EU - MEXICO FTA

The European Union (EU) is the most integrated economic bloc and one of the most liberalized free trade areas in the world. The EU is formed by 15 countries: Belgium, the Netherlands, Luxembourg, France, Germany, Italy, the United Kingdom, Denmark, Ireland, Greece, Portugal, Spain, Austria, Sweden and Finland.

In May 2004, 10 new countries–Cyprus, Estonia, Slovenia, Slovakia, the Czech Republic, Latvia, Lithuania, Hungary, Malta, and Poland–will join the EU, making it the largest commercial bloc in the world, with a combined market of 500 million consumers with a GDP of approximately US $8,530 billion(1).

The Mexico - European Union (EU)(2) Free Trade Agreement (FTA) entered into force on July 1st 2000 and is one of the most comprehensive trade agreements ever negotiated by the EU.

The Mexico - EU FTA provides a solid legal framework for Mexican and European businessmen and investors, granting preferential access to goods and services and providing security for investments.

The establishment of this preferential trade area between Mexico and the EU is complemented by the “Economic Partnership, Political Co-ordination and Co-operation Agreement”, intended to promote political dialogue and intensify technical and economic co-operation between both Parties.

The member countries o the FTA represent a potential market of over 377 million of habitants, with an average per capita income of 22,667 dollars.

The EU is Mexico's second largest trading partner and second source of foreign direct investment.

The MEXICO–EU FTA is the first transatlantic agreement of its kind to integrate all areas of trade and investment. It establishes a clear legal framework for business and provides certainty to investors. The Agreement includes chapters on access to industrial and agricultural markets with respect to trade, rules of origin, customs requirements, technical norms, and health and phytosanitary measures.

Likewise, with regards to services, the Agreement contains provisions for the granting of national and most favored nation treatment, and consolidation of services depending on the degree of openness of the respective national laws. It also provides for the investment in and provision of cross border services, with the exception of audiovisual services, as well as air and coastal transport.

The Mexico–EU FTA is a comprehensive treaty. In addition to the inclusion of chapters on dispute settlement, government procurement and intellectual property, the treaty also establishes the Joint Council, composed of members from both sides, at the level of the Council of the European Union, the European Commission and the Government of Mexico. The agreement also establishes the Joint Committee as an auxiliary body of the Joint Council.

Currently, work is being done to develop mechanisms for cooperation in simplifying the Mexico–EU FTA and generating more business opportunities for small and medium enterprises (SMEs).

The Mexico – EU FTA recognizes the differences between the Mexican and the EU economies, allowing for a rapid, but staggered elimination of duties. By the year 2003, all Mexican industrial exports to the EU market are allowed duty-free access. Meanwhile, European industrial exports to Mexico pay a maximum tariff of 5 percent as of 2003. By 2007, all duties on industrial products from the EU will be lifted completely. This is one of the most ambitious tariff elimination schedules ever negotiated by either party.

The Mexico – EU FTA assures EU exporters the same preferential treatment enjoyed by Mexico's other FTA partners such as NAFTA, granting preferential access to more than 800 million consumers in 28 countries, accounting for 57% of the world's GDP.

SECURITY FOR INVESTORS

The Mexico – EU FTA guarantees secure conditions of access for EU investment in Mexico and creates a climate of confidence for European and Mexican enterprises, providing them with the guarantees they need to enter into long-term partnerships.

The Agreement promotes further integration between Mexico and the EU, allowing firms on both sides of the Atlantic to reap the benefits of exploiting complementary production facilities to export to North, South and Central America, Europe and the rest of the world.

Regional Opportunities

Thanks to the MEXICO–EU Free Trade Agreement (FTA), Mexican products will have preferential access to European markets in 25 countries. The 10 new member countries generate almost $360 billion dollars alone.

Figure 1
Mexico's FDI Distribution
(1994 – 2002)

As you can see in figure 1, the European Union is the Mexico 's second most important source of Foreign Direct Investment (FDI). As such, the region holds the prospect of great opportunities for increased trade and the growth of Mexico 's potential.

Bilateral Trade Growth Mexico – EU
since the FTA entered into force (June 2000)

Although bilateral trade has expanded in the first two of years since the Mexico–EU FTA came into effect, trade flows and volumes are far from reaching their upper limits.

Mexico 's primary motivations for negotiating and signing the Mexico–EU FTA were the potential for business between Mexican and European companies, export diversification and expansion into new markets. Mexico was able to capitalize on its success in the North American market due to the already existing exportable supply.

In addition to exploring the more traditional European markets, Mexican firms now have the opportunity to expand to the European Union's new member countries. They should take this opportunity to establish themselves in Eastern European and Mediterranean countries. If some of Mexico 's exporters already have products in Madrid , London and Paris , why not in Prague , Warsaw and Budapest too?

Due to their increasing integration into the globalization process, these countries have great potential for economic growth. Currently, they are medium sized economies with a huge capacity for growth upon obtaining membership in the EU.

Market access for goods and services
Well-defined rules of origin
Technical standards
Sanitary and phytosanitary standards
Safeguards
Co-operation on customs
Investment and related payments
Public procurement
Competition policy
Intellectual property
Bilateral dispute settlement mechanism

Mexico has the potential to increase its trade of a variety of products in many sectors, particularly in those regions of the European market not yet penetrated.

Sectors with a potential for expansion include: textiles and clothing; leather and footwear; electrical equipment, electronics and household appliances; iron and steel; agro-industry, agriculture, livestock and fisheries; plastics; food and beverages; gift and decorative items; automobiles, auto-parts and other vehicles; printing and publishing; metals; machinery and equipment; construction materials; mining; furniture, and chemicals and pharmaceuticals.

In the two years following the implementation of the Mexico – EU FTA, the volume of duty free trade between Mexico and the EU increased significantly. Export sector products that reported the most significant growth in this period were:

Asian countries compete with local manufacturers by selling their products in Mexico 's natural export markets, namely, North America and Europe . At the same time, they compete with Mexican goods in the national market and vie for the same sources of FDI. Even though Mexican products enjoy tariff preferences under free trade agreements in the primary international markets, increasing market share of imports to partner countries has become increasingly difficult due to falling penetration yields. Mexico must take advantage of its exportable supply and diversify its exports to other regions of Europe .

The exploration of unexploited markets in the new EU partner-countries will open up fresh opportunities for Mexican products in unsaturated markets. Currently, Mexico sells about 300 million pairs of jeans to the US market, an average of one pair of jeans for every American citizen per year. However, this market is saturated. For this reason, Mexican producers must seek new export markets without undermining what they have achieved in North America .

The decision to invest capital in a determined country depends primarily on factors that increase or decrease the profitability of the investment and the perceived risk.

The FTAs signed by Mexico, including the North America Free Trade Agreement (NAFTA) and the Mexico–EU FTA, contribute to increased returns on investments because they guarantee access to new markets with preferential conditions for Mexican-made products, as well as make international inputs, prices, and quality accessible. All of these factors increase the competitiveness of goods and services, and reduce the costs of production.

Moreover, the establishment of a legal framework with clear rules and efficient and effective dispute settlement mechanisms reduces the risk of investment. Likewise, a country's riskiness is reduced commensurate with the implementation of responsible fiscal and monetary policies that contribute to economic growth and an increase in well-paid jobs. All of these factors reinforce on another in a virtuous circle that attracts more foreign capital over the long term.

Countries that establish a clear legal framework for investments and guarantee respect for the rule of law by all levels of government – federal, state and municipal – and that have effective anti-corruption measures, are more attractive to DFI.

Investors also prefer countries that have a solid internal market and preferential access for their products in other regions. Finally, the existence of qualified workers and adequate infrastructure provide incentives for DFI.

The investor selects countries in which the yield-to-risk ratio is most favorable. Therefore, the best policy for attracting investment is one that reduces businesses' operating costs. In this way, the Mexico–EU FTA has been valuable instrument for attracting investment.

In just the first two years, the Mexico – EU FTA provided huge benefits for business on both sides of the Atlantic . Total trade between Mexico and the EU grew by 28.3 percent.

EU and Mexican trade authorities gathered recently in Athens to evaluate the results of the first two years of the Mexico–EU FTA. Both parties agreed that, while bilateral trade has indeed expanded, it is far from reaching its full potential, and more opportunities on both sides of the Atlantic must be created.

The success and smooth operation of the Mexico–EU FTA can only be accomplished through the capable administration of the Agreement. This entails the prevention and timely settlement of disputes through constant follow-up by working groups and Mexico 's trade investigations agency, the International Trade Practices Unit (Unidad de Prácticas Comerciales Internacionales, (UPCI)).

To prevent trade disputes, or deactivate them in their respective settlement bodies, it is essential that Mexico guarantee its full compliance to trade commitments at all government levels, including state and municipal.

The industrial facilities of Mexican companies benefit from the opportunities presented by the Mexico–EU FTA, but Mexico 's trade partners must honor any commitments made. Likewise, Mexico must ensure that it fulfills its obligations.

Furthermore, Mexico must maintain a good commercial relationship with all levels of government of the EU nations, and develop bodies and institutions to strengthen bilateral relationships with each country with the aim of fostering prosperity and bonds between the citizens.

THE SPECIAL WORKING COMMITEES OF THE MEXICO – EU FTA HAVE ALREADY PROVEN TO BE USEFUL FORUMS TO:

simplify customs procedures;
resolve issues regarding sanitary and phytosanitary measures;
resolve issues on the application of technical standards and non-tariff barriers;
avoid discriminatory treatment;
accelerate the elimination of customs duties on certain products.

Mexico is the seventh largest exporter in the world and the first in Latin America

For Mexico , exports represented 26% of GDP in 2001 and are the main source of new employment.

Mexico is the second largest foreign direct investment (FDI) recipient among developing countries.

MÉXICO OFFERS UNIQUE COMPARATIVE ADVANTAGES, ATTRACTING INVESTORS FROM ALL OVER THE WORLD:

Strategic geographic location with direct “just in time” access to the North American market.

A network of Free Trade Agreements which grants preferential access to markets in North America , Western Europe (EU and EFTA), Israel , and to ten emerging markets in Latin America(3).

A skilled and competitive labor force and access to world class inputs and technology.

Security and legal protection for foreign investors through Bilateral Investment Treaties (BIT's) negotiated with 20 countries(4)

Since the Free Trade Agreement between Mexico and the European Union entered into force, mostly large companies have taken advantage of the new trade opportunities within the region.

It is very important that new, small and medium size firms take advantage of this new trade relation.

In 2004 ten countries of Eastern Europe will be part of the European Union, forming the worlds largest trade area. It is necessary that Mexican companies join the trade exchange with the European Union and profit from the EU- Mexico FTA.

The EU- Mexico FTA and the Mexico – EFTA- FTA offer great business opportunities, derived from its market size and the wealth of its population. The facilities given by these trade agreements create a beneficial atmosphere for business relations between European and Mexican businessmen.

(1)OECD, Main economic indicators, feb. 2003.
(2) Member countries of the EU include: Austria, Germany, Belgium, Denmark, Spain, Finland, France, Greece, Netherlands, Italy, Ireland, United Kingdom, Swede, Luxembourg and Portugal.
(3)Bolivia, Chile, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Uruguay, Venezuela.
(4) Argentina, Austria, Belgium, Cuba, Czech Republic, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Luxembourg, Netherlands, Portugal, South Korea, Spain, Sweden, Switzerland and Uruguay.

Austria	8,110	23,300	Germany	82,311	22,500
Belgium	10,226	22,100	Denmark	5,359	29,700
Spain	40,266	14,500	France	59,191	21,500
Finland	5,195	23,400	Greece	10,538	10,700
Holland	15,987	23,900	Italy	57,348	18,800
Ireland	839	26,600	Luxembourg	441	43,400
Sweden	8,896	24,600	United Kingdom	59,756	24,300
Portugal	10,061	10,700

TOTAL	377,524		22,667*		Total average per capita GDP
Source: Principal economic indicators of the OCDE, December 2002

Cypruss	761	12,370	Poland	38,653	4,240
Slovenia	1,989	9,780	Estonia	1,355	3,880
Malta	392	9,120	Slovakia	5,408	3,700
Check Rep.	10,265	5,270	Letonia	2,341	3,300
Hungary	10,187	4,800	Lithuania	3,488	3,270

TOTAL	74,839		21,730*		Total average GDP per capita
Source: World Bank, December 2002

FREE TRADE AGREEMENT MEXICO – EUROPEAN UNION