EU split over trade accord with Mexico

Date: 21/03/1996

By Elizabeth Wise

MEXICAN hopes of a free trade accord with the European Union are likely to be dashed, at least for the coming year.

The most that Mexico City may hope for now is that the Union offers it more than just a promise to revisit the subject in the future.

“There is no agreement in the Union to suggest the possibility of a free trade zone with Mexico,” said a senior Commission official.

After courting Mexico since it joined the North American Free Trade Agreement (NAFTA) in 1994 and then offering to open talks on an eventual free trade zone, Mexicans say the Union has back-pedalled in recent months.

EU member states are now divided into two camps.

One, led by France and the Netherlands and including Belgium and Germany, wants to offer Mexico the arrangement already suggested to Chile and the Mercosur group of Latin American nations.

The so-called 'two-phase' negotiation offered to Mercosur consists first of a written promise of future trade liberalisation and discussions preparing the ground for that eventuality. Liberalisation would then be accomplished, during the second phase, under a new agreement.

Other EU member states, including Spain, Italy, the UK, Sweden and Finland, oppose this idea and are pushing instead for a single agreement.

While that would not necessarily open markets any faster than the two-phase plan, the decision to tear down barriers would be taken now and would be irrevocable.

The Commission, anxious to negotiate a trade accord but reconciled to the fact that it will not happen soon, has pitched its flag in this 'one-phase' camp. “This is the only feasible solution now,” said one official.

Under the one-phase calendar, the Union and Mexico would strike an agreement leaving commercial chapters open, but establishing political dialogue and cooperation in other areas immediately. An implementing agreement would settle the details of the trade pact later.

Mexico City, however, has other ideas. “We want a trade agreement and we want it all on the table at once,” insisted one Mexican official.

But even those EU member states which would like to establish better trade links with Mexico are not prepared to ram through an accord for fear of setting a precedent.

Because proposed free trade agreements with Mexico and South Africa would be the first negotiated by the EU since the World Trade Organisation (WTO) came into being last year, member states are paying particular attention to the question of whether WTO rules would oblige them to give other trading partners the same benefits.

They have also asked the Commission to study WTO rules to determine which sectors or products must be included in a free trade zone. The WTO says a free trade pact must cover “substantially all trade”, but does allow some products to be exempt. Mexico also wants its agreement with the Union to be WTO-compatible, according to officials, but wants to get down to business.

“We have no problem with exempting some products during the negotiations, but we won't accept that the EU excludes products or sectors before the negotiations even start,” said a diplomat.

An impact study conducted by an independent research organisation in Spain found that opening Union borders to Mexican goods, including agricultural produce, would not pose a threat to EU producers.

“Everyone agrees with the argument that Mexican agriculture is no threat,” said a Commission official.

“They are not afraid of Mexico, they are afraid of the precedent it would set.”

Mexican officials say that was not the message they got last year when the Union offered to start trade liberalisation talks with Mexico City.

“The idea that we and the Commission had a year ago was to negotiate a free trade accord within the rules of the WTO,” said the diplomat. “We haven't changed our minds, but somewhere along the line the EU has.”

Mexican officials say that when the EU offered the Mercosur group a two-phase negotiation last September, it said nothing at the time about the same approach being applied to Mexico.

Then, in December, the Union suddenly presented the same formula to Mexico.

“That's when we discovered a change was made,” said the diplomat.

A Commission document written last October suggests that the two sides should pursue free trade, but its cautious language explicitly mentions only “gradually” establishing a framework for “progressive and reciprocal liberalisation” of goods, services, investment and public procurement markets.

Arguing on behalf of boosting trade with Mexico, the Spanish government has warned its EU partners that delays in fixing new trading patterns with Mexico will lead to a fall in the level of EU exports to the country.

There is already evidence to support the argument that, as NAFTA matures, US and Canadian goods will take the place of European products. Total Mexican imports of EU goods fell by 24.7&percent; last year, down from 7 billion ecu in 1994 to just 4.8 billion ecu in 1995.

The Union is still Mexico's second biggest trading partner after the US, but Spain argues that its trade surplus over Mexico will disappear if nothing is done to reverse this trend.

EU foreign ministers are scheduled to discuss their offer to Mexico when they meet on 25 March, but Union officials expect ministers to remain divided over the issue for weeks to come.