Updating the EU-Mexico Free Trade Agreement
Mexico and the European Union (EU) have agreed to update their existing free trade agreement to further improve an already positive trade relationship. According to data from Descartes DatamyneTM, $73 billion USD worth of goods was traded between the two regions in 2017 with current European exports to Mexico are valued at over $44 billion USD and Mexican exports to the EU amount to $28 billion USD.
Since the original EU-Mexico Free Trade Agreement was signed in 1997, trade between the two has risen roughly 8% per year, a 148% increase since 2000. In late-April, 2018, both parties accepted an update and expansion to the FTA in principle. In addition to cooperation on issues ranging from human rights to medical research, the two agreed to the elimination of trade barriers that were still in place after the 1997 agreement.
The original agreement eliminated tariffs on manufactured goods and raw materials, but not food or drink. The new free trade agreement expands the list of duty-free goods to include many in the agricultural sector. The elimination of agri-food tariffs is key to European businesses as Mexico is the second largest export market in Latin America for the EU food and drink industry.
This could also open the door to Europe for select, yet substantial, Mexican agricultural exports.
Benefits to EU Exports
The primary commodities in the European Union that may benefit from the new trade agreement are poultry, pork, cheese, and pasta.
Poultry & Pork
Poultry and Pork exports had two of the highest duty rates among agricultural goods. Previously, due to those rates that could reach 100%, European exporters had little reason to look to Mexico as a potential market. Now, with the new agreements expected to put into place, shipments have already begun to rise as the Netherlands exported nearly $60,000 worth of poultry and Spain shipping half a ton of pork in April. While not currently benefiting from reduced tariffs, businesses in these companies are already developing contacts and nurturing the potential market.
Cheese & Pasta
As the updated agreement began taking shape in early 2018, cheese and pasta exports from the EU to Mexico steadily grew. The value to cheese exports grew 92% to $6.21 million USD and pasta grew 68% to $1.11 million USD. The export value of these commodities will undoubtedly continue to rise after the elimination of the 20% duty-rate on pasta and 45% rate on cheese.
Benefits to Mexico
While the new deal opens several industries for European exports, the primary reasoning for Mexico to seek this updated agreement with Europe is the reduction of its reliance on the United States. Mexico has been seeking to expand its network of free trade agreements amidst heightened trade tensions. The new agreement signals a strong desire from the Latin American country to diversify away from its longstanding trade dependence upon the United States. According to Mexican President Enrique Pena Nieto, “The modernization of this instrument broadens our markets and consolidates us as priority partners of one of the most important economic blocs in the world.”
The EU was Mexico’s third-largest source of imports in 2017, after the U.S. and China. Key European exports to Mexico include other machinery, transport equipment, chemical products, base metals, and plastics.
EU-Mexico Trade Agreement – Tariffs Against US
Along with working towards updating the free trade agreement between the two regions, Mexico and the EU both imposed retaliatory duties on U.S. goods, responding to the United States imposing Section 232 steel and aluminum tariffs.
Read more about the tariff and trade policy changes here.
Select industries have an opportunity to take considerable advantage of these tariffs alongside the new trade agreement. Among the dozens of goods to that received increased tariffs by Mexico where several agricultural products, including cheese. With the now duty-free trade of agricultural goods, EU exporters could step in to meet Mexico’s demand for these agricultural goods.
Among the U.S. goods to receive increased duty-rates from the EU, there are several less-obvious opportunities for Mexican exporters to take advantage. The largest of these opportunities is in boy’s or men’s suits (HS 6023) which received a 50% duty increase in the retaliatory tariffs. Mexico exports of suits in 2017 reached nearly $1.38 billion in value.
Current Trends and Free Trade Agreements
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Date posted: August 1, 2018