Mexican President Andrés Manuel López Obrador this week announced that the U.S., Canada and Mexico planned to form a committee focused on “import substitution,” a phrase that does not appear in a joint declaration issued soon after by the three countries -- and one that has left some analysts scratching their heads.
Standing between President Biden and Canadian Prime Minister Justin Trudeau following a trilateral meeting on Tuesday in Mexico City, López Obrador said the three leaders “agreed to strengthen our economic and trade relations, for which a joint committee will be created for planning and import substitution in North America; to aim to be increasingly self-sufficient; and to make the development, cooperation and the well-being of all the countries on our continent a reality,” according to a translation of his remarks released by the Mexican government.
The president’s choice of words -- in particular, the phrase “import substitution” -- likely did not precisely reflect the Mexican government’s position on how to bolster continental competitiveness, according to Ken Smith Ramos, Mexico’s chief trade negotiator for the U.S.-Mexico-Canada Agreement. In a series of tweets on Wednesday, Smith wrote that López Obrador’s use of the term was generating confusion.
Import substitution refers to policies pursued primarily in Latin America in the 1960s and 1970s that involved erecting trade barriers “with the idea that that will help domestic industry grow,” Smith, a partner at the consulting firm AGON, told Inside U.S. Trade on Friday. Over time, he said, that model “sort of petered out and did not yield the results that an increasingly globalized world economy demanded.”
But the concept remains a “familiar” one to the Mexican president, who tends to “think along the lines of political positions, foreign policy positions and economic positions of the 1970s,” Smith said.
Smith said he spoke with Mexican officials who asserted that the president “used the term that he's familiar with” but is “pretty much aligned in terms of the substance” with his U.S. and Canadian counterparts -- a shared understanding they contended was reflected in statements issued by the countries.
A Jan. 10 joint declaration by the three outlines commitments across a range of issues, including a pledge to “convene public-private dialogues and map out supply chains to address common challenges and opportunities.” The statement notes that the trading partners are focused on strengthening regional supply chains and promoting “targeted investment” in “key industries of the future such as semiconductors and electric vehicle batteries.”
As part of those efforts, the countries plan to establish a trilateral forum on semiconductors, according to fact sheets issued by the U.S. and Canada. Roberto Velasco Álvarez, head of unit for North America in Mexico’s Foreign Affairs Ministry, also touted the new semiconductor forum in an op-ed published this week by Mexican newspaper Excélsior. The forum will include senior industry representatives and cabinet-level officials from each country who will advise on how to “adapt government policies and increase investment” in North American chips supply chains, according to the U.S. and Canadian fact sheets.
In response to questions about López Obrador’s remarks, a spokesperson for the Canadian embassy told Inside U.S. Trade in an email that it “appears as though” he was referring to the new chips forum. “We are not aware of an ‘import substitution committee’ and this could simply be [López Obrador’s] way of presenting the issue,” the spokesperson wrote, citing the Canadian fact sheet and statements about supply chains in the joint declaration.
A State Department spokesperson wrote in an email that “One of the key topics of discussion between the leaders was to find ways to strengthen and expand North American supply chains for semiconductors, critical minerals, and electric vehicle batteries” and said the new semiconductor forum as “[o]ne of the ways we are doing that.”
“I don’t have any more of our joint efforts to preview at this time,” the spokesperson added.
According to López Obrador, each country will tap four people to serve on what he described as a joint committee focused on import substitution. Mexican Foreign Minister Marcelo Ebrard, Finance and Public Credit Minister Rogelio Ramírez de la O and Economy Minister Raquel Buenrostro Sánchez, along with business executive Alfonso Romo Garza, will represent Mexico, the president said.
Appearing alongside López Obrador during the president’s daily press conference on Thursday, Ebrard said the trilateral team of 12 would aim to replace 25 percent of imports from Asia with goods produced on the continent. He did not give a timeline for reaching the goal -- nor did he suggest the focus would be limited to semiconductors.
A spokesperson for the Mexican Embassy said in an email that the plan described by López Obrador and Ebrard was “linked to a wider effort to tighten economic ties, produce more goods in the region and increase semiconductor output.”
While Smith was optimistic that Mexico was essentially on the same page as the U.S. and Canada about boosting North American supply chains, he and others warned that implementing true “import substitution” policies could pose significant complications for Mexico, which has 13 free trade agreements with 50 countries, according to the International Trade Administration.
“I think USMCA and other agreements provide ample scope for reshoring without violating the rules,” Antonio Ortiz-Mena, partner at Dentons Global Advisors, told Inside U.S. Trade. For example, he said, higher regional value content for automotive vehicles in USMCA “could be construed as a modern version of import substitution.”
“But if [López Obrador is] really talking about import substitution, he would have to find a way to do that without violating all the agreements that Mexico is a party to,” he added. -- Margaret Spiegelman (mspiegelman@iwpnews.com)
