Mexico-United Kingdom Trade Continuity AgreementVTZ

Trade Continuity Agreement Between Mexico and the United Kingdom| Trade Alert

30 Apr , 2021

Trade Continuity Agreement between Mexico and the United Kingdom of Great Britain and Northern Ireland

With the United Kingdom´s (UK) withdrawal from the European Union (EU), the need to sign a new transitional trade agreement between Mexico and the UK arises so that the rights and obligations, which established preferential trade conditions as well as a platform to promote greater trade liberalization between the parties, are maintained between the two countries.

On the one hand, the 1997 Economic Partnership, Political Coordination and Cooperation Agreement between Mexico and the European Community and its Member States (hereinafter referred to as the EU-Mexico FTA) ceased to govern trade relations between Mexico and the UK. On the other hand, the Withdrawal Agreement signed between the UK and the European Community, which extended the period in which the UK would be treated as a member state of the EU, ended on December 31, 2021.

Therefore, taking into account that the UK is Mexico’s sixteenth trading partner, the Ministry of Economy (SE) signed the Trade Continuity Agreement with the UK and Northern Ireland in December 2020 with the aim of maintaining and improving preferential trade conditions while these countries negotiate a new trade agreement, i.e., this agreement governs the relationship on a transitional basis.

United Kingdom-Mexico Trade Continuity Agreement Approval in the Senate

The Senate of the Republic approved the Trade Continuity Agreement between Mexico and the United Kingdom, as well as the Agreement related to Article 12 of such agreement, which was published in the DOF on April 23, 2021.

Text of the Agreements Publication in the DOF | The Pending Step

However, both agreements have not yet entered into force in Mexico because the text has not been published in the DOF.

Agreement relating to Article 12 of the Continuity of Trade Agreement between Mexico and the United Kingdom.

The Agreement relating to Article 12 establishes that the United Kingdom will apply the provisions of the Continuity Agreement as of January 1, 2021. In other words, imports from Mexico into the United Kingdom enjoyed uninterrupted preferential access.

In Mexico, the situation for products from the United Kingdom is different. Per Mexican Law, the Continuity Agreement and the Agreement relating to Article 12 not only has to be approved by the Senate, but their text has to be published in the Official Gazette in order to produce legal effects.

Although the text of the agreement has not yet been published, the Trade Continuity Agreement at the time they are published in Mexico will have retroactive effects until January 1, 2021. In other words, during the period between January 1, 2021 and until the publication of the trade agreements in the DOF, imports originating in the United Kingdom have to pay the General Import Tax (IG).

Tariff´s Return Mechanism

That said, a Mexican importer will be able to benefit from the retroactive application of the Continuity Agreement in Mexico through a system for the refund of duties paid on goods that qualified as originating from the UK and that were imported into Mexico as of January 1, 2021. Such mechanism was announced by the Ministry of Economy (explanation in webinar) and will be subject to the provisions determined by the Ministry of Finance and Public Credit (SHCP) in conjunction with the Tax Administration System (SAT).

Trade Continuity Agreement Provisions

The Continuity Agreement establishes that the trade-related provisions of the EU-Mexico FTA will be incorporated into and be a part of this Continuity Agreement, with some changes. Therefore, its ratification and application in Mexico does not entail the modification of laws or regulations that are currently in force.

However, for the proper implementation of the Continuity Agreement, the publication of the following in the DOF is required:

Agreement regarding the Preferential Rate applicable to the General Import Tax for goods originating in the United Kingdom.
Agreements of the SE on import and export quotas for certain merchandise of the agri-food sector.
Amendments to the General Foreign Trade Rules.

Benefits of the Trade Continuity Agreement for Mexico

Furthermore, as a result of the implementation of this agreement, it will be feasible for Mexican producers to expand preferential access for agricultural products such as bananas, asparagus, honey, molasses, among others.

Likewise, preferential access will offer a benefit to exports from the south-southeast of Mexico in states such as Tabasco, Chiapas, Veracruz and Yucatan.