The upgraded EU-Mexico Global Agreement, concluded in 2020, will soon be approved by both sides. Rob Francis talked to César Guerra about the deal, why it matters, the process for ratification, improving it further – and the CPTPP in all this.
Q: Why did Mexico and the EU decide to renegotiate their trade agreement in the first place?
The agreement has been operating smoothly for 20 years, but it is very basic.
The deal phases out all industrial tariffs and includes some very basic disciplines, for example on competition and sanitary-phytosanitary measures. But it also features plenty of exemptions on tariff liberalisation.
Bananas, for instance, were excluded from tariff elimination. Since the entry into force of the agreement in 2000, other South American countries were able to benefit from lower tariffs on bananas through their new trade agreements with the EU, whilst Mexican exporters continued to pay the most-favoured nation duty. This means the country can’t compete.
As time went on, Mexico acquired and granted better access for its agricultural products with other trade partners such as within the Pacific Alliance, agreements with other Central American countries, and the Trans-Pacific Partnership [now CPTPP]. This situation, for example, put the European dairy exports to Mexico at a disadvantage vis-à-vis Australia and New Zealand.
These agreements also contain more developed trade disciplines, with the result that Mexico ended up with very efficient FTAs with some parts of the rest of the world. The EU FTA started to look rather old by comparison.
Q: What did the upgrade achieve?
In the old agreement the geographical indications chapter only covered spirits. The upgrade widens the approach to include food and beverages, such as cheese, ham, wine, and beer, protecting more than 500 EU names in Mexico.
In the same vein, the names of various Mexican products, including non-agricultural products, will be covered in the EU.
The modernisation provides for a whole new investment court system that will replace the bilateral agreements which Mexico has with 16 EU member states. Mexico was used to the traditional system, but now must move towards the new investment court system.
The upgrade will for the first time also enable EU companies to bid for government contracts at the Mexican state level not just the federal level. The states that are bound by these commitments cover more than 64% of Mexico’s economic output.
There are also new chapters with modern disciplines on specific sectors such as financial services, telecommunications, maritime services, delivery, and digital trade.
Q: How does the upgrade with the EU fit with the broader Mexican trade strategy?
Even though the new Mexican government is politically from the left, the Mexican economy is linked to exports. This explains why the government approved the United States-Mexico-Canada Agreement during the Trump administration.
Although 80% of Mexico’s exports go to the US, the country is active on many other fronts.
It is in the advanced stages of trade negotiations with Ecuador, is in the early stages of talks with the UK, and is exploring the possibility of negotiating a deal with South Korea.
Q: How can this agreement contribute to the current Mexican government’s plans on energy and climate?
The upgrade includes a trade and sustainable development chapter – albeit the old one which precedes the European Commission communication from June.
The trade and sustainable development chapter does not provide any additional disciplines on Mexico than already exist. In fact, labour concerns are more of a headache for the country than environmental requirements.
It’s true that this is the EU’s older version of the TSD chapter – and for this reason it could be seen as a ‘softer’ text.
But seen from Mexico, just having an agreement with the EU is a form of pressure. If you don’t comply, they will be after you!
Q: Where do we stand with the signing of the upgrade and its ratification?
There has been a proposal from the European Commission on the way forward which includes separating the trade part of the deal from the rest and placing it in an annex. Mexico is still analysing this proposal.
The majority of political groups in the European Parliament would be in favour of ratification. Those who are against will be those parties who vote against ratifying all trade agreements as a principle. It doesn’t mean they have a particular concern about this trade deal.
Once President López Obrador signs the deal, the main political parties in Mexico will fall into line and vote in favour. In the past most political groups in the senate have backed trade agreements.
There have recently been some changes in personnel on the Mexican side. The head of the ministry of economy changed, and the undersecretary of foreign trade resigned this month.
So there will be new appointments in the Mexican negotiating team. This will create some uncertainty, but it shouldn’t derail the process.
Q: Do you expect another upgrade in the future?
We will need to revise the rules of origin. We managed to modify two thirds of the rules of origin. Mexico pushed for specific rules of origin for the automotive sector in the negotiations – but the EU only granted partial concessions.
Mexico agreed to that at the time. But any opportunity to improve rules of origin on automotive products, as well as other sectors, would be welcome.
There is also an opportunity to improve the rules on data flows. When negotiating the original agreement, the EU didn’t know what its future position would be.
Now Brussels has clarity on what it wants when it comes to agreeing rules on data flows with third countries. With the review clause included in the FTA, both sides will be keen to negotiate on this too, when the time is right.
Q: Mexico is a fully-signed-up member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Some people in Brussels think the EU should try to join too. What do you think?
CPTPP has gained status in recent months thanks to applications to join from the likes of China and the United Kingdom.
If a country believes in trade liberalisation, hard disciplines, and modern commitments, it makes sense for them to join.
But then you need to think about the geopolitical element, and specifically how to handle China.
All decisions by the CPTPP membership are taken with one eye on the possibility of the US re-joining, maybe not during the Biden presidency, but at some point in the future.
In this context Washington would probably see the UK and the EU as welcome additions to the CPTPP.
The best way for the EU to proceed is to make bilateral agreements with CPTTP members, as it is doing. This would smooth the transition to CPTPP membership, and the two approaches would go hand-in-hand.
But if it does decide to apply, the EU must be ready to negotiate at some point with the US.
Within the CPTPP, new applicants need to negotiate market access rules with individual members. In some cases, this could make life easier for the EU, which may be able to replicate its market access offers with the likes of New Zealand and Australia.