The USMCA Labor Council met for the first time on June 29th. The Council is composed of senior governmental representatives from trade and labor ministries, as designated by each Party.
During the first meeting, the Council discussed the domestic mechanisms, institutions, and procedures that each party is employing to advance and guarantee the fulfillment of the USMCA labor chapter’s provisions in subjects such as:
We note that Mexico still does not have a legal mechanism to prohibit the importation of goods that were produced by forced labor.
Needless to say, the last point takes on special relevance in light of the collective bargaining agreement (CBA) “legitimization” process at the General Motors plant in Silao. This event made evident the need to strengthen the legitimization process as well as to complement with other measures to comply with the labor chapter of the USMCA.
Accordingly, during the meeting, the Mexican government announced that the Ministry of Labor is preparing an update regarding the CBA legitimization protocol, which will give greater powers to inspectors and prohibit the partial recount of votes at the time of electing a new union leader.
As noted in our previous newsletter, two U.S. complaints are active, namely against certain events entailing General Motors in Silao and Tridonex in Matamoros.
News outlets reported that Mexico sent a letter to the United States, accepting a “denial of rights” and to formally initiate the joint “negotiations” to resolve the request filed by the USTR regarding GM’s CBA legitimization process.
This event marks the next step in the process of the RRLM. Mexico and the US will have 10 days to agree on the remedial measures.
Lastly, on the afternoon of the 29th, the Labor Council held a virtual public session, during which workers, employers, civil society organizations, and the general public had the opportunity to discuss matters related to the implementation of the USMCA’s labor chapter.
According to data published by the National Institute of Statistics and Geography (INEGI), in the first five months of this year, the trade balance showed a surplus of 333 million dollars.
The value of Mexican merchandise exports was US$40,798.35 billion in May 2021, which represented an increase of 125.21% with respect to the same period in 2020, the highest increase since 1991.
It’s worth highlighting oil exports, which registered an increase of 137.9%, non-oil exports, and manufacturing exports registered an increase of 125.5% and 134.3% at an annual rate, respectively.
Likewise, it is important to underline that Mexican exports of inputs for the automotive industry, a key industry for the USMCA, had an annual growth of 859%.
Therefore, it is expected that the USMCA will continue to help attract greater investment and boost trade with North America.
On the other hand, imported goods amounted to 40.5 billion USD, which implies an increase of 87.5% at the annual rate.
The 184.1% annual rate increase in oil purchases and the 80.8% annual rate increase in non-oil purchases stand out.
On June 22, the Ministry of Health modified the Agreement that regulates the importation of health inputs and supplies for the correct and timely provision of health services. Said agreement allowed the importation of health inputs with or without sanitary registration in Mexico for health policy and contingencies. This is due to the fact that the sanitary certification of certain foreign agencies was recognized as equivalent, which expedited the process by approximately one-third and thus facilitated the importation.
Now, the new regulation establishes, in essence, that only public health and social security institutions will be authorized to benefit from this scheme to import health inputs, without sanitary registration in Mexico, which are necessary to cover their needs.
Under this framework, the importer must initiate the process of authorization of sanitary registration in Mexico 10 business days after the permit to import without registration is granted. Otherwise, COFEPRIS (the competent Health agency) will not grant a new permit with these characteristics. The agreement also establishes the necessary requirements for such permits to be granted.
VTZ regrets that the same flexibility is not granted to private-sector health care providers, since the General Health Law and the Health Inputs Regulation do not make a distinction between the public and private sector for the importation of medicines and other inputs in cases of contingency or for health policy.
Customs is a source of concern for the current administration, which has had three customs directors so far. On Monday, the President recognized that his administration has not been able to control corruption at customs. According to his statements, synthetic drugs are entering through the port of Manzanillo, Mexico’s most important port, while “anti-corruption” actions are taking place in the Nuevo Laredo customs.
While visiting Manzanillo today, President AMLO made a “general” announcement in his daily press conference that the armed forces will be “in charge” of the customs located in land or ports because they have been poorly “managed”. The specificities of the plan as well as what will be the powers of the armed forces at customs are yet to be announced.
In the words of the president:
“We have taken the decision… that the land and sea customs will be in charge of the Ministry of Defense, and the Ministry of the Navy will be in charge of the customs in the ports.”
This is not the first time that armed forces have intervened in customs or ports. For instance, we recall that the Ministry of Navy took “control” of the Lazaro Cardenas Port and Manzanillo in 2013 and 2014 (news reports in Spanish), respectively. Furthermore, a decree was published in the Official Gazette that authorized the intervention of the navy in the ports in 2014, but their powers were limited to “policing in ports”. Nevertheless, we are aware that during this period international operations, such as exports regarding certain products (e.g. minerals), faced “difficulties” at customs.
Based on past experiences, we wonder whether importers or exporters in Mexico will face difficulties if the operation of customs or ports is indeed in charge of Mexican armed forces.
On Tuesday, Reforma published an article where experts called to review USMCA internally and periodically. Among the experts, Adrian Vázquez, our managing partner, considered that this review would allow to evaluate, for instance, if imports are integrating value chains or displacing national production.
The National Institute of Statistics, Geography, and Information (INEGI) released on Monday the data on Mexico’s trade balance during April 2020. According to the figures, Mexico’s trade balance had a trade deficit of 3,087 million dollars during April. Compared with the same month of the previous year, INEGI reported that Mexico had a surplus of $ 1.51 billion.
This negative monthly performance is, of course, explained due to the measures implemented by the COVID-19 pandemic, both nationally and internationally.
The monthly deficit of the Mexican trade balance is explained by the annual decline in exports of 40.9%, this has been the worst drop in the indicator since 1986. When comparing to April 2019, oil and non-oil exports decreased by 66.4% and 39.4%, respectively.
Among non-oil exports, the following data stand out:
Exports to the United States decreased by 40.7%, while those directed to the rest of the world decreased by 33.4%.
On this, Fernando Ruiz Duarte, general director of the Mexican Business Council of Foreign Trade, Investment, and Technology (COMCE), commented “the April figures were already expected since around 80% of sales abroad are directed to the United States and its economy was practically paralyzed, so it is logical that exports decrease. ” He also called for the need to diversify export markets.
The other noteworthy data is that exports from the manufacturing industry decreased by 41.9%, whereby 79.1% correspond to the automotive industry and 20.9 % correspond to non-automotive manufacturing exports decreased.
Imports decreased by 30.5% when compared to the figures in April 2019. According to the type of goods, consumer goods, intermediate-use goods, and capital goods decreased by 46.5%, 28.1%, and 26.7%, respectively.
Just another friendly reminder that on June 2nd, 2020, the free webinar on “Labor & Trade: Is Mexico ready for USMCA’s Labor Chapter?” will take place organized by the US-Mexico Bar Association, in conjunction with VTZ.
The Panel will be made up of Ricardo Aranda from the Ministry of Economy, Gabriela Peregrina from DeForest Abogados, Olga Torres from Torres Law and will be moderated by our Jr. partner Emilio Arteaga. The members of the panel will discuss the results of USMCA’s labor chapter, the rapid response mechanism as well as whether there is any other labor-related risk to Mexico-US international trade relation.
Register to the Webinar: https://docs.google.com/forms/d/e/1FAIpQLSfFxcD_hJCmCFAGuBhj2YdbYeHU8Gf6el5cKC67x1hYy-gslQ/viewform
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As reported in a news portal, in 2019 Mexico surpassed China in the commercial exchange with the US, taking into account imports and exports according to US figures. As a result, Mexico became the main trading partner of the US in 2019; accordingly, since 2005 Mexico has not been in said position. Obviously, this displacement is due to the Chinese and US trade conflict, as well as the growth of the US economy.
This is not a novelty, UNCTAD conducted a study on the effects of the US-China trade war on trade flows last year. In short, several countries have occupied part of the “void” that China has left, including Mexico, Taiwan, Vietnam, among others. See our summary of the UNCTAD report for more details here.
According to the figures from the Department of Commerce, Mexico increased its exports to the US 3.47% in 2019 compared to 2018, while China’s exports decreased by 17%, the above is reflected in the following table:
In this regard, the president of the National Association of Importers and Exporters of the Mexican Republic (ANIEM), Gerardo Tejonar Castro, acknowledged that there was no way for the national industry to completely fill the void left by China and said that these results may be temporary because, on the one hand, China has already reached the Phase 1 Agreement.
Legal Amendments & International Trade
After a series of steps to reform Mexico’s Harmonized Tariff Schedule (MHTS) that included public consultations, yesterday the Commission on Economy, Commerce, and Competitiveness of the Chamber of Deputies discussed the new Law on General Import and Export Taxes (LIGIE), as well as reforms and additions to the Customs Law.
The new LIGIE will implement the sixth amendment of the Harmonized System of the World Customs Organization to improve the identification and classification of the goods. In particular, the sixth amendment addresses the classification of the following goods: fishery products, forest products, anti-malaria, chemicals, and technology advances.
Needless to say, the MHTS has not been revised comprehensively since its creation, therefore, the Ministry of Economy took the task of conducting an exhaustive review. In that sense, it is planned to eliminate tariff items by low trade and, therefore, to compact tariff items, and unfolding tariff items for statistical purposes into 10 digits, which will be called Commercial Identification Number, instead of the current 8 digits.
Mexico will soon update the Harmonized Tariff System (HTS) with the aim to implement the Sixth Amendment to the Harmonized System as a result of Mexico’s commitment as a member of the World Customs Organization. This change to the Harmonized System seeks, in general terms, to adjust the international nomenclature according to the actual trade flows.
Like all other 153 contracting parties to the International Convention on the Harmonized Commodity Description and Coding System, Mexico shall implement the Sixth Amendment to the Harmonized System in 2017. The said amendment refers to the following sectors: fishing, forestry, anti-malaria, chemicals, ceramics, technology, among others.
In addition, the Ministry of Economy will also carry out a holistic review of its current HTS. Consequently, the Ministry of Economy plans to eliminate tariffs with low trade flows as well as to create and unfold tariffs for statistical purposes (10 digits instead of 8).
Given the above, the Ministry of Economy has opened Public Consultations to generate a “new” HTS, providing the opportunity to receive comments from all other sectors that were not included in the Sixth Amendment.
Public Consultations will conclude in February 10, 2017, and Vázquez Tercero & Zepeda is available to advise and assist companies that are interested in this matter. For further information in how we can assist your company, please feel free to contact Ms. Verónica Vázquez (email@example.com ).