New FTA betwen Mexico and the EU offers new opportunities

On April 21, 2018, the negotiation process for the modernization of the Free Trade Agreement between Mexico and the European Union (TLCUEM) came to a close. The most relevant adjustments in the new agreement are focused on the liberalization of farm food and electronic services, the reinforcement of intellectual property politics with the adoption of Geographical Indications (GI) , the accumulation of rules of origin in the vehicle sector, and the reinforcement of a competitive environment for private companies in public contracts between Mexico and the European Union.

Ever since the first FTA between the European Union and Mexico came into force in the year 2000, the commercial trade between the two parties has grown four times, according to data from 2017.

On the past year, the EU’s main exports to Mexico were machinery and mechanical accessories (24.8%) , as well as vehicles and aeronautics (16.8%) ; whereas Mexico’s main exports were of electronic equipment (16.8%) and petroleum, natural gas and coal (15.6%) . In order of importance, the main European commercial partners of Mexico are Germany, Spain, France, and Italy. On 2017, the European Union accounted for 5.6% of goods exports in Mexico in 2017. This has lead to the Union becoming the second most important region for Mexican goods exports , the first being the countries that take part in NAFTA. The European common market has thus become Mexico’s third commercial partner after the United States and China. The success of this renegotiation falls within the diversification of Mexican exports in view of the recent neo-protectionist politics of the United States .

The Ministry of Economy published a tweet celebrating the enactment of the new agreement: "With the new FTA MEX-EU, tariffs for Mexican products such as orange juice, tuna, agave syrup, fruits and vegetables, among others."

During the renegotiation of the TLCUEM (The new FTA between Mexico and the EU), there were two subjects that showed the most lobbying: The Rules of Origin (RO), and the acknowledgment of Geographical Indications (GI) .

On the first case, the proposition was to allow the accumulation of origin of regional value content, which would allow for both Mexico and the European Union to acquire supplies from other countries that either of both parties trade with individually, without losing the original proportion of production. At the end of the renegotiation, the rule of origin for the automotive sector was kept at a rate of 60%.

In the case of the IGs, the recognition and protection of this policy were ensured in Mexico, with which the products, mainly from the agricultural sector, with a specific geographic origin that related to their quality or reputation, couldn’t have been distributed in Mexico under their original names.

The cheese industry in Mexico, which was shaping up to be the most affected, managed to exempt the country’s most largely consumed varieties of the product. In the new TLCUEM, the types of cheese produced in Mexico under names that are protected by a European IG, such as the manchego cheese, can now only be distributed under their original names if they include the clause “type of”, “imitation”, “produced in”, etc . In 2016, the manchego cheese was on the 7th place of consumer preference in Mexico, with a participation of 9% in total consumption.

Furthermore, the maximum exportation allowance for products like agave, agave syrup, Mexican chicken, eggs, and bananas was eliminated, while the maximum allowance was increased for beef and the exportation of orange juice to the Common European Economic Area was released. In addition, the protection of Mexican products like Ataulfo mangoes from Soconusco in Chiapas, rice from Morelos and cacao from Grijalva was granted. The immediate liberalization of agricultural products will be of 86% with the new agreement.

The signing of the new TLCUEM represents a formidable opportunity for the Mexican market's expansion. It is time to prepare a new agenda in order to lead the national transition to the IG system, guaranteeing optimal conditions for the competitivity of small producers, and to exert a close observation to ensure that the modernization of the TLCUEM contributes to increasing the value of Mexican exports and, with it, the country’s competitiveness.

This must be done while enhancing technological exchange and the innovation of Mexico’s exports to the continent, among other things. Both businessmen and governments must work hand-in-hand on the basis of a clear and long-sighted industrial policy to manage the market and develop national chains of production with the capacity to contribute to global chains of supply, with a view to the generation of national wealth through the added value of the products that Mexico sends abroad.

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