Government News Analysis Trade

Caution: Mex meth, a new galleon trade

The country that once controlled and administered the archipelago – as a viceroyalty of New Spain from its capital, Mexico City – is now a minor player in Philippine commerce.

Mexico, back in time the Philippines’ biggest trading partner, in trade terms today is a faint shadow of its former self. The country that once controlled and administered the archipelago – as a viceroyalty of New Spain from its capital, Mexico City – is now a minor player in Philippine commerce. The burgeoning galleon trade between Acapulco and Manila is long gone, and in its wake is a trickle of shipments that contributes relatively little to either economy.

In 2014, bilateral trade between the two countries was valued at US$2 billion – the Philippines piece of that accounting for a fraction of 1% of its total trade. This puts Mexico as a destination for Filipino goods and Philippines as a recipient of Mexican goods way down their respective lists of trade partnerships. But while there’s an appetite on both sides of the Pacific to improve those figures, there’s a sense of caution where the present administration in Manila is concerned. And one reason for that is a Mexican export it doesn’t want unloaded in the Philippines – Mexican-made methamphetamines.

For while large Mexican multinationals would welcome the chance of breaking into the Philippine market, so too would Mexico’s multinational drug syndicates – in fact, the biggest of them, the Sinaloa cartel, is already in the country.

Evidence that this organised-crime mob is operating in the Philippines first emerged at the end of 2013 when a police raid on a Batangas ranch uncovered a US$9 million stockpile of crystal methamphetamine (or, shabu). The Philippine Drug Enforcement Agency traced it back to Mexico’s Sinaloa – according to the US Intelligence Community, “the most powerful drug trafficking organization in the world”. The extent of the cartel’s penetration was thought to be small at that time; but right now, no one seems to know how deep its roots run through the Philippine earth.

President Rodrigo Duterte has made it very clear what his concerns are. “I will not allow our country to become Asia’s Mexico. We will not become a narco-state,” he said back in January. Mexico’s ambassador to the Philippines, Julio Camarena, meanwhile, has yet to be received at Malacañang, the presidential palace.

That said, two large Mexican corporations are expanding their presence in the Philippines. Cemex Holdings Philippines Inc, a subsidiary of Cemex, the largest cement maker in the Americas, is investing US$300 million in a plant that will produce 1.5 million tones of cement annually. This should be operational by mid 2019. Meanwhile, Mexican beverages firm, FEMSA S.A.B de C.V. – a partner in the Mex-Pinoy JV, Coca-Cola FEMSA Philippines Inc. – is planning to establish a manufacturing facility in the Philippines for its subsidiary, heavy-duty store cooler and refrigerator-equipment supplier, Imbera. There have also been unconfirmed reports that Mexican telecom giant, America Movil, is interested in entering the Philippines telco sector. This is all good investment news.

Mexico, however, provides a cautionary tale for the Philippines. It is the graphic portrayal of what can happen when a drug-fuelled economy gets out of control. Like the Philippines, Mexico is in the throes of a massive drugs and crime upheaval – one that’s been raging there since 2007. By 2014, Mexico’s homicide toll had reached 164,000. No one’s really sure what it is today. Nobody’s counting any more. But the drug business has permeated every strata of the society; the pestilence has created narco-politics, a narco-judiciary, narco-police. In effect, the drug overlords have largely taken over the running of the country. Sound sort of familiar?

These two countries which have a shared past also share other remarkable present-day similarities. And they are anything but enviable. In both there is a huge chasm between rich and poor. Mexico has a poverty rate of 46%; some 25% of its workforce is underemployed; salaries of agricultural workers are three to four times less than urban workers. And yet Mexico’s GDP per capita is US$17,500. In the Philippines 25% of Filipinos live in poverty, 12% in extreme poverty; the underemployment rate stands at 19.7%; agricultural workers are paid 15% less than non-agricultural workers. And yet the Philippines has a GDP per capita of US$7,300.

The Spanish galleons which sailed from Acapulco to Manila were laden with silver, the cash crop of the day, plundered from Mexico’s mines. The last thing the Philippines needs in this age is a revitalistion of that route to allow the passage of vessels laden with crystal meth, a currency of death and debilitation that could potentially plunder the life of a nation – certainly further impoverish it.

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