This week in our newsletter, The Trading Room, we address developments regarding the entry into force of USMCA as well as the modernization of the EU-Mexico Free Trade Agreement. Download our newsletter in PDF on the following link: Trading Room -30042020
Last Friday the US Government notified the US Congress that Mexico and Canada “have taken measures necessary to comply with their commitments under [USMCA]”; Mexico is still in the process of modifying legislation. After notification to its congress, the USA notified Mexico and Canada and, therefore, USMCA will enter into force on July 1, according to the rules established in said treaty.
In an interview, Undersecretary of International Trade, Luz María de la Mora, indicated that the governments of the three countries are working to define the Uniform Regulations, including those relating to Vehicles and Autoparts. The goal is that these regulations should be published by July 1.
However, the Undersecretary also commented that producers of passenger vehicles and light trucks have the possibility of requesting an alternative staging regime to comply with the respective rules of origin. Accordingly, this possibility reduces the “urgency” of finalizing said Uniform Regulations.
As a general rule, USMCA foresees a 3-year transition regime for said vehicles (e.g. VCR 66% to 75%); however, the appendix to Annex 4-B of USMCA foresees the possibility of an “alternative staging regime” to extend the transition for up to 5 years. Producers must justify their request and, if authorized, producers could benefit from a prolonged and gradual transition from Regional Content Value (including essential components), steel and aluminum content, and Labor Content Value.
Today, Thursday, April 30, the Mexican Ministry of Economy published in the Official Gazette the procedures to submit applications for an alternative staging regime. In general terms, the interested producers must present a (detailed) alternative staging regime plan, among other more specific requirements, that has to be submitted July 1, 2020, at the latest.
It should be noted that if the proposal is accepted by the Ministry of Economy, the alternative staging regime will be applicable to the producer’s eligibility to use the regime for imports into Mexico.
On Tuesday, April 28, the Interagency Labor Committee for Monitoring and Enforcement was established by executive order. This Committee is not provided in the USMCA, rather it is an internal body of the USA whose creation was ordered in Section 711 of the USMCA Implementation Act. The committee will be chaired by the US Trade Representative (USTR) and the Department of Labor and other agencies will be members.
The Interagency Labor Committee will monitor compliance with the labor commitments assumed by Mexico and Canada, the implementation of the labor reform in Mexico, and to request enforcement actions concerning a USMCA country that is not in compliance.
This Wednesday, April 29, and after four years of negotiations, the Ministry of Economy announced the end of the negotiations with the European Union on the modernization of the EUMEX-FTA.
The chapter that prevented the conclusion of the negotiations was the Public Procurement Chapter because the European Union had the interest of having access to tenders at the sub-federal (or state) level. Apparently, the result of the negotiations is to incorporate 17 Mexican states that are committed to international best practices. This is the first time that Mexico has negotiated public procurement at the sub-federal level in its history.
La negociación de compras subfederales con 🇪🇺 fue mi 1a tarea en la #DGDCI
Hoy logramos la primera cobertura de compras subfederales de 🇲🇽 17 estados comprometidos con las mejores prácticas internacionales.
— Ricardo Aranda G (@RicardoArandaG) April 28, 2020
Now, the pending steps for the entry into force of this agreement are the legal review, translation, signature and the domestic approval process, i.e. the European bloc (European Parliament) as well as the legislative branch of each EU members because an investment chapter was included in the agreement, and, on the other hand, the Mexican Senate.
(Download the PDF: Trading Room -21022020)
In UNCTAD’s 2019 investment report, it was mentioned that “Foreign Investors were reassured by the final signature of the revised [NAFTA] (now called the USMCA).” Now, the Mexican Ministry of Economy issued a newsletter reporting the preliminary Foreign Direct Investment (FDI) results. FDI in 2019 increased 4.2% in relation to that of 2018; specifically, Mexico received 32.912 billion USD of inward investment in 2019, while in 31.604 billion USD in 2018.
We highlight that 53% of the FDI was reinvestment earnings, while 39% correspond to new equity flows; also, almost half of the FDI was absorbed by the manufacturing sector, meanwhile, the FDI inward flows mainly originated from USA (36.8%), Spain (12.1%), Canada (9.7%), Germany (9.2%), Italy (4.5%).
Bearing in mind this context, the Minister of Economy, Graciela Marquez, mentioned in a meeting with Senators that there is an expectation that foreign investment will react positively to the incentives that were established in USMCA; and, the Ministry has two tasks to help activate the economy: implementing USMCA and relocating companies that are in China to Mexico. However, the Minister noted that the global economy presents signs of the economic deceleration, not only pertaining to growth but also due to the unknown impact of the coronavirus.
La @SE_mx presenta ante la Comisión De Economía del @senadomexicano los trabajos de MX para la implementación del #TMEC @GMarquezColin @luzmadelamora @LAntonioDLG @RicardoArandaG @IMPI_Mexico pic.twitter.com/AD5xol1kYk
— Orlando (@Orpega) February 19, 2020
As reported in a previous edition, the Ministry of Economy is organizing a seminar about USMCA (as well as CPTPP). This week’s session was about market access, rules of origin and trade facilitation. During the event, it was announced that Mexico has approached the USA and Canada on the matter regarding USMCA’s uniform regulations that have to be adopted and published in the near future. The rules will detail how the parties will interpret and apply the relevant Chapters, such as customs procedures and the rules of origin chapters, e.g. remanufactured goods, recovery of raw materials, auto, etc.
Durante la segunda sesión del #SeminarioEconomíaMX abordamos temas como reglas de origen, acceso a mercado de bienes, administración aduanera y facilitación del comercio, entre otros.
Vuélvela a ver 👉🏽 https://t.co/AwRWFpbdKi
Consulta las presentaciones👉🏽 https://t.co/ohBwPxcFvs pic.twitter.com/QixJ3ZBscb
— Economía México (@SE_mx) February 19, 2020
In an event organized by the Spanish Chamber of Commerce in Mexico, it was announced that the Underminister of International Trade, Luz Maria de la Mora, announced that the negotiations regarding the update of the European Union-Mexico Free Trade Agreement are close to being concluded and that it will be signed at the end of 2020. It has been two years since the Mexican Ministry of Economy and the European Commission announced that there was an agreement in principle, Mexican authorities had also announced that the signature of the update was soon; however, some details had not been sorted out, such as government procurement. One of the main features of the update of the EUMEXFTA is the full liberalization of tariffs since the agricultural sector had been excluded from the original FTA.
Agradezco a @CamescomOficial la invitación para exponerles sobre la política comercial de México, así como de los avances en la modernización del #TLCUEM. España es nuestra 2a fuente de inversión extranjera directa con un capital acumulado de casi 70 mil millones de dólares 🇲🇽🇪🇸 pic.twitter.com/hdEtgOlj2A
— Luz María de la Mora (@luzmadelamora) February 19, 2020
Mexico in WEF
From 22 to 25th of January the World Economic Forum (WEF) was held, and this year’s topic was “Globalization 4.0: Shaping a Global Architecture in the age of the Fourth Industrial Revolution”.
Underminister of International Trade, Luz María de la Mora, attended WEF to inform the economic policies of the new government.
The Underminister mentioned that the policy is based on three pillars: innovation, inclusion, and diversificación. These “pillars” are yet to be explained clearly, which will most likely be addressed in the National Development Plan.
In an interview, the Underminister mentioned that the update of the Free Trade Agreement between Mexico and the European Union is still subject to a legal review of the text and it could be signed on April.
Regarding USMCA, she said that the government is expecting that it should be ratified this year notwithstanding the internal politics in the US and the measures against steel and aluminum products.
SAM: Saving Agri-food producers?
Last Friday a decentralized governmental body was created “Mexican Food Security” (SAM, acronym in Spanish), which has as a purpose to support the federal government with its agricultural policy.
The new president, AMLO, promised to “rescue” this sector, in particular, the small and medium producers of “basic” agricultural producers and milk. SAM’s numerous purposes are, among others, “coordinate the purchase” of said products at “support prices”, “promote the commercialization of excess production to foreign markets”, “sale and distribute fertilizers, improved seeds…”.
Some of SAM’s activities will likely classify as a “subsidy” pursuant WTO Law and, if international trade is distorted, countries can submit claims or initiate trade remedies measures like countervailing duties, as happened with the Mexican sugar in the USA.
Download our Newsletter: Mexico in WEF and SAM – Trading Room
This week on the Trading Room:
On Wednesday 14 of November, the draft Brexit agreement between the UK and EU was published. Though there is a debate about the likelihood of its approval in the British parliament and the numerous topics that are covered, what interests us is the possible international trade implications of this agreement with third countries like Mexico….. See More.
Vietnam Ratifies CPTPP
On Monday 12 of November, Vietnam ratified the Comprehensive and Progressive Transpacific Partnership (CPTPP), so now there are 7 countries that have ratified it. The Mexican textile and footwear industry must not be happy… See More.
Esta semana en Trading Room:
El miércoles 14 de noviembre se publicó el borrador del acuerdo “Brexit” entre el Reino Unido (RU) y la Unión Europea. Si bien se debate sobre la probabilidad de su aprobación en el parlamento británico y abarca muchos temas, lo que nos interesa del acuerdo son las posibles implicaciones de comercio exterior con terceros países como México… Ver más.
El lunes 12 de noviembre, Vietnam ratificó el Tratado Integral y Progresista de Asociación Transpacífico (CPTPP), por lo que ahora son 7 países que lo han ratificado. La industria textil y de calzado de México no debe estar contenta… Ver más.
This Week on Trading Room:
This Tuesday, Cecilia Malmström, EU Trade Commissioner, presented a concept paper to modernize the WTO. We highlight the proposals aimed at… See More
The G20’s Ministerial Meeting of Trade & Investment took place last Friday, and a Ministerial Statement was issued. We highlight the following three topics… See More
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Esta semana en “Trading Room“:
Este martes, la Comisionada de la Unión Europea en materia de Comercio, presentó un proyecto conceptual para modernizar la OMC. Se destacan las propuestas…Ver más
El viernes pasado el G20 celebró la Reunión Ministerial de Comercio e Inversiones en donde emitieron una Declaración. Destacamos los siguientes temas…Ver más
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This week on the Trading Room:
Esta semana en “Trading Room”:
This week on the Trading Room: TPP and the negotiations of the EU-Mexico Free Trade Agreement.
Esta semana en “Trading Room“: TPP y las negociaciones para modernizar el Tratado de Libre Comercio de la Unión Europea-México.