward-looking, protectionist policies and proposed a free trade agreement to the United States, which eventually turned into the North American Free Trade Agreement, including Canada, in 1994. Also, we narrated how soon-after NAFTA’s trade started expanding fast, China’s entrance into the global world trade when it joined the WTO in 2001, began competing very effectively with Mexico in the U.S. market, as well as penetrating Mexico’s own domestic market, slowing the growth of trade between those two countries both ways. Finally, how this situation has changed dramatically in the last few years with China’s policies shifting towards expanding its internal market instead of the aggressive export-oriented strategy followed in the previous two decades.


China’s trade with the US and Mexico started growing extremely fast, in such a way that by 2009 it had become the second largest trading partner of both countries, a situation that continues until today, but in a very lopsided manner: China exports to both nations far more of what it imports from them. Last year the US trade deficit (merchandise) with China reached $365 billion and around $65 billion with Mexico. This situation has given rise to protectionist feelings and, in some cases, by the adoption of countervailing duties, as was recently the case with steel products in which both countries charged China with dumping.

China losing edge

But these trends that have been the feature of North America’s trade with China for the last fifteen years are changing fast. China is losing competitiveness vis-a-vis Mexico because of sharp increases in wages above gains in productivity growth; as the result of a demographic tendency towards aging of the Chinese population, that the new policy to allow an increase the number of children per family will not change; higher costs of transportation, although the dramatic fall in the price of oil will ameliorate to some extent this effect; and, finally, the relative strength of the yuan, versus most other currencies, including Mexico’s peso, that have depreciated substantially in the last year and a half.

The share of China’s exports to the US market, which back in 1990 was only 3.1%, shot-up to almost 20% by 2009 but has been falling to around 15% in the last two years. Meanwhile, the share of Mexico’s exports in the US market went from 6.1% in 1990 to 13.4% in 2014 and 2015. Interestingly, the undisputed main trading partner of the US, Canada, has fallen for the first time in recent history to second place due to the fall in oil and gas prices. Just between 2014 and 2015, its share fell from 16.6% to 14.5%, below China’s and slightly above Mexico’s. But according to projections of the Economist Intelligence Unit by as soon as 2018 Mexico will be the undisputed largest trading partner of the US, somewhat above China and more than two percentage points over Canada.

China is becoming less and less a low cost manufacturing base as the result of a combination of factors that have eroded their cost advantage considerably in the last few years, and its estimated manufacturing cost advantage over the US has shrunk to virtually zero over the last twelve years, which is one of the reasons for the re-industrialization of that country, and the growing number of manufacturing plants moving from China to Mexico, in many cases returning back after they left in the early 2000’s.


 Mexico, US cost structures improve

 Meanwhile, cost structures in Mexico and the US improved far more than in the other 20 largest exporting nations, as the result of low wage growth in real terms, sustained productivity gains, a relatively weak Mexican peso in the last 18 months and, even more fundamentally, much lower energy costs than anywhere else in the world. According to a Boston Consulting Group’s analysis, the US and Mexico are the current rising stars of global manufacturing and they estimate that Mexico now has lower costs than China on a unit-cost basis, and the rest of the world’s top ten exporters of merchandise – excluding China and Korea — are between 10% and 25% more expensive than the US.'

China can no longer be considered a low-cost manufacturing base. The low-cost edge a key advantage for decades that allowed it to conquer the world export market until it became the US’ largest trading partner, albeit ephemerally as was mentioned earlier.

But the tables have turned. In the last twelve years, it’s estimated that China’s competitiveness vis-à-vis the US has shrunk from a 14% lower average cost adjusted for productivity differences, to virtual parity now, and with regards to Mexico, China’s competitiveness losses are even sharper. The reasons for this erosion are clear: skyrocketing labor costs that have more than tripled with respect to the US and quadrupled in relation to Mexico. The cost of energy is another key factor: the costs of industrial electricity and natural gas in China rose by 70% and 138%, respectively, in the same period, as they remained virtually flat in the US, although the price of natural gas fell by 50% thanks to the revolution in oil and gas extraction, while they also fell substantially in Mexico, as the result of its recently implemented energy sector reforms.

TPP impact

The future for NAFTA and China will depend very much on what happens, first, with the Trans Pacific Partnership (TPP), which is currently in the process of ratification by the national legislatures of the twelve signatory nations. It includes important Asian countries, like Japan and Vietnam, but not China. Another way to look at TPP, in which both Canada and Mexico are included, is to bring NAFTA’s protocols up to 21st century standards and incorporate all the issues that were not included in the original treaty signed in 1993, either because they were nonexistent, like cyber-commerce, or were not negotiated then, like homogenization of national standards in a myriad sectors of the economies that are today one of the main obstacle to free trade.

Leaders of member states of TPP
Leaders of member states of TPP

It has been suggested that the real hidden political objective of TPP is to eventually force China to adopt its far more stringent protocols in many issues, such a competitiveness policy, which TPP intends to change dramatically by assuring that all participating parties have similar laws on these matters. These new protocols would replicate those of the US in issues like consumer protection against fraudulent and deceptive commercial activities that could harm consumers, and procedural fairness in the application of the laws, a pending assignment in some of the TPP nations as well as in China. This chapter of the TPP negotiation will also ensure convergence in the structure and application of anti-trust and monopoly-busting rules and regulations.

The other key chapter of the proposed TPP is a much improved set of rules dealing with state-owned enterprises (SOEs) compared to those included in NAFTA, which includes commitments by the member nations to ensure that their SOEs make purchases of goods and services on the basis of commercial considerations and that they do not discriminate against the corporations, goods and services of other member countries. Among the provisions of this chapter, it is required that TPP nations provide their courts with jurisdiction over commercial activities of foreign SOEs operating in a TPP country, so they could not evade legal action by claiming sovereign immunity, providing rules that ensure that their administrative entities regulating commercial activities do so in an impartial manner.

Worries about the role of SOEs have grown in the last decades since they are increasingly operating in the global marketplace rather than exclusively in their own territories, as used to be the case, as they are increasingly engaging in international trade and investment. These provisions will cover subsidies, preferential financing and regulatory policies that favor SOEs by their national governments, while at the same time recognizing and ensuring the legitimate role of SOEs in the provision of public services.

Clearly these radical overhauls of the legal framework and protocols of the competitiveness and state-owned enterprises in TPP had very much in mind not only China but also Korea, which are not part of TPP currently but could join later, and where a veil of ambiguity prevails in these areas. My bet is that if TPP is ratified by the end of 2016, as now seems probable, within three years it would expand to incorporate China and Korea, which would represent the historical reset of North America towards Asia that the leaders of the NAFTA nations, led by President Obama, have toiled hard to accomplish.


Manuel Suarez-Mier is a Washington, DC-based independent consultant on economic and financial issues. He has taught economics and international finance at various universities in the US and Mexico and was Director of the Center for North American Studies at American University 2014-2015. His numerous posts include chief of staff of the Governor of the Bank of Mexico. He also was Mexico’s top economic diplomat in Washington at the time of the negotiations of the North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico.

Asia Economic ties with Latin América

Asia’s economic ties with Latin America: NAFTA and China

First of two parts

The electoral cycles of Mexico and the United States — (presidential terms of six and four years, respectively) are such that every twelve years there is the double coincidence of an almost simultaneous change of administrations. That was the case in 1988 when Carlos Salinas was elected in Mexico and George Bush Sr. in the US. As soon as the Bush victory was announced in November, the two presidents-elect met to set up the bilateral agenda of their countries for the immediate future.
Mexico was mired in economic troubles since the default on its external debt in 1982, coupled with very unfavorable external conditions. Its problems were underscored by a collapsed price for oil, the country’s virtually only export at the time, which led to a grave debt overhang and no growth. The US, for its part, was also experiencing an economic downturn, and was particularly interested in restoring the growth of its southern neighbor, its third largest trading partner, in order to rekindle its exports and stem illegal immigration.

George-Carlos love fest

The meeting was an enormous success, the two new presidents and their teams got along well and they started working on concrete programs and methods to enhance the bilateral relationship, particularly in economic issues. A new and more ambitious re-negotiation of Mexico’s debt with its bankers was set-up as the top priority, with the full support of the US Treasury and its representatives in the relevant multilateral financial agencies, such as IMF and the World Bank.

Mexican President Carlos Salinas de Gortari, U.S. President George H.W. Bush and Canadian Prime
 Minister Brian Mulroney exchange handshakes following Salinas’ address before the NAFTA initialing ceremony 
in November 1992 in San Antonio.

Interestingly, trade was not discussed in any detail in those first meetings, although Mexico had started liberalizing its protectionist trade policies unilaterally in 1984. Following a long historical tradition of his country, Salinas was trying to balance the influence of its powerful neighbor to the North by prioritizing investment trade with Asia (Japan in particular) and Europe. When the debt negotiations succeeded in 1990, the debt overhang was dispelled and Mexico could return to the international financial markets, Salinas launched trade initiatives that surprisingly went nowhere.
Europe was mesmerized by the events in the crumbling Soviet Bloc, epitomized with the fall of the Berlin Wall, while Japan was still smarting from Mexico’s financial default a decade earlier that cost its banks dearly, which at the time were among the largest in the orb. Given these circumstances, Salinas turned to the US to propose a bilateral free trade agreement that president Bush Sr. enthusiastically accepted. As soon as this news was leaked to the press, Canada mobilized its considerable influence in the US Congress to make sure they were included in the negotiations since they wanted to protect their own bilateral trade agreement finalized in 1987.

Thus, the NAFTA talks were launched. They represented the second radical departure from the US’ post-World War II embrace of a strictly multilateral trade policy. The talks proceeded with alacrity, in view of a scheduled US presidential election in 1992. Bush lost that race, in good part, thanks to the folksy populist from Texas Ross Perot whose key platform was to oppose NAFTA. This threw the election to Bill Clinton, the Democratic candidate. As soon as he was in office, Clinton gave NAFTA his full support. But he also asked to negotiate two side agreements on the environment and labor — two issues that preoccupied his core constituents. The deal was approved by the US Congress in November 1993 and came into effect in January of the next year.

Enter China, 9/11

The flow of trade in North America exploded, growing at an annual average of almost 20% between 1994 and 2001, and the zone became extremely competitive, exceeding the European Union and the Asian regions in wealth and productivity. The economies were increasingly connected by investments, businessmen, pipelines, tourists and immigrants. North America’s share of world GDP soared from 30% to 36% between 1993 and 2001 as the leaders of the three countries got together in early 2001 to propose the creation of a North American economic community that would have entailed, a much closer integration than that mandated by NAFTA, including a customs union and common regulations and standards in all sectors of their economies. Everything seemed to be going well for the region, until 9/11 and China’s joining the World Trade Organization (WTO) radically changed these upbeat trends.

Table 1                        Regional Share of World GDP
                            Year      2001     2014
North America       36%       27%
European Union[1]       25%       33%
Asia[2]       22%       25%
Rest of the world       17%       15%
Source: IMF Data Mapper 2015

Already, the exponential growth in trade between the NAFTA partners had created enormous pressures on the terribly outdated infrastructure of the region, especially between Mexico and the US. As someone said at the time, “we have 21st century trade with a 20th century legal framework and 19th century infrastructure.” Government officials of the three nations kept meeting frequently, but very ineffectively in terms of providing solutions to the region’s growing problems. In the altar of national security, the terrorist attacks on the World Trade Towers in New York created a new layer of obstacles at the US borders, pushing up transportation costs, as commerce between the US and China, which was now a full partner of the world trade community, started growing much faster than trade within North America.

In 2001, Shi Guangsheng, then China's foreign trade minister, signed documents admitting China into the W.T.O. in Qatar.
In 2001, Shi Guangsheng, then China’s foreign trade minister, signed documents admitting China into the WTO in Qatar.

China, Mexico go toe-to-toe

Other factors contributing to the relative fall of North America: the slump of the US economy 2001-02 and the Great Recession of 2008-09. The US’ lack of fulfillment of its NAFTA mandate on trucking barred Mexican trucks from enjoying unimpeded access into that country until 2014. The proliferation of free trade agreements of all three countries made compliance with the “rules of origin” provisions so cumbersome that many firms simply used the standard most-favored-nation tariff that NAFTA was intended to eliminate. But undoubtedly the leading cause was Chinese competition vis-à-vis Mexico for the North American market and the failure of the region to have a strategic response. In contrast to China’s bold development approach, Mexico was unable to support its own competitiveness within NAFTA with crucial structural reforms in energy, education, competition and taxation to help it become more productive. This situation finally changed in a major way after 2012.


In my follow-up column, I will detail how the bleak situation for North America, particularly with respect to Mexico in its cutthroat competition with China for the US and Canadian markets, has begun to change dramatically as the result of differing economic strategies by both countries. Mexico is gaining competitiveness following reforms it began adopting three years ago, and the relative weakening of its currency. Meanwhile, China has been moving in the opposite direction due to wages rising much faster than labor productivity and a strong yuan. This reflects China’s struggle to transit from an export economy, fed by investment as its main engine of growth, to an economy where the internal market is increasingly important. This kind of economy also relies on private saving, not government development banks, to provide healthy investment funding. Such a transition, moreover, depends critically on China avoiding major blow-ups in its alleged real estate and stock market bubbles — which would fuel social tensions to a breaking point.

[1] Most of EU’s share growth was due to its enlargement with new countries.
[2] The explosive growth of China was compensated by a reduction in the GDP share of other countries in the region, most notable Japan.


Manuel Suarez-Mier is a Washington, DC-based independent consultant on economic and financial issues. He has taught economics and international finance at various universities in the US and Mexico and was Director of the Center for North American Studies at American University 2014-2015. His numerous posts include chief of staff of the Governor of the Bank of Mexico. He also was Mexico’s top economic diplomat in Washington at the time of the negotiations of the North American Free Trade Agreement (NAFTA) between the US, Canada and Mexico.

El gobierno priista acosa a la prensa

WAN-IFRA - World Association of Newspapers and News Publishers

La prensa mundial expresa inquietud ante operativo contra director de diario en México

Article ID:19921

París, Francia y Fráncfort, Alemania, 13 de mayo de 2016 -
Para su publicación inmediata -

La Asociación Mundial de Periódicos y Editores de Noticias (WAN-IFRA) y el Foro Mundial de Editores expresaron su profunda preocupación ante un agresivo operativo policial por parte del gobierno estatal de Coahuila, en contra de Armando Castilla, director del diario Vanguardia de Saltillo, el pasado viernes 6 de mayo. 


Miembros de grupo de élite policíaco durante el operativo. Fuente: Vanguardia

En la madrugada del pasado 6 de mayo, funcionarios judiciales de Coahuila llevaron acabo un allanamiento en la propiedad del Sr. Castilla, con el apoyo de 60 personas, 30 de ellos miembros de un grupo policíaco de elite portando armas de fuego y manejando maquinaria pesada. Dicho operativo respondía a una orden judicial cuyo propósito era el desalojo en un litigo de deuda hipotecaria en el predio.


El operativo se llevó a cabo un día después de la publicación por parte de Vanguardia de un editorial denunciando actos de desprestigio e intimidación sufridos por el medio en los últimos meses. Uno de ellos en contra de una periodista que fue demandada recientemente, junto con el diario, por el ex-gobernador de Coahuila, Humberto Moreira, por supuesto daño moral tras la publicación de una nota el 18 de febrero de 2016.  


“La desproporcionada muestra de fuerza en el marco de una demanda civil y la serie de actos intimatorios que ha sufrido el medio en lo últimos meses, arrojan serias sospechas sobre una posible intención de amedrentamiento detrás del operativo”, dijo Marcelo Rech, Presidente del Foro Mundial de Editores de WAN-IFRA.


Rech, Vicepresidente Editorial del Grupo RBS de Brasil, recordó que “garantizar la libre expresión es una de las responsabilidades más importantes de las autoridades de gobierno, y para ello este último debe garantizar el libre ejercicio de la labor periodística para todos los medios de su estado”. Asimismo, Rech exigió al gobierno del estado “que otorgue garantías de que los actos cometidos el 6 de mayo en el predio del Sr. Castilla no fueron con el objeto de intimidar la labor periodística de Vanguardia y que investigue de inmediato las amenazas denunciadas por el diario como prueba del compromiso del gobierno de Coahuila con la libertad de prensa.”


Para obtener más información sobre el trabajo de prensa la libertad de WAN-IFRA, visite 

WAN-IFRA, con sedes en París, Francia, y Frankfurt, Alemania, y con subsidiarias en Singapur, Chenai, India y Ciudad de México, es la organización global de los periódicos y editores de noticias. Representa a más de 18.000 publicaciones, 15.000 páginas web y más de 3.000 empresas en más de 120 países. Su misión principal es defender y promover la libertad de prensa, el periodismo de calidad y la integridad editorial, fomentando asimismo el éxito empresarial.

Consultas a: Andrew Heslop, Director de la Libertad de Prensa, WAN-IFRA, 96 bis, rue Beaubourg, 75003 París Francia. Tel: +33 1 47 42 85 29. Fax: +33 1 42 78 92 33. Correo electrónico: