What the new EU-Mexico trade deal means for the UK, Europe and global trade

Earlier this week, the EU and Mexico announced that after almost two years of negotiations, an agreement on a wide-ranging upgrade to their existing trade deal had been reached, effectively upgrading it from a first generation to a new generation agreement.

In Brussels, the deal is being sold as a major victory for both the EU’s trade policy and free trade globally, particularly in the context of the US’s recent embrace of tariffs and protectionist measures. While it may seem counterintuitive, the upgraded deal is also very positive news for the UK - in the short term it gives an important boost to British firms exporting to Mexico, while in the longer term it provides a strong foundation for a comprehensive bilateral deal between the UK and Mexico. It also poses trade problems for the US, as now both Canada and Mexico have signed trade deals with the EU recognising and committing them to domestically protect geographic indicators (GI’s such as Parma ham, cheddar cheese and Champagne). The US have always opposed GI’s as they see them as protectionist and conflicting with the preferred US system of trademarks. In addition, many US products have the same name as protected products in Europe as a result of European immigration long before the GI system came into being. 

Parma ham

To the US it appears that its closest trade partners are embracing the European system and that will pose significant headaches for them, and potentially for the UK in any UK-US trade deal as the Americans are likely to demand the UK abandons the European system as part of any agreement.

The EU-Mexico deal is therefore significant, with global repercussions. It eliminates most tariffs on goods, including on agricultural goods, streamlined customs procedures and includes public procurement.

From a UK perspective, the biggest victory in this week’s agreement is the opening up of trade in services. Historically it has been very hard to achieve trade opening in the service sector, as the ongoing Trade in Services Agreement (TiSA) negotiations illustrate, so this deal is somewhat of a landmark step for trade agreements.

The UK service sector, which is both diverse and highly competitive internationally, will now be able to operate more easily in Mexico’s fast-growing market of 125 million people. This facilitation of trade will provide a big boost for numerous UK service sector firms, including those in financial services, e-commerce, telecommunications and transport. Furthermore, the modernised deal has also caught up with advances in technology, setting out new rules for digital commerce, removing unjustified barriers to trade and banning unnecessary authorisation procedures. It even takes some tentative steps to address mobile roaming and portability of audio-visual content.

Phone

The tariff removal part of the agreement removes tariffs from the vast majority of trade in goods, meaning that once the agreement comes into effect, 98% of all goods will be traded tariff-free. This is good news for British manufacturing and particularly the automotive sector - cars sold to Mexico will no longer face tariffs. The deal also provides for recognition of EU standards. In practical terms, this combination of reduced tariff and non-tariff barriers means that cars produced in the UK will be more competitive in the Mexican market, which ultimately means more jobs and investment in the long term.

Other sectors of the UK economy which will benefit from the upgraded deal are the premium agriculture sector, which will benefit from reduced tariffs and higher volumes of zero tariff-rate quotas in the areas where tariffs do exist, such as on milk powder and cheese, and the pharmaceutical sector. Furthermore, the deal sees Mexico open up its public procurement market to EU firms more than it has done with any other trading partner, including the United States. This means that UK companies will now be able to bid to provide goods and services to Mexico’s public sector institutions, with the federal government procurement market alone worth approximately £26bn annually.

Cheese

While all British trade with Mexico will come under the modernised deal until the end of the Brexit transition in December 2020, a new bilateral UK-Mexico agreement will be needed to ensure trade between the two countries continues after that date. Both the UK and Mexican governments have already discussed a possible deal. Whilst this week’s agreement is a solid basis for a UK-Mexico deal, in a bilateral agreement the UK is likely to want to go much further on services access and possibly on agricultural quotas than provided for in this week’s deal.

The EU-Mexico deal is therefore good news for the UK - it gives our two countries a strong foundation for a deeper trading relationship post-2020, and it demonstrates that in emerging markets such as Mexico, we have likeminded partners for comprehensive future trade agreements.

For Mexico, this modernised deal provides greater access to the EU’s market of 500 million consumers, particularly in the agri-food sector. Zero tariffs on Mexican food and drink imports mean that European consumers will now benefit from a range of cheaper products, including orange juice, tuna, and honey. More importantly for Mexico and for global trade in general however is that the deal is a counterweight to the current protectionist impulses of the current American administration. Mexico has now secured improved access to the world’s largest market. This is especially key as the country is currently facing a challenging renegotiation of NAFTA, the free trade deal which closely integrates the economies of the US, Mexico and Canada. Furthermore, it also provides an international success for the administration of outgoing President Peña Nieto, whose reputation has been damaged by severe corruption scandals and a deterioration of the country’s security situation. With elections taking place in July 2018, the deal is a victory for the embattled ruling PRI party and its presidential candidate José Antonio Meade who face a strong radical leftist opposition in those elections.

Pena Nieto

As the UK looks to develop its own trade policy beyond 2020, an early agreement with Mexico on a comprehensive bilateral deal would give a clear signal of the UK’s role as a strong proponent of open trade. While it is vital that the UK achieves the best possible deal with the EU on the future trading relationship, there are many other trading opportunities across the world.

This week’s EU-Mexico agreement shows that despite the protectionist sounds coming from certain parts of the world, many countries are still willing to deepen trading links and defend the open, rules-based trading system. This is excellent news for UK companies, workers, and consumers, as the government seeks to mould the EU-Mexico deal into an even more comprehensive agreement after the Brexit transition.