Update: EU Mexico in race against time to clinch agreement

07/11/2017 by Iana Dreyer

The EU and Mexico are holding technical talks this week ahead of a formal new round of negotiations in late November 2017. The pressure is on both sides to conclude talks to modernise their 2001 trade agreement – which is folded into what is known as the Global Agreement. Significant challenges lie ahead to clinch the agreement by year end as the Commission says it wants to. Yet the shadow of the US administration could help provide the impetus to get a deal done.

Both sides hope to finalise these negotiations before the truth on the future of NAFTA, the North American Free Trade Agreement, becomes clear. The US administration set out to renegotiate the 1004 trade agreement between Mexico, Canada and the US.

The Trump team shocked its partners by seeking to reduce free market commitments, such as by tightening up rules of origin on autos so as to favour US based producers. The US also wants to include a sunset clause after 5 years. The parties concluded the last round of talks with a sense that NAFTA could be upended if no new compromise is reached during the spring 2018, when the next round of negotiations is scheduled.

The EU still hopes to reach “political conclusion” of the revamped agreement with Mexico by year end. Observers close to the talks say this will be very challenging.

There are several reasons why this will be difficult.

One such reason is a classic issue: agriculture market access and not only Mexican sensitivities but also EU ones. The EU wants Mexico to open up markets to EU meat and dairy products, but is defensive in key areas of interest to Mexico.

The EU is in parallel intense negotiations with the South American bloc Mercosur and facing a lot of reluctance in member states to give bigger quota concessions on beef, ethanol, sugar, poultry. To conclude with Mexico, the EU would also need to offer bigger TRQs beef and sugar quotas. But here the farm sector and some member states fear the cumulated impact of offering bigger beef quotas to various agriculture powerhouses outside the EU could seriously harm their interests.

Commenting on the Mercosur talks on Monday in Brussels, Phil Hogan, the EU Commission’s agriculture commissioner said: “Any offer on sensitive products is calibrated by taking into account all relevant elements including the cumulative impact and effect of past, ongoing, and future FTA negotiations”. This means the EU is treading very cautiously here. There can be trade-offs here between the different negotiations the EU is leading with beef exporting countries  – note that soon free trade talks are to begin with Australia, another beef exporter.

Mexico is also a banana exporter and faces traditional EU sensitivities on the yellow fruit. Mexico will expect to be treated as the Central American and Andean Community countries in their respective trade agreements with the EU.

The second reason are broader regulatory and market access issues. On services, both sides are working on the basis of the offers tabled in the currently frozen 23-country Trade in Services Agreement. The EU wants Mexico to scale up its offer from the TiSA basis. But here it is facing resistance in Mexico in the area of maritime energy, financial and telecommunications.

The EU is not likely to agree on a deal with Mexico without concrete Mexican commitments on market liberalisation at the level of the federal states. Making concessions in this area is particularly challenging task for the Mexican government given its constitutional order and internal politics. Given that NAFTA and the TPP – to which Mexico is a signatory although the agreement is not in force – are not ambitious in this precise area, the EU has no precedent it can build on with its counterpart.

Finally there is still the issue of labour standards and of making sustainable development chapters proposed by the EU subject to the same dispute settlement stringencies as the commercial part of the agreement. This is a topic member states in the EU have still do find common ground on – and is on top of the agenda of the coming Foreign Affairs council in Brussels on Friday (10 November 2017). The European Parliament is pushing for this, Mexico is reluctant.

Source: Borderlex