In what was a highly expected meeting regarding the celebration of USMCA’s entry into force, AMLO and Trump held a bilateral meeting and had a “trade-dinner” with numerous executives from the US and Mexico. We highlight the following matters during Wednesday’s event:
Trump highlighted that USMCA “includes groundbreaking labor protections for workers in both nations”, that it would bring back overseas jobs to the USA; close cooperation to stop the illicit cross-border flow of drugs and guns, cash, and contraband, and very importantly, stopping human trafficking.
AMLO highlighted that North America is a trade-deficit region. USMCA seeks to address this issue by increasing the regional content value through its rules of origin; new and current investments in the region will have to provide fair working conditions, and “comply” with the rules of origin.
Mexico was the largest goods trading partner of the US in 2019, “supporting American and Mexican businesses, jobs, and workers.”
The USMCA is the ideal instrument to provide “economic certainty”.
“The USMCA reaffirms our shared understanding that North America is a region that generates prosperity for all of its citizens and it strengthens our cooperation in fighting corruption[…]”
“The USMCA marks the beginning of a new era that will benefit the workers, farmers, engineers, and entrepreneurs of both countries,[…]”
Although the dinner was closed to the media, an attendee, Patricia Armendáriz CEO of Financiera Sustentable, tweeted what was going on during the dinner. In her tweets, she quotes speakers. For instance, AMLO mentioned that “[We] are in the best disposal to favor your investments in Mexico”.
— Patricia Armendáriz (@PatyArmendariz) July 9, 2020
Ms. Armendáriz tweeted that a representative of the US Steel industry expressed their intent to expand in Mexico.
La industria de acero en EEUU expresando optimismo en expandirse en Mexico pic.twitter.com/8XXFiaokwm
— Patricia Armendáriz (@PatyArmendariz) July 8, 2020
Ms. Armendáriz also noted that a representative of the US dairy expressed their interest in Mexico as a result of the USMCA.
Los productos lácteos expresando su interés en Mexico a través del tmec pic.twitter.com/CX3Gb2Cl8c
— Patricia Armendáriz (@PatyArmendariz) July 8, 2020
In a letter dated July 8, 2020, US house representatives issued a letter to AMLO, expressing their “serious” concerns regarding the implementation of the labor reform. We highlight the following statements:
The letter mentions that “new cases of freedom of association violations arise”;
The letter claims “…failure to address flaws in collective bargaining agreements contract legitimation protocols threaten the possibility of independent and democratic worker voices.”
The letter makes other somewhat specific statements, for instance, regarding reports of illegal firings and protection unions signing new contracts for the workplace before employees are hired, as well as “obstruction” in collective bargaining agreements on behalf of employers and “protection unions”. These issues are the “core” of Annex 23-A in the USMCA, which may be subject to the facility-specific rapid response labor mechanism. Needless to say, the letter recognizes that COVID may have posed an obstacle to implementing the labor reform, which it has, and another issue Mexico is that the labor reform implementation was planned in several phases that would conclude in 2022.
Away from the political controversy regarding some statements or the visit, the trade-related matters that were publicly discussed had a strong “labor” footprint. Both heads of states highlighted USMCA’s labor provisions, and that such rules will benefit workers in both countries.
Having failed to visit Joe Biden, the Democratic candidate to US President, democrats may take a more aggressive “labor” stance against the Government of Mexico. From our perspective, it is clear that labor matters will continue to be one of the main themes in the US – Mexico trade relations, and the private sector must avoid denying labor rights recognized in Mexican Labor Law, just as we stressed in our Labor & Trade webinars.
What also caught our attention is how AMLO welcomes investment in the light of the USMCA, but his administration has made “controversial” investment decisions regarding, for instance, energy policies.
We are also curious as to what the US steel industry might have meant regarding “expanding” in Mexico. Steel products are constantly targeted in trade remedy matters in Mexico. As for the dairy industry, we recall that Mexico recently introduces some technical standards or Official Standards on powder milk, cheese, and yogurt.
The day arrived and USMCA has finally replaced NAFTA on July 1st, 2020. USMCA modernizes trade and investment rules and, thus, seeks to promote economic development in the region. Given that USMCA is attracting the media, a prestigious Mexican news outlet, Reforma, has interviewed and quoted Adrian Vázquez, VTZ managing partner, regarding USMCA’s entry into force and the Labor Chapter.
On the day USMCA entered into force, July 1st, 2020, Adrian Vázquez was quoted in an article regarding the rule of law. Mexican attorneys have expressed that Mexico must uphold the rule of law established in the USMCA provisions to reap its benefits. Our managing partner emphasized that Mexico must have the will to respect the rule of law established in the USMCA, and he expressed that the private sector also plays an important role since it must demand compliance of trade and investment provisions.
On July 6, 2020, Adrian Vázquez was quoted in an article of Reforma on the labor dispute settlement mechanisms in the USMCA, particularly regarding “anonymous witnesses”.
Our managing partner expressed that “[I]f this tool is used by American unions in order to submit an anonymous testimony, sending any person as a witness, that is a danger and not whether if they are or not anonymous.”
(Download the PDF version: Trade Alert – 20052019)
Last Friday a joint statement by the US and Mexico was issued regarding the elimination of the so-called Section 232 tariffs on Mexican steel and aluminum. On Sunday 19th, the US President issued a Proclamation that eliminated the 232 measures applicable to said Mexican imports.
Today, 20th of May, the President of Mexico issued the following Decree:
DECREE that modifies the former Decree by which it modifies the Tariff of the Law of the Import and Export Tariffs, the Decree that establishes the Applicable Rate for 2003 of the Import Tariff for the goods originating in America of the North, and the Decree establishing various Sectoral Promotion Programs, published on June 5, 2018.
Sole Article.- Articles 1, 2 and 9 are repealed of the Decree[….] published on June 5th, 2018, in the Official Gazette.
In today’s Decree, the Mexican President eliminates the countermeasures that were taken against goods originating from the US (Decree of June 5th, 2018), such as steel and aluminum products, pork meat, cheese, agricultural products, motor boats, fans, “bourbon whiskey”, lamps and metal furniture, among others. The Decree enters into force today, so said US products can again benefit from the preferential tariffs that were established in NAFTA.
As mentioned in the joint statement and the Proclamation, we note that the elimination of the 232 tariffs is accompanied by a series of measures that will aim “to prevent the importation of steel articles that are unfairly subsidized or sold at dumped prices, to prevent the transshipment of steel articles, and to monitor for and avoid import surges.” According to the joint statement, the US and Mexico “agreed” that tariffs may be imposed to an individual steel or aluminum product in the event that imports surge, and that the “exporting” country can only retaliate in the affected sector; this clearly limits Mexico’s possible retaliatory measures which proved to be effective. Finally, Mexico and the US agreed to terminate all WTO litigation regarding this matter.
VTZ notes that in the Presidential Decree of June 5th, 2018, Mexico temporally raised tariffs against steel products from third countries with which it does not have a Free Trade Agreement. Such tariffs expired on January 31st, 2019. Mexico adopted said measure because it considered that it was likely a substantial increase in exports to Mexico, in part, because of the unilateral measures adopted by the US.
Notwithstanding that the aforementioned measures expired, again Mexico temporally raised tariffs on steel products from third countries on March 25th, 2019, claiming that there is an oversupply of steel. These “temporal” tariffs will be in force for 180 days, i.e. September 22, 2019.
Finally, VTZ highlights and considers that these events constitute a significant step towards the ratification process of USMCA in Mexico and the USA (as well as Canada). In this sense, companies established in the region shall start to prepare for its entry into force possibly in 2020.
For more information, please do not hesitate to contact Adrian B. Vázquez (adrian[@]vtz.mx), Eduardo Zepeda (eduardo[@]vtz.mx), Emilio Arteaga (emilio[@]vtz.mx).
(Download our newsletter in PDF: Trading Room)
In a news outlet report, a member of the National Fund for the Promotion of Tourism (FONATUR, acronym in Spanish), Pablo Careaga Córdova, held that one of the most important infrastructure project of this administration, the Maya Train that will be located in the Yucatan Peninsula, would benefit from the Special Economic Zones policy, given that the statements made last week by representatives of the Ministry of Treasury about their possible elimination. According to Mr. Careaga, the SEZ and the Maya Train could create a synergy and foster investments, among other matters.
As reported by several news outlets, last Wednesday border patrol agents (CBP) were transferred to the cities that are most affected by the migration crisis. This situation has provoked a delay in the international trade operations in the border; for instance, two lanes of the Customs “Otay Mesa” have been closed temporarily. According to the media, 70% of the international trade between Mexico and the EEUU is done by land.
Meanwhile, President AMLO minimized the situation by declaring that “there are no grave problems”, notwithstanding that trucks take from 6 to 12 hours to cross the border, according to reports, which may cause exporters to have late deliveries.
Donald Trump has threatened to impose tariffs of 25% to cars and/or closing completely the border in the next year if Mexico does not stop the migration and drug flow. This action would be clearly incompatible with the auto side-letter that was signed under USMCA.
The Minister of Economy, Graciela Marquez, stated that Mexico would initiate a WTO dispute if the US closes its border.
Inbound Logistics‘s featured story of January is “U.S.-Mexico Trade: Strong But Shifting“, and the author, Karen M. Kroll, interviewed our associate, Emilio Arteaga Vázquez, about the recent events between Mexico and the US, namely the signature of USMCA and its possible impacts on the value chains.
In the piece, our member is mentioned in a couple of occasions. We highlight the following paragraph:
All companies, but particularly manufacturers, should review the USMCA and identify whether the rules of origin applicable to their goods were modified, Vazquez recommends. If the rules were modified, companies may need to seek new suppliers, reshore production of inputs, or prepare to pay a Most Favored Nation (MFN) duty.
The article is available in the following link: https://www.inboundlogistics.com/cms/article/us-mexico-trade-strong-but-shifting/
Late night Sunday, an agreement was reached by the United States and Canada, alongside Mexico, regarding the modernization of the North America Free Trade Agreement, which will now be called the United States-Mexico-Canada Agreement (USMCA).
The USMCA text was published yesterday. You can access the text of this free trade agreement through the following link of the United States Trade Representative website: USTR – USMCA
USMCA is composed of 34 chapters, 12 more than the original NAFTA. VTZ will prepare a working paper about this new deal, which should be available in the upcoming days. Please let us know, through an email, if you would like to receive it.
The U.S. – Mexico Bar Association (USMBA) will be hosting its annual conference in San Diego, CA, from September 27th to 29th, 2017, and, we are happy to announce that our partner, Adrián B. Vázquez, will serve as a panelist in following discussion table “Status of NAFTA Re-negotiations: An Examination of Recent Developments and Anticipated Direction of NAFTA Discussions between the U.S., Mexico and Canada.”
This annual conference gathers legal professionals from the region, who will be networking and learning about the evolving relationship between the U.S. and Mexico during the current political climate.