Mexico adopts new iron ore export license regime
Mexico has modified its international trade rules regarding iron ore exports. Particularly, the Ministry of Economy established a new regime of export licenses involving both iron ore and iron ore concentrates. Find out all the details here:
What were the changes in the export license for iron ore?
The main point of this modification is that it will now be necessary for mining companies to submit several documents to obtain the export license. In addition to their mining permits and activity reports, the Ministry of Economy will require a “Certificate of Iron Ore Reserves“ issued by the Mexican Geological Service, a chemical characterization analysis, and a proof of origin of the ore.
In this regard, the certificate of reserves includes information on the extraction capacity, as well as the probable and proven iron ore reserves of the company’s mining lot. In other words, it breaks down the information on the volume of available iron ore that can be extracted. Among the reasons for adopting this new regime and requiring these documents, the Ministry of Economy highlights that it seeks to have greater control over the export of this product and certainty over the extraction of this mineral.
The export license will have a new export limit
An important point about this license regime is that the Ministry of Economy will determine the maximum volume that each company will be able to export. As a rule, the maximum export volume that may be authorized will be 300,000 annual tons of iron ore per company. This will apply regardless of whether the company has reserves and mining capacity above such volume. In addition, the Ministry of Economy will grant a lower volume when the proven and probable reserves of the company’s certificate of reserves are less than 300,000 tons.
These permits will be in effect only during the calendar year in which they are issued. In addition, the authority will constantly review the previous year’s exports at the time of renewals to ensure that the new permits do not exceed the volume previously exported.
Negative effects of the new export permit regime
This regime presents certain problems not only for mining companies, but also for the dynamics of the industry in Mexico. By establishing limits on export volumes, this measure introduces a quantitative restriction that limits the amount of iron ore that can be exported from the country. Quantitative restrictions, such as quotas or export licenses, are generally prohibited in international trade. The reason is that they have a distorting effect on markets by artificially altering the flow of goods. In 2021, Mexico exported more than 2,500,000 tons of iron ore to other countries.
In this case, the limit of 300,000 tons imposes a barrier to companies with greater extractive capacities, which will not be able to export all their potential production. In addition, the measure not only affects the volume of exports based on the companies’ own extraction, but also limits the volume they can export when they purchase iron ore from other Mexican mining companies. This implies that even if a mining company does not have the capacity to extract the ore itself in large volumes, but it purchases ore from other companies, it will still be subject to the maximum amount that the Ministry grants it based on its own reserves and extraction capacity.
This is relevant because many mining companies, in addition to extracting iron ore, participate in the purchase and sale of this product with other companies to optimize their export capacity. Under this new regime, the total volume of Mexican iron ore —whether owned or purchased— may not exceed the limit of 300,000 tons per year or the company’s proven and probable reserves. In the end, this measure not only limits the individual exports of each company, but it may also have a negative effect on the internal market dynamics, reducing competitiveness and the possibilities of maximizing exports in the Mexican mining sector.
China: Main victim of the export license regime
The country that will be most affected by this new export license regime will be China. Export statistics show that China has been the main buyer of Mexican iron ore for almost 20 years. So much so that China has consistently been the destination for more than 90% of Mexican exports of this product since 2019.
Potential international trade disputes?
Internationally, this new regime may give rise to disputes between Mexico and its trading partners. In this regard, Article XI of the General Agreement on Tariffs and Trade (GATT) 1994 expressly prohibits quantitative restrictions, due to their impact on the free circulation of goods. This implies that any WTO member country may initiate a dispute against Mexico for this measure. Similarly, the United States, Mexico, and Canada Agreement (USMCA), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) also prohibit this type of measure.
Since China is the main country affected by this measure, the Chinese government can only initiate a trade dispute with Mexico by resorting to the WTO. The reason is that China is not a member of TIPAT or any other free trade agreement with Mexico. However, the current situation and functioning of the WTO dispute settlement body makes it uncertain whether it will be activated.
Final insights
For all the previous reasons, our opinion is that the modification to Mexico’s international trade rules for iron ore exports presents several problems. By requiring companies to obtain an export license based on their extraction capacity and reserves, with a maximum limit of 300,000 tons per year, Mexico establishes a quantitative restriction that has potential negative implications not only in the international market, but also in its own domestic market. Although this measure seeks to strengthen export control and ensure the origin of the mineral, it could undermine the activities of companies with greater extraction capacity and give rise to international disputes.
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