Twenty years ago, Canada, Mexico and the United States joined in the North American Free Trade Agreement. NAFTA helped transform Mexico into the leading exporting economy that it is today.
By embracing NAFTA as a launching pad to take advantage of its strategic location bordering the world’s largest market, Mexico was able to increase sevenfold its exports. Every minute, Mexico sells $1 million worth of goods to the United States, almost 90 percent being sophisticated manufactured products and other non-oil exports.
Besides its determinant impact on Mexico’s economic development, NAFTA has been the main impulse to North American competitiveness and integration, and has provided Mexico with new advantages to engage as a key actor in global trade. Moreover, NAFTA has become a watershed in Mexico/U.S. relations and jump-started a new economic paradigm based upon an authentic, mutually beneficial partnership between our two nations.
The recent enactment of 10 structural reforms by President Enrique Peña Nieto has been a major political feat accomplished through consensus. Reforms on labor, education, telecommunications, anti-trust and, above all, energy, strengthen Mexico’s economic prospects and consolidate it as an important actor both in the North American and global scenes.
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Energy reform is the most important structural change in Mexico since NAFTA, and can also have a positive impact on bilateral relations with the United States. For decades, Mexico’s oil, gas and electricity sectors had remained government monopolies, gradually losing their competitive edge and demanding investments and technology that the public sector could no longer provide.
Energy-sector reforms transform Mexico´s oil company and public utility, into “public-owned firms” that must face competition. PEMEX, the state oil company, can now engage in contracts or joint ventures with private companies to expand oil and gas reserves, extract hydrocarbons from deep waters or shale fields and refine and produce petrochemicals, among other activities formerly reserved exclusively to the state.
CFE, the Federal Electricity Commission, for its part, retains control of transmission and distribution of electrical power, but opens up to private generation and retail distribution of electricity to consumers.
The reform mandates the creation of an Oil Fund for Stabilization and Development managed by our independent central bank, that guarantees fiscal revenue while providing savings that further strengthen Mexico’s macroeconomic stability.
This reform sets Mexico on course to join the profound transformations that have taken place in North America’s energy landscape. Both in Canada and the United States new exploration and extraction methods have expanded their production of hydrocarbons.
By opening its energy sector to private partnership, Mexico will attract the necessary investments and technologies to better satisfy its diverse and growing domestic energy demand, and at the same time recover its role as a key player in global oil markets.
Mexico’s democracy has proven capable of transforming the country to take advantage of opportunities offered by a complex, constantly evolving world economy.
Profound structural change will contribute to the stable, prosperous and more equitable country that all Mexicans demand and deserve. It will also enhance NAFTA’s competitiveness, consolidating Mexico as a valuable and reliable partner to the United States.
José Antonio Zabalgoitia is the consul general of Mexico in Miami.