Mexico & European Union Complete Free Trade Agreement

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After 16 months of difficult negotiations, Mexico and the European Union (EU) completed a comprehensive free-trade agreement in late November. The two sides completed the text of the accord during the latest round of talks in Brussels, overcoming differences on key issues such as rules of origin, which had delayed completion of the accord for several months (see SourceMex, 1999-08-11, 1999-10-20).

The agreement, which the two sides would like to implement in July 2000, covers 90% of the goods and services traded between Mexico and the EU's 15 member nations. Under a timetable established in the accord, most Mexican products would gain duty-free status in the EU by 2003. In turn, Mexico would phase out tariffs for most EU products by 2007.

Accord expected to reduce Mexico's dependence on US Mexican government and business officials said completion of the accord is a major step toward reducing the country's dependence on the US economy. "This agreement gives us a great opportunity to diversify our export markets and not depend exclusively on the North American market," said Alejandro Martinez Gallardo, president of the Consejo Nacional de Camaras Industriales (CONCAMIN).

Trade Secretary Herminio Blanco, summoned to testify before the Senate about the new accord, said it should boost Mexican exports to the EU. The 15-nation bloc accounted for only 3.2% of Mexico's total exports in 1998, compared with 21% in 1982.

"This year, our exports to the US will reach about US$100 billion," Blanco said. "In contrast, Mexican exports to the European Union in 1999 are projected at only US$5 billion, which illustrates the great potential of that market."

More importantly, said Blanco, the accord could help narrow Mexico's US$7.9 billion trade deficit with the EU. In 1998, Mexican exports to the EU totaled only US$4.3 billion, compared with imports of US$11.7 billion from the European bloc.

President Ernesto Zedillo's administration is also depending on the agreement to increase European investments in Mexico and boost the flow of capital into the country. "More men and women will be able to find work in the businesses that have trade relations with Europe," Zedillo said in a radio address.

As part of the agreement, Mexico's foreign-trade bank (Banco Nacional de Comercio Exterior, BANCOMEXT) and the European Commission have launched a program to support cooperative agreements between Mexican and European companies.

BANCOMEXT director Enrique Vilatela said 120 Mexican and EU companies are expected to participate in the program, which will target 10 industrial sectors, including pharmaceuticals, furniture, plastics, and textiles.

EU expected to boost direct investments in Mexico Manuel Sanchez Gonzalez, head of economic research at Grupo Financiero Bancomer (GFB), said the accord could eventually boost overall direct foreign investment in Mexico by about US$2 billion per year. Direct foreign investment currently stands at between US$11 billion and US$12 billion.

"It wouldn't surprise me to see investment levels reach US$13 billion to US$14 billion in a couple of years," Sanchez told Reuters news service.

Prominent western European companies such as German automobile manufacturer Volkswagen and Dutch electronics company Phillips have operated in Mexico for years. Others, like French cement manufacturer Lafarge, have recently announced plans to enter the Mexican market. The Mexican government's anti-trust agency (Comision Federal de Competencia, CFC) recently granted Lafarge permission to acquire the cement and transportation units of Cementos Portland de Mexico.

The agreement will also open the door further for Mexican companies to invest in Europe. In late November, Mexican bread manufacturer Grupo Bimbo announced plans to open plants in EU member Austria and in the neighboring Czech Republic, which is not a member of the bloc. …