Mexican Tariff Increase Creates Tensions with European Union during Recent Round of Trade Negotiations

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Negotiators from the European Union (EU) and Mexico reported some progress in the latest round of negotiations on a new free-trade agreement, but the talks were tense because of the EU's protests regarding Mexico's recent increase of import taxes on European products.

The most recent negotiations were held in Brussels the third week of January. The two sides initiated full negotiations in mid-November 1998 by designating working groups to examine differences in 10 areas of trade (see SourceMex, 12/09/98)

While the recent negotiations focused on the details of a future Mexico-EU accord, representatives for the European bloc expressed strong reservations about Mexico's new tariff, which went into effect Jan. 1, 1999. Under the measure, Mexico raised import taxes by between 3% and 10% on products imported from countries that have no free-trade agreement with Mexico.

"The decision intervenes in negotiations already under way that have as their objective the elimination of trade barriers," the European Commission said in a sharply worded statement released to coincide with the talks.

Mexico's Chamber of Deputies approved the increase as part of the 1999 budget agreement negotiated with the Secretaria de Hacienda y Credito Publico (SHCP) in late December (see SourceMex, 01/06/99). The increase is expected to raise an additional US$500 million in revenues for the Mexican treasury in 1999, partly compensating for a sharp decline in oil-export revenues.

The weekly business newspaper El Financiero International said members of President Ernesto Zedillo's Cabinet disagreed on whether to pursue the increase. The measure was supported strongly by Finance Secretary Jose Angel Gurria Trevino. But Trade Secretary Herminio Blanco had strong reservations about the increase because of its potential negative impact on EU- Mexico negotiations.

Sources close to the EU-Mexico negotiations said tensions were eased somewhat when Mexican negotiators reassured their EU counterparts that this import tax was only a temporary fiscal measure and not a protectionist maneuver. …