Enrique Pena Nieto and U.S.-Mexico Relations

TranscriptEnrique Pena Nieto and U.S.-Mexico RelationsSpeakers: Shannon O’Neil, Senior Fellow, Council on Foreign Relations, andJorge G. Castañeda, Former Foreign Minister of MexicoPresider: Bernard Gwertzman, Council on Foreign Relations ConsultingEditorNovember 29, 2012BERNARD GWERTZMAN: Greetings, everyone. Welcome aboard. And I’mBernard Gwertzman. I’m an editor for the Council on Foreign Relationswebsite.And we have two great guests here today to answer questions about the visitof the Mexican president to the United States and today to Canada. And Iwould like to introduce them. We have Jorge Castaneda, who is a professor ofpolitics and Latin American and Caribbean studies at New York Universityand at one time a foreign minister of Mexico. And we also have ShannonO’Neil, who is a senior fellow for Latin American studies at the council and isan expert on Mexico and Brazil, among other countries.I would like to start by saying there’s been an emphasis since the election ofthe new president in Mexico on Mexico’s economic power and saying thatAmericans are paying too much attention to the drug wars in Mexico. Are thedrug wars really under control, or is it just an effort to cover it up? Shannon,would you like to deal with that?SHANNON O’NEIL: Sure. Well, what we’ve seen in Mexico over the last sixyears is it’s a drug problem, but really what it is is a violence problem. And sowhen you look at the term of President Calderon, the six-year term, you’veseen at least 60,000 people killed, some independent estimates say upwards ofalmost a hundred thousand people. Some of this is because of drug traffickingand organized crime related to drug trafficking. But some of it is crime morebroadly, so other types of organized crime, extortion, kidnapping, car theftrings and the like. And some is just your average day-to-day crime. So youlook at studies and polls — and Mexico actually, for regular types of crimes, isprobably one of the most violent places or crime-ridden places in thehemisphere. And that is an issue that continues for Mexico today and will beon Pena Nieto’s plate when he takes office in — on Saturday.GWERTZMAN: Mmm hmm. And Jorge, do you want to add anything to that?JORGE CASTANEDA: Well, I agree completely with what Shannon said. Iwould simply add that I think the emphasis to be placed on Mexico’s economydoing better than in the past is well-placed, as long as we don’t exaggerate andturn Mexico into a new Brazil, and then three years from now we’ll all have tosay, well, actually, it wasn’t such a big deal after all.The Mexican economy is doing OK, period — (inaudible) –GWERTZMAN: Just OK? I mean, from what I’ve been reading, it’s doingbetter than the United States economy.CASTANEDA: That’s what I mean, Bernie. (Laughter.) Actually, that’s whatI’m referring to. For a country that has a GDP per capita about six timessmaller than that of the United States, the fact that it’s growing a little morethan the United States is not exactly surprising. What would be surprising isthe opposite. Mexico’s doing OK. Three and a half (percent) to 4 percentgrowth is not bad. It’s been going on now for three consecutive years. That’snot bad either. This is not China, it’s not Chile, it’s not Peru, it’s not India,(just ?) OK. I think it would be useful, unless Americans want to, you know,once again, three years from now, have a conference call like this one aboutMexico and saying, what did we get wrong? Well, you got it wrong from thebeginning.GWERTZMAN: I see. OK. Well, so you’re saying I ought to just stay in theUnited States; I’ll do better here than migrating.CASTANEDA: Well, I don’t believe this story of any Mexicans in the UnitedStates going back to Mexico. I’d love to meet one. If someone has found one,it’d be great. I’d love to meet one.GWERTZMAN: OK. Well, Jeff, let’s turn this over to our call-in audience.And do we have somebody online?OPERATOR: Thank you. (Gives queuing instructions.)Our first question is from Rafael Mathus from Reforma Newspaper.QUESTIONER: Thank you very much. Hello, Ms. O’Neil, again, and hello,Mr. Castaneda. It’s a really good idea to have this conversation with you.What I’d like to know is about immigration reform. It’s going to be on top ofthe agenda in the bilateral relationship in the next two years, specifically nextyear if the project that President Obama has said that might come intoCongress actually comes into Congress.What do you think would be the right strategy for Mr. Pena Nieto to follow,like, a more aggressive strategy similar to the one that the Mexicangovernment followed in early 2000s before 9/11 or something more on thebackseat, if you want to say it, sort of like the strategy that Mr. Calderonfollowed?CASTANEDA: You asked — (inaudible) –GWERTZMAN: Go ahead.CASTANEDA: Well, Rafael, besides good to — good to be in touch — we’recolleagues in the same newspaper — I think — I don’t think Calderon put it on — in the backseat; he threw it under the bus. So there is no — there was noMexican immigration policy under this administration.I think that the tone that Pena Nieto set yesterday in the published remarks ofhis meeting with President Obama was right: Mexico’s very interested,Mexico wants to cooperate, and Mexico would welcome a comprehensiveimmigration reform in the United States. I think that’s — to get started, that’sthe right tone, and it makes — marks a major change from what Calderon’sattitude has been.At some point it will probably be necessary to go further, first of all, becauselike we saw in 2006 and 2007, without Mexican cooperation, it is verydifficult to implement any kind of comprehensive immigration reform in theUnited States. And secondly, given our 50 consulates in the U.S., we caneither help or not help Mexicans, for example, right now, prepare theirdocumentation or applying for deferred action, the executive decree thatPresident Obama issued back in August or September, which has allowedsome young Mexicans now to be — not be deported and become, quote,unquote, legal.GWERTZMAN: Can I just amplify on that question to Shannon? What arethe chances of getting any legislation in the United States?O’NEIL: I mean, I think this is something that once Obama officially is re –you know, starts a second term in January, this will be one of the issues on theagenda as we look towards 2013.But what the shape of it will be is still very much in dispute. Is it going to beanother, quote, unquote, comprehensive reform that looks at those that arehere unauthorized, those are here for a guest worker program, the enforcementside of it, both on the employer side and also on the border? Are we going tosee all of those elements, or are we going to see little elements like startingwith the Dream Act, making the administrative — the executive orders thatObama did put in place, making those legislative — making those law, thosesort of things? So what happens? You know, it’ll sort of be up in the air whatwe actually see try to get through Congress.And in some ways, we’ll see what happens with the other types of things thatare on the agenda, and particularly the fiscal cliff is a big issue. The Congresshas to get through that before it can hit any other sort of domestic policyissues. And so how quickly or slowly we move through the financialchallenges that we have will affect things like immigration reform.And let me just say, on the — on sort of the role Mexico can play inimmigration reform — and you know, Jorge’s been through this one roundhimself and had his ups and downs and probably has his lessons learned there.But there’s a role for Mexico to play in terms of cooperation, in terms ofsupport. But this is, in the United States, seen primarily as a domestic policyissue. And so any foreign government taking too active of a role, seeing it as aforeign policy issue, could be counterproductive, particularly when you’retrying to create a bipartisan — a fairly fragile bipartisan center to try to passsome sort of legislation.GWERTZMAN: OK, next question.OPERATOR: Thank you. Our next question comes from Judy Miller fromManhattan Institute.QUESTIONER: Hi. Thank you very much for doing this conference. I wantedto ask what changes you anticipate in the war on drugs or, you know, drugviolence under the new administration and whether or not you think that theanticipated changes that you see are likely to be more effective than whatwe’ve seen to date.GWERTZMAN: Mmm. Who wanted to — Jorge?O’NEIL: Tell you what, Jorge, you want to start, and then I’ll follow you?CASTANEDA: OK. Well, I don’t — I think the main change regarding the waron drugs is to call it off. There’s an excellent piece, I think, in tomorrow’s NewYork Times by Alan Riding saying — called "Safety First for Mexico." And Ithink that’s where I would go. In other words, what can you — what can we doabout the war on drugs? Put an end to it, a little bit like the war in Vietnam.Well, what could you do with it? Get out. Finish. Over.I think that if Pena Nieto does this — now, whether he announces it, whetherhe makes a big fuss and strident fuss about it or just does it discreetly is apolitically consideration, which I don’t have enough facts to be able to supportin one direction or another. But I think the main point is to just basically sayMexico is going to use its scarce law enforcement resources to combatkidnapping, extortion, the issues Shannon mentioned a little while ago. And Iwouldn’t say forget about drug trafficking, but certainly place it on a muchlower level of priorities than under the Calderon administration.Then what happens? We’ll see. It’s hard to say. Maybe there will be moreviolence than ever, though it’s hard to imagine how there could be a whole lotmore than there is right now in Mexico. Maybe there will be no leveling offand things will continue as are. Or maybe there will be a very significant dropin violence and not much of an increase in the volume of drugs entering theUnited States from Mexico, whether produced in Mexico or just trans-shippedthrough Mexico. We don’t know that until we try. But certainly the idea offinding a different way to wage the war on drugs, I think, would be a hugemistake.O’NEIL: Yeah, I agree with Jorge. I mean, I — what we’ve already seen in thecampaigns and in this transition period up until the inauguration at the end ofthis week is a shift in rhetoric. We’ve seen a shift away from talking about awar on drugs in Mexico to talking about reducing violence.Now, many of the things you do to do — for both of those things are the same.So the efforts to professionalize the police forces, efforts to strengthen courtsystems and make them work so they can convict the guilty and free theinnocent — both of those matter for fighting drug trafficking as well asfighting other types of crimes and reducing violence. But other things, asJorge just said — where do you focus your law enforcement resources? Youdon’t necessarily go after kingpins. You go after local car thieves or those thatbreak into houses or extort local businesses. And I think that we will see ashift.The other sign we’ve seen so far — signal, which we’ll see if it carries through,is an effort or an aspiration to reorganize the security forces in Mexico and, inmany ways, consolidate them. And many of the critiques one saw during theCalderon administration is the fragmentation of sort of command and controlof the various police forces. And so there were often, you know, differenttypes of operations working in parallel, even at times working in conflict. So Ithink the hope are — those trying to design it to concentrate power is thatbringing it under the Ministry of the Interior might sort of increasecommunication, make these things more effective.Now the flip side, some would argue, is if many of these forces are corrupt orcorruptible, some decentralization might be helpful rather than it all beingcentralized in one place. But whether that actually happens remains to beseen, but it has been proposed by the incoming government.GWERTZMAN: OK. Next question?OPERATOR: Thank you. Our next question comes from Eric Martin withBloomberg News.QUESTIONER: Thank you for taking my question. I wanted to ask you aboutPena Nieto’s priorities on day one. Does anyone know in what order he’sgoing to proceed with all the things that he said need to be done? And do weknow, you know, from December 2nd what his first move within, say, his firstmonth, two months in office will be?CASTANEDA: I’ll try — take a try at that, but it’s going to be a real brief one.No, we don’t. (Laughter.)I think he’s going to make a speech on Saturday, an inauguration — inauguralspeech or address, which will lay out much more of a broad vision for thefuture and a little bit about the state of the country he has received, rather thana detailed program of what comes next. He still has stuff that he has to getdone which he tried to get done during the interim period between his electionand his inauguration, which did not get done, whether it’s the anti-corruptioncommission and law, whether it’s the transparency law, whether it’s a lawregarding how the — how political parties purchase air — governmentspurchase airtime from the media. There’s a lot of stuff that he wanted to getdone during these months which he hasn’t gotten done. So probably before hemoves on to anything else, he will try to deal with that.The only exception, of course, is the budget, which he has to get through andapproved by the end of the month, by the end of December, and a lot of thethings he said he wants it — wanted to do during the first year have to have aappropriations, as of right now, in order for them to be done. In other words,he might not end up doing them, but if he doesn’t have the money, he certainlywon’t do them.So there we will see a little bit of what’s going to happen in the budget. Otherthan that, I really don’t think they have a clear game plan. The Pena Nietopeople are very bright. They’re very good. They’re very experienced in certainways. But they have already shown these five months that some of the thingsthat they think are easier to do end up being a little more difficult.GWERTZMAN: In other words, in Mexico there’s this long period betweenthe election and the inauguration, and the president-elect actually can takesteps and do things, unlike in the United States, where there’s a new president-elect who really can’t do anything.CASTANEDA: Just briefly — (inaudible) — the — it’s a five-month period forthe president, but it’s three-month president (sic) for the congress. Thecongress — the new congress takes office on September 1st.GWERTZMAN: Oh, I see. OK.CASTANEDA: (The ?) new president takes office on December 1st. At leastin principle, during those three months, the new congress, which reflects partof the mandate that the new president has, can do things that the president-elect would like them to do because they are already the new congress andthey are in office, in the case of senators, for six years and in the case of housemembers for three years.GWERTZMAN: Hm.O’NEIL: And they have done things. I mean, they have passed labor reformduring this transition governing period, working with President Calderon andworking with the new congress. So there has been movement there.I mean — hi, Eric. Nice to hear from you. I’d say, as Jorge, no one reallyknows what they’re going to do, but one is look at the budget and then two,when we come back after the holidays in the new year, the president now inMexico has this sort of preferential initiative authority. I’m not sure — exacttranslation — but it’s where the president can send two initiatives to congress,and the congress must discuss them and come up with something within abouta month. And so we don’t know what’s going to be on those, but there — that’swhat to watch, is sort of those are the two things that would see movement,what the president pushes forward.And the other thing is we saw today the three political parties — in of coursevague terms, but all three political parties sat down and signed a pact or cameup with a supposed consensus on what policy issues should be on the table.And they’re the ones that, you know, Mexican analysts and others have beentalking about for years. But they’re issues of security, issues of corruption,issues of economic reforms, making Mexico’s economy more competitive andthe like.But at least there is a — there is a broad range there of what peopleagree on putting on the table. Of course, how you solve those problems or atleast move forward, there could lots of disagreements between the parties, butwhat should be discussed, there is at least some framework there that has beennegotiated.GWERTZMAN: The next question?OPERATOR: Thank you. Our next question comes from Jonathan Blakleyfrom National Public Radio.QUESTIONER: Hi. Thanks for having me, and thanks for having thisconference. I appreciate it. I just want to know if we can expand a bit more onthe war on drugs — and Shannon did a great job of expanding on it — but whenyou talk about getting out of the war on drugs, you’re just going to get out ofit, I mean, what does that mean when you juxtapose that against a hundredthousand deaths? And how do you think that wouldn’t be looked at — or wouldthat be looked at, especially on folks on this side of the border — would that belooked at as surrender?MR. : Jorge, you raised it.CASTANEDA: Let me give you first a very concrete example then, thenperhaps move on to the broader issue of surrender.You can have — let say you can post on a more or less permanent basis 2(,000)or 3,000 troops, military troops, in a city, let’s say, like Zacatecas, which isabout halfway between Mexico City and Ciudad Juarez or El Paso, a longroad to the border and not the short one. It’s an immigration-sending state –not too violent, not too safe a state — OK. It’s not a big city, but it’s not a tinycity, either. You can have your 2,000 troops, you can have them oncheckpoints on the highways. It’s a highway crossroads; you’ve got about fivebig highways going through the city — or the same is Torreon.You can have your troops on the highways with checkpoints stopping trucks,stopping cars, buses, et cetera, and not too many of them downtown protectingpeople. Or can you have a bunch of them downtown and pretty much justeliminate the checkpoints. If you eliminate the checkpoints, it will be a loteasier for people who are driving trucks full of cocaine, marijuana,methamphetamines, what have you, to roll up to the U.S. But you will have alot of troops, you will be saturating the city with troops where there is nopolice, and you will be making people feel more safe and be more safe.If — in an ideal world, you’ve got enough troops to do both. In the real world,you don’t, so you choose. Calderon chose the checkpoints. Violence in the cityhas got totally out of control. The traditional Mexican way has been to try andprovide a sufficient degree of safety for people in the cities or where they liveand contain violence or drug trafficking on the highways, et cetera, but it’s apolicy of containment, not a policy of all-out war. I think this may helpillustrate a little bit the different between being at war and getting out of thewar.O’NEIL: You know, let me just add just a couple thoughts there is, you know,the United States is, in some ways, an example for Mexico to follow. I mean,if you look at the drug trade, we have more drugs in the United States thanMexico since we get them from other places, as well as our own country. Wearguably have more guns than Mexico does. And we have more money in thedrug trade because here because it wants (to get ?) across the border where it’sreally valuable. But we don’t have the violence problems in the United Statesthat Mexico has. We have — but we have a trade probably as vibrant, if that’sthe correct word, as Mexico does. (Chuckles.)And so there are — there are lessons there. We don’t stop — we don’t have awar on drugs in the United States, but we have a — you know, for lack of abetter term, some sort of regulation and containment policy that we use here,that we keep it from getting violent. And so in some ways, looking at theUnited States and the way we’ve dealt — we’ve had episodes in our past wheredrug-related violence has been quite high, and we found ways to deal with it,which has not been to end the drug trade in the United States. And so theremay be some lessons for Mexico — and other countries, like Colombia, but(for instance ?), we’re talking about Mexico here — in terms of the way theUnited States deals with this sort of (insidious ?) problem that is not going togo away.GWERTZMAN: Next question?OPERATOR: Thank you. Our next question comes from Michael O’Boyle(ph) from Reuters.QUESTIONER: Hi. Good afternoon. Thanks for taking the time to be with us.Going back to the reform agenda a bit — sorry to make you guys jump around — how do you interpret, like, the cooperation that we’ve — that we’ve seen sofar, you know, on the labor reform? Was that a real landmark? I mean, are youmore optimistic or still very skeptical on what’s going to happen next year?Could you say something about — I know there hasn’t been a lot said, but Imean, the — about fiscal reform, about energy reform, are you very optimisticthat we could get very substantial reforms under the new government?And thirdly, is there just anything really key that you’re seeing left out of thediscourse in terms of, you know, maybe some of the most important reformsthat Mexico should be looking at?GWERTZMAN: Shannon, take a crack at it.O’NEIL: Sure. I mean, we have seen some basic cooperation there. I thinkthere is room for cooperation. Perhaps one of the biggest challenges or hoopsthe next government will have to run through is not that the PAN disagreeswith their agenda, or at least the reformist side of their agenda, but the PAN isrudderless. Who actually is going to lead the PAN and be able to bringtogether the representatives, the senators and those to vote I think is still a bitunclear, who is actually going to be a forceful leader to bring that party backtogether after their rout in the — in the last election. So I think that’s achallenge for cooperation. But I think there is some area of agreement, andthere’s some electoral incentive for the PAN, if they can pull it together, andfor the PRI to get things done. So there’s area for cooperation.Fiscal and energy reform, which likely need to go together, on that I wouldsay I am cautiously optimistic. For those who say — who see the nextPetrobras happening in Mexico, I am very skeptical. I don’t see that as beingtechnically possible or politically possible. The changes Pemex would have togo through to make it into a listable company from the, you know, state-owned organ that it is today are quite significant, so I don’t see that. Butperhaps some opening where you allow risk-sharing of the costs and benefitsin technologically sophisticated types of areas like deepwater drilling, perhapsthere’s some room for that.And then the things that I think are off the agenda, unfortunately, for Mexico,I would put political reform there. That seems to have not been — in thenumerous speeches where we see a laundry list of things that need to be donein Mexico, political reform has been shunted. And there I mean re-election, Imean election of outside candidates, a lot of things that people have talkedabout that would be beneficial for rejuvenating and opening up and makingMexico’s system more accountable. I haven’t — I don’t think those are going tobe, you know, on this long list.GWERTZMAN: Jorge.CASTANEDA: I basically agree with everything Shannon said. I would addtwo things that I haven’t been seeing recently, which I regret. One is this ideaof a universal social safety net financed out of the central fiscal budget asopposed to a pension and health care system, which is what we have, based onemployment, which by definition leaves out more than half of the population,although some patchwork solutions have been implemented over the past 10or 15 years. Pena Nieto had committed himself very forcefully to this. Myimpression is that he’s getting a little bit of cold feet on it.The same is true on education. We’ve been very strong, very committed toserious educational reform. I’m not sure that that is going to happen, becauseas very often occurs with education, unfortunately, it’s been one of thosethings that has long lead times, the political payback is way in the future, andthe political costs are tomorrow morning.GWERTZMAN: (Chuckles.) All right. Next question?OPERATOR: Thank you. Our next question comes from Gabriel Stargardterfrom Reuters.QUESTIONER: Hi, there. Thank you both for being here today. It’s a veryinteresting discussion.I have a question building slightly on what Mike said regarding the reformsthat have already taken place. You both mentioned earlier that the Congresshas managed to actually come together and do something in these last fewmonths, weeks. And one of the fruits of that was the labor reform law.I’m curious to know what exactly you both think will be the short- and long-term impact of that labor reform law, specifically on hiring. And will it beable to be successful in drawing people out of the informal sector, which is abig thorn in the side of both the Mexican tax man and also the Mexicanpoliticians? And the other question I have is — sort of looking the other way,is in terms of — a lot has been made recently of Mexico’s sort of — there’s anew narrative up here of Mexico as a sort of burgeoning manufacturing hub.What do you think will be the future direction in terms of Mexico’smanufacturing experience? And how does — how does that sort of impactcountries like China, which already have a very strong, establishedmanufacturing and export sector? Is there going to be any impact on thosecountries? That’s it. Thanks.GWERTZMAN: Who’d like to take a crack at that?O’NEIL: Tell you what, I’ll start, and then, Jorge, why don’t you follow.I think the labor law reform was an important step forward, in some waysmore a political step that there could be a negotiation and two parties couldcome together and pass something together, so perhaps more politicallyimportant than immediately fiscally important.I do think it will be — have a positive effect on hiring and those things, but Idon’t think this is going to be an outsized effect. I don’t think this is arevolutionary change in Mexico’s labor structures or will immediately bringthe, depending on your estimates, roughly half of Mexico’s economic activitythat’s in the informal sector.GWERTZMAN: What is the reform, for those who don’t know?O’NEIL: Sure, I mean, it’s a reform that changes the way you can hire peopleand fire people. It makes it a little bit easier to hire people. It makes it a littlebit easier to fire people. It limits the costs when you let someone go. It makesit a little bit more flexibility for employers, which the private sector says willenhance formal sector jobs because it’ll make people more likely to hire in theformal sector, as opposed to now many people hire off the books or in theinformal sector.I mean, a big challenge on the informal sector for Mexico is not just do youbring workers onto a formal company payroll, but do you formalize yourcompany in the beginning; is it on the books in the beginning. And there yousee the tax evasion from informal businesses, you know, far outstripping, bymost accounts, you know, drug money or other types of money that flowwithin the economy. And that, I think, will have to do much more with largerincentives, incentives that could be provided by broad financing that wouldincentivize people to come onto the books because then they could get loansto expand their businesses or things like that, as well as some sticks, i.e., theMexican IRS, the SAP, actually comes after you if you don’t formalize yourbusiness.Let me just say one thing quickly on the sort of future of manufacturing andMexico’s role and where I think that will go. I mean, I think this is sort of theoptimistic side of Mexico. And like Jorge said at the beginning, we don’t wantto blow this out of proportion. Mexico is not going to grow 10 (percent), 12percent next year and for the following decade. We’re not going to see China-like growth unless Mexico can make huge structural reforms that — I think agood legacy of the Pena Nieto administration would be if they could get a fewthrough or a couple big reforms through. They’re not going to get all of themthrough.But how does Mexico take advantage of this? When we think about these sortof supply chains and deepening of supply chains with the United States, Imean, that is been happening over the last 20-plus years, and I do think there’sspace for the two governments to work together to do things like have unifiedcustoms forms, to standardize regulations, to invest in the border. There’sthings that aren’t, you know, big treaties and aren’t big and important, youknow, photo opportunities, but little changes that could make it much easierfor companies to have operations on both sides of the border and let the flowgo back and forth.And a couple weeks ago I was visiting a plant outside of Queretaro, wherethere’s two plants in Michigan and one down there. And they were telling methat, you know, they’re happy to be down there, they may even put anotherplant down there, but every single shipment they send from Michigan down toMexico, which then goes back to Michigan after there’s work done in Mexico — every single shipment has a problem at the border. There’s some issue withthe paperwork; there’s some issue at the border. And that type of delay issomething the two governments can work on that would actually make adifference, I think, in terms of — both for Mexico, its growth, but also theUnited States.GWERTZMAN: Jorge?CASTANEDA: Yeah, I agree completely with Shannon, both on the laborreform and on this specific issue. I’d add, on this second issue, that it’simportant to place things in perspective. I don’t want to just quote any of ourcolleagues who are listening or not listening, but I read yesterday or todaysomething about a new — now Nissan is going to be making cars in Mexico.Well, when I was a child — and (unfortunately ?), that goes back quite awhile — (laughter) — the Cuernavaca Datsun plant was in full — full-blown, and thisis back in the 1960s. The Nissan plant in Aguascalientes was inauguratedunder the Salinas administration a little more than 20 years ago. So let’s take iteasy on these things. That some journalist found out that there is a Nissanplant — that there were actually two Nissan plants in Mexico last week doesn’tmean that they were built last week. (Laughter.) All it means is that thejournalist found out about them last week, period.Mexico has a strong manufacturing export base to the United States and hasnow had it since a little bit before NAFTA came into force, which was in1994. This is now 18 years ago. It’s gotten better the last couple of years for aseries of reasons, among others, that U.S. demand for automobiles hasincreased. 2009 was a terrible year for the Mexican automobile industry,logically enough. And 2010, ’11 and ’12 have been better years. And this isimproving not just in the automobile sector but in many others.But as Shannon said, let’s not overblow this. Let’s not overstate it. It’s going tobe very difficult for Mexico become a manufacturing hub like China, becauseChina exists. That’s probably the main reason. At some point, wages inMexico perhaps can become once again, as they’re becoming morecompetitive with China than they have been, but that’s not necessarily a greatthing for Mexico. It means it’s a race to the bottom a little bit.GWERTZMAN: Right.CASTANEDA: And secondly, you can’t have it both ways. You can’t hope toreduce the wage differential, reduce immigration from Mexico to the U.S. andwant to increase the wage differential by being more competitive with China.You sort of got to choose.GWERTZMAN: Mmm hmm. Next question?OPERATOR: Thank you. Our next question comes from Tim Johnson fromMcClatchy Newspapers.QUESTIONER: Hi, a fairly quick question: What kind of influence do youthink Carlos Salinas de Gortari is going to have on the Pena Nietoadministration? And more broadly, will the PRI dinosaurs — how are theygoing to balance out this play with the modernizers like Videgaray? Are theygoing to be ascendant, or are they going to be in the background?GWERTZMAN: Jorge?CASTANEDA: I — you know, in an ideal world, I think Pena Nieto would beable to form a Cabinet, which he will announce on Friday, and a broader teamof people made up much more significantly by younger, more forward-looking, modernizing aides.But in the real world, I think he’s going to have to accommodate a lot of thedinosaurs. By the way, there are young dinosaurs and old modernizers.(Laughter.) And — everywhere, including Mexico. And I think that there willbe a balance. It won’t necessarily be the balance that I would have liked or thatothers would have liked or expected. I think the fact that Pena Nieto waselected with less than 38 percent of the vote, 37-point-something, makes itdifficult for him to do exactly everything he wants. This was not the mandatethat he expected. And consequently, he has to be very careful with how hedeals with the PRI governors, with the PRI unions, with the PRI old guard.And although he’s skillful and very intelligent and very practical in all thesematters, very pragmatic, he’s going to have to take a — in — a lot of thesepeople into account.GWERTZMAN: Shannon, you want to add to that?O’NEIL: I would just say I agree. And the PRI is probably the broadestumbrella in terms of the big political parties in Mexico and sort of who fallsunder it. And you have from, you know, technocratic, University of Chicago-type economists to very nationalistic, very, you know — progressive perhaps isnot the word, but very leftist. And they’re all under one umbrella. And thenthere’s also those — you know, the forward-lookers or perhaps those lookingback to the past.And Pena Nieto, like his colleagues in the — within the party have just comeback into Los Pinos, are coming back into Los Pinos. They didn’t like beingaway for 12 years, and they would surely like to stay there and, you know,remain in the house six years from now. And so electorally, how do they win?Well, probably the calculation is you keep this broad umbrella togetherbecause that’s how you won this time around, is you were able to unify theparty around Pena Nieto, something they couldn’t do in 2006; why they hadsuch a poor showing then is they didn’t unify the party. And so unifying theparty means bringing along all of these types of characters and all these typesof positions, which means, you know, in short, they all have to be somewherein the Cabinet or somewhere in there, which means a lot of compromise butalso means a lot of barriers to pushing forward any real reformist agenda.GWERTZMAN: OK, next question.OPERATOR: Thank you. Our next question comes from Zach Cohen fromLatin Pulse.QUESTIONER: Hi. (Coughing.) Sorry about that. Thanks for having this call.I really appreciate it.What do we see will possibly continue from the Calderon administration intothe Pena Nieto administration? Do we see anything that he did with the drugwar or with immigration or with trade that will continue or will be the basisfor the next administration, or are we looking at really a clean slate?GWERTZMAN: Shannon?O’NEIL: I don’t think any administration ever gets a clean slate. You know,you build on what is there before, and, you know, you deal with continuityinertia, and you try to fight against it and make some changes, which are oftenat the margins. That said, you can try to redirect some things. So we’ve talkeda little about security, how that may be redirected away from a war on drugsto reducing violence. On the economic side, you may see a redirectionbringing energy reform back on the plate. Calderon tried to do that and made a– some — you know, a legislative reform on energy, but we may see thatcome back again, trying to redirect it or deepen it in some ways.But overall — so on the economic side you may see a few other economicthings, a fiscal reform, come on to the agenda, but many of the things peoplehope the Pena Nieto administration will do, Calderon tried to do but wasunsuccessful in doing. So that, to me, is not saying a break with the past but acontinuity with the hope that perhaps the political constellations have alignedup — are now aligned differently and/or this administration will be morepolitically adept or powerful in getting through many of the initiatives thathave been on the overall Mexico reform agenda for many years.GWERTZMAN: Jorge, you want to add to that?CASTANEDA: Just that — you know, not in any way contradicting, butcomplementing — it will depend a little bit on what the new administrationreveals or allows to be revealed about what of the things that Calderon did orclaims to have done are true and which ones are not. In other words, if thesuccesses he has flaunted turn out to be real — so many houses, so manyschools, so many hospitals, so many highways, so many policemen, so manyall of this — then I think they will be able to build on that and not necessarilyhave any serious breaks with the past. If it turns out that there was moresimulation and more massaging the numbers than was apparent, it will be verydifficult for there not to be a break between the two administrations.And this is no longer, in Mexico, and I think it’s a good thing, entirely in thehands of the new government. Given its druthers, I imagine Pena Nieto wouldnot want to have too much dirt dumped on the outgoing administration. But ifthe press starts getting hold of things, if the new cabinet members and otheraides are leaking things, if Calderon’s enemies — and he’s got a whole bunchof them — are also looking for and finding things and leaking them, it’s goingto be more difficult. And there — I mean, as it stands right now, for example,one of the scandals of the last few days is that apparently the Department ofJustice or the attorney general’s office has 200 planes, part — some of whomwhich were financed with U.S. money through Merida, which don’t fly. Now,you don’t necessarily want planes to fly, but most of the time it’s better if theydo than if they don’t.GWERTZMAN: OK. Any more questions?OPERATOR: Sir, there are no further questions in the queue.GWERTZMAN: All right. Well, with that, I think I’ll thank our two hosts, andwe’ll sign off. Thank you very much.CASTANEDA: Thank you, Bernie. Thank you, Shannon.O’NEIL: Thanks.CASTANEDA: Take care. Let’s try and get together before I go home.O’NEIL: That sounds perfect. Thanks, all.GWERTZMAN: Great. Bye-bye.CASTANEDA: Take care, Shannon.O’NEIL: Bye.CASTANEDA: Thanks, Bernie.GWERTZMAN: Bye-bye