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​There is nothing more practical than good theory

There's one wall Mexico could break down

6/21/2016

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By Wolfgang Lehmacher and Victor Padilla-Taylor, World Economic Forum, first posted in businessinsider.com
​

You may not be alone these days if you believe that Donald Trump will build a wall between the US and Mexico as President of the United States. But rather than paying for it, we could see Mexico in the future breaking down a separate wall that is already creating frictions with the US: the wall of invisible trade barriers.
Two former Presidents of the Latin American nation, Vicente Fox and Felipe Calderon, said in March that there is “ no way ” Mexico would ever pay for such a wall. “We are not going to pay any single cent for such a stupid wall!” Mr. Calderón said. Since Mr. Trump has also rallied against the North American Free Trade Agreement (Nafta) – calling it a “ disaster – it doesn’t take a rocket scientist to figure out how Mexico’s government would feel about any change to the 22-years old trade deal.  
Instead of only resorting to defensive rhetoric, today Mexico can play offense when it comes to its border with the US. The truth is that in terms of its manufacturing and exports to the US, Mexico is still far from achieving its full potential, despite Nafta. Interestingly, the reason for this deficit is much less the often zealous US customs and border agency, but Mexico’s own non-tariff barriers, bottlenecks and shortcomings in trade.  More than half of the labour cost advantage that Mexico has over the US is estimated to be lost because of supply chain barriers.
Therefore, Mexico could unilaterally take a number of ‘wall-tumbling’ steps which would all but guarantee higher exports of key products to the US.
Take for example the medical devices industry, a sector which exported $7.7 billion worldwide in 2014 and which sells mainly to the US.  Just in this niche sector, removing specific non-tariff barriers throughout the end-to-end value chain could generate up to $1.5 billion in economic growth per year for Mexico.
For this and other industries close to the ‘tipping point’ of competitiveness in the global market, Mexico could reinvigorate its economic engine by supporting actions in four specific areas:
  • Market Access:   Increase the knowledge of foreign opportunities and requirements for small and mid-sized enterprises by creating a portal that integrates all the support programmes (financing, intellectual property protection, market data, etc.) from the different government institutions.  
  • Border administration:   Standardize the interpretation of rules customs offices with a bold move towards more automated processes that eliminate inconsistency.
  • Infrastructure:  Reduce damages and delays at highway checkpoints by increasing the use of non-intrusive inspection technologies and ensuring strong coordination among enforcement agencies to limit the number of stops and frequency of inspections.
  • Operating environment:   Conduct analyses to understand the root causes of process inefficiency in complex regulatory processes and develop an action plan to optimize end-to-end process.  
In trade just like in warfare, generating and maintaining ‘an edge’ over rivals depends on our understanding of the complexities of engagement.  The problem with the wall, as with common trade-promoting measures promoted by governments, is that it leaves its proponents with doubts about its sufficiency to reach the proposed goals.  With highly focused measures such as those listed above, and with the committed participation by the private sector, Mexico can successfully face its trade challenges to unlock much needed economic growth, while reducing and not creating unnecessary costs.
Trump’s wall is said to cost between $8 to $300 billion depending on which side of the argument you listen to when searching for the expense of the measure.  Surely much more value can be extracted from tumbling down barriers in trade, instead of doubling-down on this temporal narrative for an electorate looking for leadership.

​Wolfgang Lehmacher is head of supply chain and transport industry at the World Economic Forum and Victor Padilla-Taylor is community lead, supply chain and transport at the World Economic Forum
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    Author

    Victor Padilla-Taylor is Director at the Tsai Center for Innovative Thinking at Yale. He was the 2021 recipient of the Linda Lorimer Award for Distinguished Service, conferred by Yale’s president on staff who have demonstrated their commitment to innovative thinking and the educational and research missions of the university. He also serves as board leader at Global Consortium for Entrepreneurship Centers, Long Wharf Theatre, Yale SOM Alumni Advisory Board, and Saint Thomas More Chapel and Center at Yale University. For his accomplishments as alumni volunteer, he received the 2023 Yale Alumni Leadership Award for his service and innovative leadership as nominated and selected by alumni relations staff members.

    Previously, he was a Global Leadership Fellow at the World Economic Forum. His work included articulating and managing key agreements for private sector, government and academic stakeholders responding to major challenges such as scaling global trade for products and services and responding to sudden-onset humanitarian crises. He was also manager for the Global Future Council on Mobility, which met yearly in Dubai to bring together the world's foremost multistakeholder and interdisciplinary knowledge network dedicated to shaping a more resilient, inclusive and sustainable future.

    Prior to joining the Forum, he held strategic positions with trading firms in Latin America for more than 10 years to optimize their worldwide operations, information systems, and mergers and acquisitions. He was also responsible for the execution of large commodity contracts between private and public sector organizations, and governments from USA, Europe, and Asia. In his previous role as corporate development manager for a family-owned conglomerate, he led international teams executing new multimillion USD investments across industry verticals such as chemicals, precision agriculture and transportation. 

    Padilla-Taylor is a Master of Advanced Management graduate from Yale University. He holds an MBA from Pontificia Universidad Catolica de Chile, an Executive Master's in Global Leadership from World Economic Forum, and a Chemical and Industrial Engineering degree.  He also is a trained coach with Coactive Training Institute. In his adoptive country, Guatemala, he was captain for the Men's National Basketball Team.

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