Mexico: 25 years of free trade with the European Union

In December 1997, Mexico and the European Union (EU) signed the Economic Partnership, Political Coordination, and Cooperation Agreement, which is a fundamental part of the legal framework governing legal relations between the parties in various areas.

This agreement, which came into force in 2000, is also known as the “Global Agreement” (GA) due to its broad coverage of economic, political, and cooperation issues, the latter two being specific to this agreement, as they are not included in other agreements of this nature.

The economic part of the GA consists of the so-called “joint decisions.” The first refers to the liberalization of trade in goods and has been in force since July 1, 2000, and the second relates to the liberalization of trade in services and capital movements, investment, and intellectual property, and has been in force since March 1, 2001.

Below, we review the main milestones related to this agreement:

• Relations between Mexico and the European Union began in 1997.
• In December 1997, the GA was formalized.
• Mexico was the first Latin American country to sign an international agreement with the EU.
• This agreement came into force in July 2000, initially with 15 EU member states and later extended to all 28 EU member states.

Both “joint decisions” are precisely what is known as the Free Trade Agreement between Mexico and the EU (TLCUEM), which, over the years, has undergone various modifications resulting from both the incorporation and withdrawal of EU member states, technological developments, agreements on tariff classification, etc.

The conclusion and implementation of the TLCUEM seeks, among other things, to:

• Strengthening of trade relations between member countries.
• International integration.
• Economic growth.
• Development of foreign investment.
• Increased trade between both parties.

In addition to the above, free trade agreements also have the advantage of including various clauses on the protection of investments by transnational companies, granting investors protection to prevent the host country from taking actions that could be considered contrary to the principles established in the agreement itself.

In April 2018, Mexico and the EU made several updates to the treaty, concluding the ninth round of negotiations for the modernization of the TLCUEM. As a result, the TLCUEM was updated in three fundamental areas: expansion, strengthening of investments, and the inclusion of new chapters and sectors, among which the following stand out:

• Technical barriers to imports and exports.
• State-owned enterprises.
• Subsidies.
• Trade in services (particularly domestic regulation).
• Telecommunications.
• Maritime transportation.
• Delivery services.
• Anti-corruption.

The EU-Mexico Free Trade Agreement accounts for a large part of the trade volume between Mexico and the EU, which is currently Mexico's third largest trading partner after the United States and China.

As a result of the latest amendments, it is likely that, once they come into force, significant benefits will be obtained for both parties, such as:

• Elimination of virtually all tariffs on agricultural products that were not liberalized.
• Simplification of customs procedures.
• Establishment of progressive standards for sustainable development.
• Combating corruption in the public and private sectors.
• Expanding access to public procurement markets.
• Greater protection of intellectual property rights.
• Opening trade in services (financial services, transport, e-commerce, telecommunications, etc.).

The EU is currently one of Mexico's largest sources of foreign direct investment (FDI), with nearly 20,000 companies with European capital in the country. The main EU Member States investing in Mexico and accounting for most of the EU's direct investment are Spain, the Netherlands, Germany, and France.

The above benefits, together with the current geopolitical situation, present great opportunities for European investments to use Mexico as a platform for the production of various finished goods whose final destination is either the EU itself or other markets in countries with which Mexico has a free trade agreement and which may grant benefits relating to lower tariffs or customs duties on their importation. This can represent a significant advantage in terms of costs and access to various markets, which, in essence, is one of the main reasons for the existence of nearshoring, reshoring, and outsourcing processes.

Recently, several countries that have been subject to higher tariffs in some markets have shown particular interest in using Mexico as a jurisdiction where production processes can represent a benefit in terms of the cost derived from import tariffs and taxes in the countries of final destination, taking advantage of the various trade treaties and agreements to which Mexico is a party.