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Understanding the Free Trade Agreement between Mexico and the European Union
Mexico and the European Union (EU) have been partners in trade and investment for over two decades, and their economic relationship has been strengthened by a comprehensive free trade agreement (FTA) that entered into force in 2000. This agreement has reduced or eliminated many barriers to trade, increased market access for goods and services, promoted investment flows, and facilitated cooperation in various areas of mutual interest. In this article, we will explore the key features, benefits, and challenges of the Mexico-EU FTA and its current status and outlook.
Background and context
Mexico is the second-largest economy in Latin America and the 11th-largest in the world, with a population of over 126 million and a diverse range of natural resources, industries, and services. The EU is a union of 27 member states with a total population of over 450 million and a combined gross domestic product (GDP) of over €15.5 trillion ($18.5 trillion). The EU is also the world`s largest single market and the leading exporter and importer of goods and services.
The Mexico-EU FTA was the first agreement of its kind between the EU and a Latin American country. It covers all aspects of trade and investment, including the elimination of tariffs on industrial and fisheries products, the reduction or elimination of tariffs on agricultural and agri-food products, the opening of services markets, the protection of intellectual property rights, the promotion of sustainable development, and the establishment of dispute settlement mechanisms. The FTA also includes provisions on labor rights, environmental protection, and human rights, which reflect the EU`s values and norms.
Benefits and challenges
The Mexico-EU FTA has brought many benefits to both parties, such as:
1. Increased trade: Since the FTA entered into force, the bilateral trade between Mexico and the EU has more than tripled, reaching €66.5 billion ($79 billion) in 2020. The EU is now Mexico`s second-largest trading partner after the United States, and Mexico is the EU`s second-largest trading partner in Latin America after Brazil.
2. Diversified exports: The FTA has allowed Mexican exporters to access new markets and increase their competitiveness in the EU, which is a high-income and high-demand region. Mexican exports to the EU have diversified from traditional products like oil, minerals, and textiles to value-added goods and services like vehicles, electronics, aerospace, and tourism.
3. Attracted investment: The FTA has also promoted investment flows between Mexico and the EU, as it provides a stable and predictable legal framework for investors and reduces investment barriers. The EU is the largest source of foreign direct investment (FDI) in Mexico, with a stock of over €185 billion ($220 billion) in 2019, covering sectors like automotive, energy, food and beverages, and financial services.
4. Enhanced cooperation: The FTA has fostered cooperation between Mexico and the EU in many areas of mutual interest, such as research and innovation, education and culture, environment and climate change, and security and justice. The FTA also includes a joint committee and specialized working groups that monitor and facilitate the implementation of the agreement and address emerging issues.
However, the Mexico-EU FTA also faces some challenges and criticisms, such as:
1. Uneven benefits: Some sectors and regions in Mexico have not fully benefited from the FTA, as they face structural barriers, lack of competitiveness, or insufficient infrastructure and human capital. The FTA has also contributed to the concentration of FDI in certain industries and regions, which may exacerbate inequality and regional disparities.
2. Disputes and non-tariff barriers: The FTA has not prevented some disputes or non-tariff barriers from arising between Mexico and the EU, such as the recent conflict over renewable energy projects and the lack of recognition of Mexican organic certifications in the EU. The FTA has established mechanisms for the resolution of disputes, but they may be slow, costly, and complex.
3. External pressures: The FTA may face external pressures from global trends and events, such as the rise of protectionism, the impact of the COVID-19 pandemic, the uncertainty of the global economic recovery, or the geopolitical tensions between the EU and other powers like the United States, China, or Russia. The FTA may need to adapt and evolve to these challenges and opportunities.
Current status and outlook
The Mexico-EU FTA is a dynamic and evolving agreement that has been updated and expanded over time, to reflect the changing needs and priorities of both parties. For example, in 2018, the FTA was modernized to include new chapters on trade and sustainable development, small and medium-sized enterprises (SMEs), and anti-corruption. The modernization also improved the rules of origin for textiles and apparel, which are important sectors for Mexico.
The current status of the Mexico-EU FTA is generally positive, despite some challenges and uncertainties. Both parties have expressed their commitment to deepen and strengthen their economic partnership, and to explore new areas of cooperation, such as digital trade, e-commerce, and green growth. The FTA may also benefit from the upcoming ratification of the EU-Mexico Global Agreement, which is a broader and more strategic framework that includes political, security, and cooperation dimensions.
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