On August 27, 2018, separately, the Governments of Mexico and of the United States of America announced that they reached an agreement after over one year negotiations on the future of NAFTA. While the Governments of both parties insist that they expect that Canada will continue to be part of the deal (Canada is expected to rejoin negotiations before August 31), they were clear to confirm that a trade agreement between Mexico and the United States was already a reality.
Mexico’s negotiating team (headed by the Minister of Foreign Affairs, Mr. Luis Videgaray, and the Minister of Economy, Mr. Ildefonso Guajardo) was joined by the “negotiation observers” (headed by Mr. Jesús Seade) from the upcoming Administration (to be inaugurated on December 1st, 2018) at a press conference where the following highlights were disclosed:
1. Principles. Following the premises that the Mexican Government committed to abide by before the Senate, the Agreement:
• Recognizes and promotes trade and industry integration to improve competitiveness;
• maintains certainty on the dispute resolution mechanisms (see our comments on Chapter XIX and our final notes below);• does not contain any (at least not new) trade quotas, restrictions, or tariffs; and
• gives certainty and grounding for Mexico’s current economic path.
2. Automotive Sector. The Mexican Government confirmed that the US Government’s initial demand on 50% US content has been disregarded; however, new higher regional content Rules of Origin that will include a wage factor will enter into effect.
The Mexican Government explained that the new Rules of Origin will provide for 40% production to be carried at a high salary territory.
The Mexican Government insisted that close to 70% of Mexico’s automotive production would immediately qualify for the 0% tariff preference and that the outstanding 30% would benefit from a five-year phase-in, starting in 2020 and, in any case, with a permanent 2.5% maximum tariff preference.
To us, it seemed that the Mexican Government conveyed that Mexican automotive production would be protected against the Section 232 investigation that is in course by the US Government.
3. Agriculture. The Mexican Government announced that Mexico’s agricultural sector will be protected from antidumping and seasonality measures.
Mexico being the largest market for US chicken and pork exportations and among the largest for other products such as sorghum, were cited as leverage for the good outcome of mutually satisfactory negotiations.
4. Other Industries. The Mexican Government confirmed agreements in other sectors and industries, such as heavy vehicles, which are trusted to satisfy the investors’ requirements for more integrated supply chains that will become stronger through time.
5. Dispute Resolution. The Mexican Government announced that the original design of Chapters XI (Investment) and XX (Institutional Arrangements and Dispute Settlement Procedures) is preserved. Although general guidelines have been agreed upon, the final version of Chapter XIX (Antidumping and Countervailing Duty Matters) seems to depend on negotiations with Canada.
6. Safeguards and Retaliation. The Mexican Government confirmed that measures on safeguards and retaliation, which were cited to have been effective in allowing Mexico to compensate for debatable measures in the past, have been preserved.
7. Term and Scheduled Review Mechanism. The sunset clause proposed by the US Government was refused but, the parties agreed that the Agreement would be subject to renewable 16-year mandatory terms with scheduled review meetings every 6 years. In the view of the Mexican Government this achieves that no single Administration from any of the parties would have the power to terminate the Agreement (without the next Administration’s consent) and that periodic reviews will serve as a mechanism for continuous improvement and as a pressure valve.
Final Notes:
On the Upcoming Administration: Mr. Jesús Seade, appointed as observer by the President-elect, Andrés Manuel López Obrador, acknowledged the efforts, commitment and results of the negotiating team and claimed that the Mexican Government had been able to turn what seemed to be a “damage control” process a fruitful result that sends strong messages to the markets and investors and that may be expected to improve Mexico’s exporting capabilities and attractiveness in the international markets. Mr. Seade closed his comments expressing that the upcoming Administration is strongly committed to managing the economy in cooperation with the investment sector towards confirming and improving Mexico’s success in the international markets. During the Q&A round, Mr. Seade confirmed that the upcoming Administration will not try to revert the Energy Reform.
On Canada: The Mexican Government insisted that it wishes this Agreement to continue being a trilateral agreement; however, the Mexican Government also stressed it was quite important to be able to give certainty to the foreign investors doing and planning to do business in Mexico.
During the Q&A round, the Mexican Government expressed that, save for some elements of Chapter XIX (Antidumping and Countervailing Duty Matters), all other matters that may be viewed as of trilateral interest are in line with the negotiations that the parties had with Canada and that, in the Mexican Government’s view, Canada’s outstanding concerns refer to Canada – US bilateral negotiations (on matters such as dairy products) where Mexico does not need to be involved.
On the Steel and Aluminum Duties. The Mexican Government, recognized Mr. Robert Lighthizer’s remark that the Steel and Aluminum duties were not part of the negotiations with Mexico. However, the Mexican Government expressed its view that if an Agreement is signed with the US, this must necessarily have the effect of terminating any duties on Mexico’s steel and aluminum exports to the US.
Should you have any questions or comments regarding the foregoing, please do not hesitate to call your usual contact in the Firm.
Download PDF
