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Foreign Affairs, Defence and Trade References Committee
29/10/2015
Australia's relationship with Mexico

ALVAREZ REINA, Ambassador Armando, Embassy of Mexico

GARZA de VEGA, Mr Rodolfo Esau, Trade Commissioner, ProMexico

CHAIR: Welcome.

Ambassador Alvarez Reina : On behalf of my government, I salute the timely decision of the Australian Senate to summon an inquiry on Australia's relations with Mexico.

CHAIR: You have both seen how the process works. I now invite you to make an opening statement and then we will go to questions.

Ambassador Alvarez Reina : Thank you. I will limit myself to three brief points explaining why Mexico can and should be Australia's strategic partner in Latin America. The first reason is that we are a country in quick change. We are still a developing country and we are facing some important challenges. But we are addressing those challenges and are changing to do it in a better way. We are a stable, multiparty democracy. For more than 80 years, Mexico has been electing a president every six years, democratically and orderly. Today, we have a vibrant, multiparty democracy with 10 political parties at the national level and political alternatives are the norm and not the exception in Mexico at all three levels of government. As in Australia, we are a federal country that has a federal government, state governments and municipal governments.

In the economic sphere, we are the 15th largest economy in the world, as has been said before here. But in PPP terms, we are the 11th largest economy in the world and we are building an important platform to take off. To give you an idea of the size of the Mexican economy, it is one half of all 10 ASEAN countries combined. We are the largest exporter in Latin America. Unlike most Latin American countries, the Mexican economy is based in manufacturing not in commodities. Eighty per cent of our exports are composed of manufacturers and, in some cases, high-tech manufactured products. That means that Mexico is currently exporting more manufactured goods than the rest of Latin America together.

In sustaining this platform, we are graduating 110,000 engineers per year. That is more than Germany, just to give you an example. We are also embarking on what is perhaps the most important structural reform process in the whole world that comprises reforms in education, labour, telecommunications, competition, financial and fiscal matters, social security, energy, oil, gas and petroleum, among many other reforms.

We are the 10th most visited country in the world. Last year, we received more than 26 million foreign visitors, which is a little more than the population of Australia. Most of them come back to Mexico for a second or a third time. The reason for that is Mexico offers not only natural beauty but also cultural attractions. Mexico has one of the largest heritages in the whole world. We are also the seventh largest recipient of foreign investment worldwide. That is because we offer legal certainty to foreign investment and low production costs. Many firms that had gone to China are now relocating in Mexico because Mexico is more competitive now in many fields, because the geographic location of Mexico means important markets can be accessed in a rapid way and because we are progressing very much in the 'doing business' index. It is estimated, not by Mexico but by firms like Goldman Sachs, HSBC, Accenture and others, that Mexico will be between the fifth and the largest economy by 2050.

The second reason is that Mexico is fully open to the world. That is very important for Australia. Mexico is a country with global responsibility. Mexico is a country open to international scrutiny both in its democracy and in its human rights. We are certain that the world can help us to consolidate Mexico's position in this too and in many other fields. We are fully open to the world. In the last few decades, we have been championing the best international causes. At the initiative of Mexico, the treaty of Tlatelolco was signed in Mexico City that consolidated Latin America as the first nuclear-free zone in the world.

In the human rights field, at the initiative of Mexico, the former UN Commission on Human Rights was replaced by the UN Human Rights Council and Mexico became the first president of that new council. It was less politicised and more effective. In climate change, for instance, a few years ago we hosted the COP16, which rescued the world climate negotiations from the previous failure and relaunched the process that will continue this year in Paris. In international governance we also hosted the G20 summit in 2012. My president was here in Brisbane last year, present for the same forum.

We are firm believers in multilateralism. We are the 10th largest contributor to the United Nations. We are very much in favour of UN reforms to make the UN not only a more democratic body, but also a more agile body, capable of supporting development. We are now participating in peacekeeping operations along with Australia.

We are firm believers in international cooperation. Actually, international cooperation is stated in the Mexican constitution as a pillar of the Mexican foreign policy. We have a total commitment with free trade, capital mobility and productive integration worldwide. That is why Mexico is open to all four cardinal points. To the north, as has been mentioned here, we are part of the NAFTA block, which is the largest trading block in the world—larger than the European Union in collective GDP. To the south we are part of the most forward-looking part of Latin America, which is the Pacific Alliance, along with Peru, Colombia and Chile. To the east we have a political association cooperation and free trade agreement in full operation with all 28 European Union countries. To the west we were historically the first Latin American country to join APEC, more than 20 years ago. Only last week, along with Australia and 10 more countries, we finalised negotiations of the TPP. So we are full members of the Pacific community.

The third and last point is that we have a very high complementarity with Australia. In the political field we have a very fluid political dialogue at every level. Our leaders have been meeting every year—sometimes twice a year—in the frame of APEC, G20 or other international fora. Our foreign ministers have met six times in only two years in the frame of MIKTA. We have periodical political consultations and parliamentary visits. Recently, the president of the Mexican foreign affairs commission in the Mexican senate was here in Australia. We are partners with some of the most important international fora, like the OECD, APEC, G20 and MIKTA, and we have similar positions regarding the main global subjects. We have growing people-to-people contacts—growing Australian tourists in Mexico and growing Mexican students in Australia. We have a large potential for technical cooperation in many fields. Some of them have already been mentioned in previous sessions, like water, indigenous affairs, best practices, mining, agriculture, space, marine affairs, competitiveness and many others. We were Australia's first trade partner in Latin America and there is growing bilateral investment between the two countries. The TPP and the reforms in Mexico will certainly consolidate Mexico as Australia's largest trade partner in Latin America.

To conclude my words, I would like to say that Australia is a growingly influential country in the world. As such, Australia requires a strategic alliance in every region, not only in the Asia-Pacific region. For its geographic location, its political location and economic direction, that country is clearly Mexico. Thank you very much. My colleague will further elaborate on these matters.

Mr Garza de Vega : Thank you, Ambassador. I also have a presentation. Firstly, I want to thank the Australian Senate for this opportunity. We highly welcome this initiative, which will further enhance the relationship between our countries. I believe we are at a point where we can start to take advantage of the global scenario, where we are clearly partners.

I will go straight to some of the facts of the opportunities that lie for Australian companies. It has been discussed throughout the previous sessions what the specific opportunities are in the automotive industry. As you know, both Mexico and Australia are facing challenges in the automotive industry—unfortunately, in very different directions. Mexico is growing its capacity. We will be manufacturing five million vehicles by 2020 and that means we need parts to assemble these vehicles. Currently we do not have enough capacity to provide parts and assemble the final vehicles. This is where Australian companies can supply and complement the needs of the growing Mexican automotive industry.

Just to give an example, there are 10 strategic sectors where Australian companies have capacity, have technology and have know-how—such as punching and stamping, foundry, forging, machining, injection moulding, die-casting, other types of components, auto interiors and electronic assembly, as well as cables and wires. In Mexico, these opportunities represent $61 billion. This is the amount for imports we are currently doing from many parts of the world where Australian companies can easily enter into the supply chain. In this regard, I will later elaborate a little on what we have been doing to promote these opportunities in Australia. Nevertheless, what we have found is that there is very little knowledge of the requirements and opportunities that lie in Mexico. These are just some specific examples of what we need in the automotive industry and what Australian companies can supply.

In a similar way, we also have a growing demand in the electric industry. It accounts for yearly imports of $6 billion for processes, including metal stamping, mechanical assembly, plastic injection moulding, machining, metal fabrication, laminating, foundry, dielectric material and ceramic or porcelain goods. Australian companies can also participate directly in and take advantage of these opportunities in Mexico, where the demand is also growing and it is very necessary to integrate high-quality higher technology.

We also have emerging opportunities in wind power equipment—a total of $100 billion for processes for construction power-generating equipment, metal fabrication, machining equipment, plastic industry, IT equipment and other products that are necessary for this sector, and where Australian companies can clearly participate.

Additionally, one of the areas where Australia has a very strong presence is the aerospace industry—advanced manufacturing. We have a growing industry in Mexico. Just as a side note, Mexico has the second-largest private jet fleet in the world. We need a lot of maintenance and spare parts to keep it flying. There are also special processes where we need support and technology, such as treatments, sheet metal, machining, electronics, casting, forging and harnesses, and where Australian companies can also very easily enter into the market because of the certifications, the quality and the technology that is already available in Australia.

Regarding mining, where Australia is also a world leader: as it was discussed before, Mexico poses great opportunities. We are the first producer and exporter of silver in the world. We are the first destination for exploration and investment in Latin America and ranked fourth worldwide. We have been ranked in fifth place for best destination for mining projects, and we pose opportunities in different products or different mining areas where Australian companies can clearly benefit and take advantage. We will be participating in upcoming events such as IMARC 2015 in Melbourne next month, and we have also been participating in events such as Latin America Down Under. We want to foster the relationship through mining because of the opportunities and the experience that Australia has.

The Mexican government is really committed and has posed great interest in diversifying its presence and partners in the world. Australia is one of these partners. A clear example of what the Mexican government is doing to further expand its presence is having a trade commission in Australia. I am very glad to say that I have recently arrived in Australia as trade commissioner. I have been here for two months and we have already been engaged in different promotion and awareness events. This month, together with the ambassador and with Austrade and the local governments of Victoria and South Australia, we held seminars in the automotive industry. We had the participation of local firms that were exposed to the opportunities the automotive industry presents in Mexico. We confirmed that there is very little or no awareness of these opportunities. The companies were so surprised that we are now working on agendas. They are interested in visiting Mexico to explore and have direct dialogue with potential buyers in Mexico.

It is very important to nourish the awareness and the opportunities that we have between our countries. There are also some examples where we are already collaborating that many people are not aware of. As I said in the title of this slide, Australia is in every Mexican's wallet. The notes for the 20 pesos and the 50 pesos in Mexico are produced with Australian technology. I do not have one here with me to share with you, but it is practically the same as the notes that you use Australia. We are already using similar technology. We are using Australian technology in Mexico for the notes and it is present everywhere. In a similar way, if you go to a supermarket in Australia, you will find Mexican food isles or corners that are clearly specified. In a way, we are also present in Australian everyday life. Additionally, some of the Mexican companies that are established in Australia are also sponsoring sport in Australia. In a way, we also present, but I believe there is still a need to increase awareness. What are the Mexican companies doing in Australia? What are Australian companies doing in Mexico? Recently, we also had an article on the Mexican wave in a fashion magazine that was released last month. So, without knowing it, in many areas we have presence. There is contact; there is a link between our countries. Nevertheless, we still need to increase that awareness and translate it into real, concrete, profitable and sustainable business opportunities.

Here is my contact. We would like to further discuss and elaborate on the questions that you may have.

CHAIR: Thank you very much.

Senator BACK: Thank you very much for your submission and your presentation. During the day, you heard some of the impediments or the barriers. I would be keen for your view. One of them was the fast-tracking of our visa system for people from Mexico to come to Australia, whether as students, in business or as tourists. Is that something that you are able to work with the Department of Foreign Affairs and Trade and the minister on? If so, how successful have you been?

Ambassador Alvarez Reina : We not only can do it; we are already doing it. As my colleague said, perhaps the most important challenge is mutual awareness. That is growing, fortunately, because of the work of not only governments. Finally the relationship is not purely between governments but between business people, between universities, between artists and between people of culture et cetera.

Awareness is growing. It is growing very much—so much, for instance, that we now have a Mexican Festival in Melbourne that gathers 50,000 people every year. There are around 1,000 Mexicans living in Melbourne. However, this Mexican Festival every September gathers in only one day 50,000 people, certified by Federation Square.

In Mexico also, Australia is growing very much in the minds of the Mexican people as a destination for studying. Half of the Mexican community in Australia, although it is a small community, are already students in Australian universities. Also, most of the rest of the Mexican community here is composed of highly qualified people. The lady who was sitting here from the Academy of Science is a Mexican lady. Like her, there are several Mexicans working in Australian institutions of science, technology and business. There are natural bridges between our countries.

Of course, the distance is there. Of course we need more physical contact. We need more communications between the two countries. It would be ideal to establish an air route between the two countries, but that is not an obstacle. Even without that route we can grow very much our trade and investment, our cultural exchange and our technical cooperation.

You mentioned water, for instance. Australia has very important technology in water. On 18 November an important Mexican delegation from the Mexican Institute of Water Technology and the Mexican National Water Commission is coming to Australia and they have a very well prepared program to work mostly with the Victorian water commission. From that visit I am certain that a lot of opportunities will come from both countries in this sector. But there are many, many other sectors in which we have potentialities. The main challenge, as I mentioned and as my colleague mentioned, is to make people aware of these opportunities. Once they are aware of the opportunities, they will work by themselves.

Senator BACK: Again we have heard in the submissions and some of the commentary here today about some of the barriers for tourists and particularly for small to medium companies visiting Mexico and examining the opportunities that may exist. There was discussion of the informal economy, corruption, insecurity, safety et cetera. Can you advise the committee what role your government is taking in Mexico? Particularly, how would you suggest that message in Australia can be changed to give people a more realistic view of the ease and freedom of movement and, in the event of investing or setting up a business, the integrity of business relations for start-up organisations from Australia?

Ambassador Alvarez Reina : During my presentation I mentioned two important points. Mexico is the 10th largest recipient of foreign tourists worldwide. Most of them come to Mexico for a second and third visit. So the problems of security that we do have and that we are addressing are not impeding us being the 10th largest recipient of tourists worldwide. In the same sense, these problems that we are addressing are not impeding Mexico being the seventh largest destination for foreign investment. If the world trusts Mexico with its money and its people, it is because they trust Mexico. So we need to send the message that Mexico is safe for visiting, that Mexico is safe for investing and that the Mexican government and the Mexican society are addressing the problems of security that we do have.

Senator BACK: We heard discussion from witnesses earlier about there being some 400 Australian students who have studied in Mexico, and we do not seem to have been able to get much information from them as to how their experience has formed their careers or whatever. But there have been significantly more Mexican students who have come to Australia to study. Are you aware of any surveys that have been undertaken, and the results of them, of Mexican students who have studied here and what we might be able to learn in terms of encouraging a greater mobility each way for students to study in each of our respective countries?

Ambassador Alvarez Reina : We are very keen to have close contact with the Mexican students in Australia. Actually, it was at the initiative of the Embassy of Mexico that last year the Association of Mexican Students in Australia was formed. They are now legally registered here in Australia and they are undertaking very important cultural and mutual-support action here. As for Australian students going to Mexico, the possibility has been mentioned here of extending the Colombo Plan to Mexico. The foreign minister, Julie Bishop, has mentioned that those Australian students participating in the Colombo Plan are truly Australian ambassadors who will come back to Australia and establish very important and firm trade, cultural and cooperation links with the countries they have studied in. So, if Mexico can be included in the Colombo Plan, I am sure that will be a very successful way to bring our young leaders together for the coming years.

CHAIR: You mentioned the 50th anniversary of diplomatic relations between Australia and Mexico. When is that?

Ambassador Alvarez Reina : It is next year. It is in the month of March, but we are planning to have events all year long. We are planning to have a bilateral exhibition on Indigenous art. There are surprising similarities between Australian Aboriginal art and the art of some Mexican communities, particularly in north-west Mexico, on the Pacific coast, which speaks about the unicity of the human spirit—how people who have never met each other could through the millennia develop some very similar patterns of culture and art. In Mexico we are printing a postage stamp on the 50th anniversary. My foreign minister plans to come to Australia next year to participate in the MIKTA ministerial meeting, chaired by Minister Bishop, and we expect to have the opportunity to have Prime Minister Turnbull visit Mexico on the occasion or alongside his participation in the APEC summit that will take place in Peru next year. That will give a very important impetus to the bilateral relationship, along with the very favourable momentum that is leading the economic relationship, thanks to the conclusion of the TPP negotiations and the economic reforms in Mexico.

CHAIR: So perhaps, along with your trade commissioner, you would like to take this opportunity to put on the record what practical or pragmatic strategic outcomes you would like between our two countries in a trading manner. Do you want to see the education system tuned to have an interplay of graduate and undergraduate, both in Mexico and in Australia? I am really interested in that car manufacturing stuff. I come from a state where we are going to lose all of our manufacturing, and we have many component manufacturers who I am certain are just as ignorant as I am about the opportunities with Mexico. And these are really tremendous opportunities, so perhaps you want to place on the record what sorts of practical outcomes you would hope to achieve by the 50th anniversary and hopefully get Minister Robb, Minister Bishop and Prime Minister Turnbull to endorse on the day.

Ambassador Alvarez Reina : We would like to see our relationship with Australia as an integral relationship, a vehicle that has four wheels: one political wheel, one economic wheel, one cultural wheel and one technical-cooperation wheel. Regarding the political wheel, as I already mentioned, we have a very fluid political dialogue, at the highest level—very frequent political consultations and joint work in some of the most important international fora, where we share values and goals. In the technical-cooperation field, very rapidly more areas are integrating into the bilateral portfolio of technical cooperation. I already mentioned some during my presentation. In the cultural field every day we have more presence of Australia in Mexico and, as my colleague mentioned, more presence of Mexico in Australia. And the economic wheel—and I know that in today's world it is perhaps the most important one—I will pass to my colleague, because he is the expert in this field.

Mr Garza de Vega : In that regard I think we are at a point in history where it could not be better. The TPP is almost ready to operate. It will enhance the business opportunities between our countries and the region and the countries that integrate in this partnership in a very intense way. I would also say that we are at a point where the increasing production capacity in Mexico and the diminishing production requirements in Australia are just like having hunger and food on the table at the same place: we need to match them; we need to get them together so that we can keep the Australian business going and we can meet the production requirements in Mexico using the production capacities available in Australia.

Unfortunately, since there is very little knowledge about this, the opportunities right now, from what we saw from the previous evidence, is that most of the companies are focusing or aiming towards other nations in the Asia-Pacific region rather than looking at where their capacity is really growing, and that is Mexico. Unfortunately, in some cases, besides not being aware, there is this image of being very far away, language barriers, not having direct flights and so forth so that it is not really in the top list of Australian business's priorities. We want to change this view, and we are currently working on projects that will help to build success stories so that other companies can follow. There are some examples of big companies that have already established in Mexico and are doing great. We do not see any Australian company leaving Mexico because they have had a bad experience. They are growing. They are learning more about the market.

In the automotive industry, from my experience—I was in the state of Aguascalientes, where Nissan has a very big facility and is currently growing, with a new facility, and we now also have a Daimler plant and an Infiniti plant under construction—there are already Australian companies interested in entering the supply chain in Mexico. Nevertheless, it is just a list. We need to put Mexico on the table so that they visit and know firsthand what the business opportunities are. And I am sure that from the projects we are already working on, together with Austrade, there are going to be some companies moving into Mexico or starting to do business with Mexico rather soon. This window of opportunity will last for only a couple of years. If the companies in Australia cannot keep up with the production, then they will need to take some other decisions whether to close or sell or do something with the companies. So, we are at a point where we can meet and put on the table demand for the capacity that is already established in Australia.

CHAIR: That is why I asked the previous witness how many cars you make in Mexico, because I know Thailand makes a million cars, and there was interplay between Thailand and South Australia about component manufacturers.

Mr Garza de Vega : We are currently making three million vehicles a year and by 2020 we are going to grow that capacity to five million vehicles a year. Just in the last four years we have had considerable investment by OEMs growing capacity of already established plants in Mexico—by Ford, General Motors, Volkswagen and Nissan, and also new investments recently announced by Toyota, Honda, Mazda, Infinity, BMW, Mercedes Benz, Audi, Kia—and the list keeps going. As we speak, there are additional OEMs studying the opportunities for establishing operations in Mexico. This is just one part. In the automotive industry we also have heavy vehicle manufacturing in Mexico.

Producers or suppliers in the automotive industry can also supply the growing heavy industry, or truck industry, in Mexico and eventually, if necessary, migrate some of the processes to the aerospace industry, which is also growing in Mexico. For instance, we have seen a growing demand for heat treatment for aerospace components. The current capacity in Mexico is not enough, so automotive related companies are starting to offer heat treatment processes for the aerospace industry.

So there are huge possibilities for growth and business for Australian companies, not only to invest in Mexico but also in doing business through their operations in Australia. The TPP will enable preferential access to products and components manufactured in Australia, which will complement the supply chain in Mexico.

Senator BACK: What would the level of tariffs be now on automotive components being imported into Mexico?

Mr Garza de Vega : Most of the imports come from countries that we have free trade agreements with. That is why the number of components from Australia is very low. Australia, I would say, is stronger in the aftermarket products at this moment. Nevertheless, in most cases the aftermarket is not really for the Mexican market but more for the US market. That is rather big.

In Mexico, as the ambassador mentioned before, we are also a big country in terms of population. As a market, we are 120 million people, where the median age is 26 or 27 years of age. So we have a lot of young people who have just graduated and started working and are getting money in their pockets, and they are ready to purchase or upgrade their vehicles or buy new things. So, as a market, I also see that there are some big opportunities and a lot of potential for Australian companies in any sector if they look towards Mexico.

CHAIR: I am impressed. The Automotive Transformation Scheme provides some funds for people to look at moving from manufacturing motor vehicles in Australia to contributing in the supply chain, so I am sure that if we can get some more publicity on this and more exposure on the work you are doing we may well join the dots. Did you have any further questions, Senator Back.

Senator BACK: I am finished, thank you. It has been a very interesting submission.

CHAIR: Thank you Ambassador and Trade Commissioner for your submissions and for answering our questions.

Ambassador Alvarez Reina : Thank you very much for your kind invitation.