Historical background of the agreement

Mexican economy has greatly improved following the entry into force of NAFTA on 1 January 1994. Its share of world exports has grown from 1.1% in 1990 to 3.1% in 1999. The success in the NAFTA encouraged Mexico to enhance economic cooperation with its second trading partner---the EU. It is noted that Mexico has not signed any free trade agreement with European countries before.

Mexico is traditionally one of the EU’s most important trading partners in Latin America and a strategically important market for its exports, with significant growth potential. In addition, it is the EU's belief that regionalism and multilateralism are mutually supportive strategies in the pursuit of the internationalization of economic life. It thus contributes to the further liberalization moves in Latin America, including Mexico.

Mexico and EU started to strengthen cooperation in 1995. In that year, they signed the Solemn Joint Statement in which both Parties undertook to deepen their economic, political and cooperation relations, including the liberalization of bilateral trade.

More importantly, both parties signed the Economic Partnership, Political Co-operation and Co-operation Agreement (also called Global Agreement), an Interim Agreement and a Final Act in Brussels on 8 December 1997. The Global Agreement, which entered into force on 1 October 2000, has laid the basis for the negotiation of the free trade agreement between Mexico and the EU. It consists of 3 parts: political dialogue, trade liberalisation and cooperation.

The Interim Agreement, on the other hand, focuses on trade and trade-related matters. It is indeed the commercial edge of the Global Agreement and the legal instrument that made the trade negotiation possible.

The first round of the free trade negotiations was hold nearly a year after the signature of the Global Agreement in Mexico City on November 9th 1998. The negotiations were carried out alternatively in Mexico City and in Brussels, the capital of Belgium. After a year of discussion, they concluded the free trade agreement negotiation on 24 November 1999.

Objectives of the agreement

(a) To liberalise the reciprocal trade in goods, in compliance with Article XXIV of GATT 1994;

(b) To open the public procurement markets of the parties;

(c) To establish a cooperation mechanism in the field of competition;

(d) To set up a consultation mechanism in respect of intellectual property matters; and

(e) To set up a dispute settlement mechanism

A brief introduction of the agreement

Mexico and the EU agreed to establish a free trade area over a transitional period lasting a maximum of 10 years starting from the entry into force of this Decision, in accordance with the provisions of this Decision and in conformity with Article XXIV of the GATT 1994.

The agreement seeks to take full advantage of complementary export interests in the agricultural sector; and establishes a legal framework for the liberalization of the services market, the promotion of direct investment flows, the protection of intellectual property rights, the opening of government purchases, and the settlement of trade disputes.

The agreement gives different treatments for the trade in industrial goods and agricultural products and fisheries.

For industrial goods, Mexico enjoys preferential treatment on the elimination of custom duties. EU is required to eliminate tariffs charged on 82% of imports by value originating from Mexico on the date of entry of the agreement. The remaining tariffs will be abolished by 1 January 2003. Mexico, on the other hand, should eliminate tariffs charged on 47% of imports by value originating from the EU on 1 Jul 2000. The remaining custom duties will be dismantled by 1 January 2007.

For agricultural products and fisheries, tariffs will be phased out on 62% of that trade over periods of between 3 to 10 years. Tariff negotiations on sensitive products such as meat, dairy products, cereals and bananas are being deferred. Article 8 and 9 list out the schedules for eliminating customs duties on imports originating in Mexico and EU.

In regard to non-tariff measures, most of the quotas and import and export licenses should be removed as the agreement came into force. EU car manufacturers will temporarily be restricted to a 15% share of Mexico's new car market (as compared to their current 2% market share) but as from 2007 they will have unrestricted access.

To implement the opening of the public procurement markets between both parties, the EU is guaranteed to enter Mexican lucrative markets on the same basis as the USA and Canada under the NAFTA. Mexico is allowed to enter the EU's public procurement markets within the framework defined by the 1994 Agreement on Public Procurement. For instance, the EU access to some Mexican public procurement contracts e.g. PEMEX (Petróleos Mexicanos) and CFE (Comisión Federal de Electricidad) will be phased in over 10 years, whilst other Mexican sectors such as public utility and transportation services will remain closed.

General exceptions

The agreement shall not preclude prohibitions or restrictions justified on grounds of

(a) The protection of public morals;

(b) The protection of human, animal or plant life or health;

(c) The importation or exportation of gold or silver;

(d) The protection of national treasures of artistic, historic or archaeological value;

(e) The conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.

Such measures shall not, however, be applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination where the same conditions prevail or a disguised restriction on trade between the Parties.

Economic relations and expected benefits between the parties

The EU is Mexico's second biggest trading partner after NAFTA. The U.S., one of the member countries of NAFTA, shared approximately 80% of Mexican total trade in 2000. It should be noted that in 1993 EU's share of Mexico's trade was above 9%. But the EU’s share in Mexican total trade has shrunk significantly from 21% in 1981 to 6.5% in 1999. This has been attributed to both partners’ trade agreements with other countries, thus weakening the bilateral trade between European and Mexican exporters.

Mexico, on the other hand, is an important trading partner of EU in Latin America. In 2000, the imports from Mexico amounted to 6,973 million euro, accounting for 0.7% of EU total imports. Exports to Mexico shared approximately 25% of EU’s exports to Latin America in that year.

EU has long maintained trade surpluses with Mexico. The surpluses have gradually expanded from 1,232 million euro in 1990 to 6,875 million euro in 2000. The surpluses can be attributed to the strong demand for machinery and transport equipment from Mexico.

The Mexico-EU FTA is expected to boost the EU Foreign Direct Investment (FDI) to Mexico. Between 1994 and September 2001, Mexico has received more than 100 billion USD. Most of them are new investment. In July 2001 there were in Mexico 5,066 companies with EU capital (more than 80% of them with a majority participation), representing 23% of the total companies with foreign investment present in the country. The main manufacturing sector with participation of EU capitals is the car industry.

The FTA allows European and Mexican firms to fully benefit from the huge opportunities that bilateral trade offers. It assures EU exporters the same treatment enjoyed by Mexico’s FTA partners, opening the doors to one of the most dynamic markets in the world.

The FTA also provides a unique opportunity for investors to produce in a global manufacturing hub. The agreement establishes the framework for further integration between Mexico and the EU, allowing firms on both sides of the Atlantic to reap the benefits of joint production for markets across the Americas in Europe and around the world.

The FTA will consolidate Mexico’s privileged position as a strategic global trade hub and as a magnet for investment in the 21st century, fuelling Mexico’s continued drive towards sustained growth and prosperity.