Behind the Numbers

Beyond NAFTA

By John H. Christman

The exports pace in the non-oil sectors picked up in the second half of the year, thanks to the upturn in dynamics in the U.S. economy. And the increase was slightly better than the apparent world growth in merchandise exports during the year.

Last year’s growth in large measure can be attributed to automotive industry exports. The same situation is likely to hold true for 2014.

In 2013, exports by the automotive sector (value) again rose in double digits, including a 15.6% jump in value exports to the new car-hungry U.S. market. This came on top of a 13.3% increase one year earlier. Growth in the U.S. market more than offset the weakness in other export markets, such as Brazil, Argentina and Germany, where there was an 8.2% drop.

Petroleum sector exports –the other big ticket export item—were adversely affected by crude oil production stagnation (which continues to limit exports volume) and lower world prices. This will almost of a certainty continue to be true in 2014.

Oil sector exports totaled $49.6 billion dollars for the year just ended, versus $52.9 billion one year earlier. Exports averaged 1.19 million barrels/day, down from 1.26 million in 2012. And the average price for the Mexican mix dropped by $3.15 dollars/barrel to $98.67.

The 2014 Federal budget already looks for export prices to average less than $90 d/b this year. And Mexico may well lose export volume to its most important foreign buyer—the U.S.

Because of the prospects of seeing the U.S. market erode this year, Pemex in the first two months of this year announced firm agreements to resume crude exports to Japan and Great Britain and to begin exports to Switzerland. The total for the three countries reportedly will be 150,000 barrels/day.

A December Trade Surplus

Mexico’s milder than expected merchandise trade deficit in 2013 would have been substantially higher had it not been for an exceptionally good trade balance in December.

In the last month of last year, the trade surplus was a hefty $1.66 billion dollars. That was the best monthly surplus on record.

Exports in December totaled $32.1 billion, unusually well for that particular month. A 6.4% increase over the like 2012 month. 

Manufactures exports rose 4.3%, paced by automotive sector exports (+7.7%). Imports on the other hand rose by 4.2%. This included a 6.8% upturn in imports of capital goods, which represent a direct link to new fixed investment.

There were also solid December year-on-year export increases for crude oil and agricultural products.

Hopefully the December export figures will prove to be a good omen for the 2014 panorama. So far, but it’s early in the year, the forecasts point to decent but not spectacular growth for exports this year, paced again by manufactured goods.

The Exports Outlook

For example, the most recent consensus monthly forecast of Banco Nacional de Mexico (in early February) looks for total merchandise exports this year to reach $397 billion dollars. That would represent an increase of 4.4% from last year. And it will come despite probably no growth for crude oil and minerals exports. 
The breadwinner will continue to be manufactures exports. These will remain at 80% plus of the exports totals. 

Crude oil exports will be affected by probably lower prices for the Mexican mix and the absence of increased domestic production, which will continue to average 2.52 million barrels daily. The crude oil exports price at end-January was $91.53 dollars/barrel, this compared with $106.23 at end-January 2013.

Minerals exports as measured in total value will continue to be hurt by lower global commodity prices (gold, silver, etc.) plus the unfortunate stoppages in some three dozen mining projects. Some of those projects are considerable.

Getting back to the forecasts, BBVA Bancomer analysts feel external demand will be the driving force for the economy in 2014. According to these analysts, exports should increase by 4.0% in 2014, propelled primarily by prospects for a much better economic showing north of the border. 

Last year, Mexican manufactures – particularly in the automotive sector – represented some 12.5% of total U.S. market manufactures imports.
Meanwhile, the consensus forecast of the 12 economists in the latest quarterly Mexico economic forecast of the University of Texas at El Paso (UTEP) looks for an overall exports growth this year of 4.4%. The range in the forecast in the UTEP Border Region Modeling Project is 2.6% to 6.5%. The same economists were originally looking for a 6.6% exports increase for 2013.

Agricultural sector exports should be propelled once again by tomatoes, avocados, mangos, asparagus and possibly sugar.
Back in the manufactures sector, 2014 should be a satisfactory growth year for manufacturing plants in the IMMEX, mainly maquiladoras category. 

Now that the initial deep concerns about the fiscal reform as applied to maquiladoras seems to have been alleviated, the National Maquiladora and Manufactures Exports Council (INDEX) is forecasting a 5-8% growth in IMMEX-member exports in 2014. Good growth candidates are automotive parts, electronics (such as TV sets), computer parts and accessories and hospital/medical equipment and supplies.

The TPP Timetable

Of very considerable trade interest –and potential importance—is the upcoming “final” round of negotiations for the Trans Pacific Strategic Economic Partnership (TPP).

The most recent negotiations forecast, from Secretary of the Economy Ildefonso Guajardo, is that the TPP package could be wrapped up by as early as end-April (the previous target date had been December 2013).

Meanwhile, the United States is pushing for a free trade agreement with the European Union, negotiations in which Mexico to date has not yet been invited to participate.

This seeming omission in free trade talks by the U.S. comes despite NAFTA and its TPP membership. Mexico does have bilateral free trade accords with EU counties, but these are not quite the same as the envisioned scope of the multilateral aspects of the Trans Atlantic Trade and Investment Partnership (TTIP). 

This omission quite possibly was a talking point at the Obama-Peña Nieto-Harper “summit” in Toluca in mid-February.

A few days earlier, President Peña Nieto met with his counterparts of Colombia, Peru and Chile to formalize the Pacific Alliance agreement. That accord, among its highlights, call for freeing up 92% of tariffs for trade in goods and services. All four countries (Mexico already has FTAs with the other three) are also involved heavily in the TPP talks.

Veteran Latin American political and economic analyst Andres Oppenheimer noted recently that “unlike other regional groups, the Pacific Alliance concentrates on concrete trade and investment measures”. Oppenheimer, in his syndicated Miami Herald column, wrote “(the Alliance) is creating a free trade area among the member nations, establishing joint trade and investment offices in Asia and Africa and creating a common securities market for these four countries.”

There now seems to be a timeline forecast for the TPP accord taking its first steps. According to Hugo Beteta, economist for the Latin American and Caribbean Economic Commission (ECLA), the TPP negotiations should conclude this year, followed by Congressional approval (for example, in Mexico and the U.S.) in early 2015. That would mean a first phase launch of the TPP in 2016—best case scenario.

That could change however because of a continuing lack of consensus about the intellectual property and tariff reduction schedules chapters.

The 12 nation TPP negotiations also could be affected if, all of a sudden, China and South Korea say they want to get on the TPP wagon.

There are some two dozen chapters still on the table in the TPP negotiations.

Once the TPP does take effect, the long-term foreign trade impact for Mexico is frankly uncertain. This seems to be the case even discarding the China-South Korea TPP entry theory. 

Arnulfo R. Gomez, economist and foreign trade specialist, comments that in order to compete effectively in the TPP, Mexico must first have a regional trade policy that allows for productive integration. That could arise from the Pacific Accord just signed.

With an agreement freeing up imports from Asian countries such as Singapore, Malaysia and Vietnam “and particularly Japan in the cases of the automotive and electronic industries countries that have demonstrated themselves to be more competitive and coherent than Mexico and with whom as a result we have registered a growing (trade) deficit”. Gomez adds that “in the (TPP) negotiations Mexico maintains a ‘defensive’ perspective so that it can maintain the benefits won with the U.S. and Canada with the NAFTA.”

Gomez, an economics faculty member at the Anahuac University in Mexico City, has long been an outspoken critic of the government’s industrial and foreign trade policies.