European Union and Mexico Finalize New Trade Deal

On April 28, 2020, the European Union and Mexico announced that they were finalizing a new trade deal after four years of negotiations. The deal is a significant upgrade from a 2000 agreement that only covered industrial goods. The new EU-Mexico agreement will cover services, government procurement, investment, and farm products like Mexican chicken and European dairy products.

The EU-Mexico deal will expand an already vibrant economic relationship. Mexico is the EU’s top trade partner in Latin America, and the EU is Mexico’s third largest trading partner in the world. EU-Mexico trade in goods is currently valued at over 60 Billion Euro, while trade in services is worth another 19 Billion Euro. Top Mexican exports to the EU are transport equipment, machinery and appliances, mineral products, and optical/photographic instruments. Top European exports to Mexico include machinery, appliances, transport equipment, chemical products, and base metals. Europe’s service imports from Mexico are dominated by travel and transport services, while Mexico’s imports from Europe primarily includes business services, transport services, travel services, telecommunications, and computer and information services.

Under the updated agreement, the EU and Mexico have agreed to eliminate customs duties on practically all goods and agreed to modify their regulations to facilitate and protect investment between the two jurisdictions. The following are some highlights from the new deal:

  • Tariff Phase-Outs. Notable examples of significant tariff cuts that will occur over a seven-year period include:

    • duties on poultry slashed from 100 percent to 0 percent;

    • duties on cigarettes slashed from 67 percent to 0 percent;

    • duties on cheese and pork slashed from 45 percent to 0 percent;

    • duties on chocolate slashed from 20 percent to 0 percent; and

    • duties on pasta slashed from 20 percent to 0 percent.

  • Digital Trade (prohibits governments from requiring disclosure of source code; eliminates charges for many electronic transactions).

  • Trade in Services (does not require companies to maintain a physical presence in a host country to provide service).

  • Mutual Access to Government Procurement Markets. Mexico agreed to open up access to procurement beyond the federal level for the first time, with 14 states ready to open up their procurement markets to EU companies.

The EU-Mexico deal will still need to be approved by the various EU governments and the European Parliament after being translated into all member-state languages. Experts anticipate that the process will be completed by the end of the year, but the current pandemic and economic crisis is throwing this into question.

Despite inevitable delays from Covid-19, the agreement enjoys broad support both in the EU and Mexico and will likely be pushed by business leaders in both countries. EU exporters will benefit from quick ratification to maintain an advantage against the their U.S. counterparts while the latter wait for the new United States-Mexico Canada Agreement (“USMCA”) to go into effect. In a prior article, we wrote about how despite the recent approval of the USMCA by all members states, many prominent groups like auto manufacturers were requesting a delay of the new deal. These groups, led by a growing coalition of Senators, argue that complying with burdensome new regulations may be impossible during the current crisis.

Although the USMCA is sure to go into effect in the near future, the U.S.’s ongoing trade war has strained this country’s economic relationships with its many allies. Largely because of the trade war, the EU deal is part of an effort by Mexico to reduce its reliance on the United States, the destination of 80% of its exports. The imminent EU-Mexico deal is just one example of how the U.S.’s historic partners are moving on with or without American support. It follows the lead of similar agreements between the EU and Japan and the Mercosur bloc of Argentina, Brazil, Paraguay and Uruguay. Many of these countries have also moved forward with the Trans-Pacific Partnership (“TPP”) even after the U.S. withdrew.

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Sources

https://uk.reuters.com/article/uk-mexico-eu/eu-mexico-conclude-talks-to-update-free-trade-deal-idUKKCN22A2L2

https://www.akingump.com/en/news-insights/eu-and-mexico-announce-the-finalization-of-an-updated-free-trade-agreement.html

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