Fifth enlargement of the European Union Implications

Fifth enlargement of the European Union : Implications for the Mexico - EU FTA 2004 Ministry of the Economy

TABLE OF CONTENTS ð THE MEXICO – EU FREE TRADE AGREEMENT ð ADAPTATIONS TO THE MEXICO - EU FTA ð IMPLICATIONS FOR MEXICO ð CONCLUDING REMARKS 9

THE MEXICO - EU FREE TRADE AGREEMENT

The EU is Mexico’s second trading partner… Mexico - EU trade (million US dollars) % 93: 112 th 02/ Grow EU’s imports from Mexico’s imports from the EU Source: Ministry of the Economy, with data from BANXICO and EUROSTAT (using data from the importing country)

… and second source of foreign direct investment FDI distribution in Mexico, by origin 1994 – December 2003 § Between 1994 and December 2003, Mexico received close to $US 126 billion in FDI § In December 2003, out of the 27, 936 firms in Mexico with FDI, 5, 852 companies had European capital. Rest of the World 10% EU 22% US 68% Source: Ministry of the Economy

The Mexico – EU FTA is part of renewed bilateral relation ð The FTA is part of a broader Global Agreement that includes Political Dialogue, Cooperation and Trade. ð The FTA is conformed of: § Trade in Goods – Decision § 2/2000 of the Mexico-EU Joint Council (effective on July 1, 2000) Trade in Services – Decision 2/2001 of the Mexico-EU Joint Council (effective on March 1, 2001) ð The FTA is a “mixed” agreement because it involves areas that involve national and/or Community responsibilities.

The FTA covers disciplines in the following areas: I. III. IV. V. VIII. IX. X. XI. Market access Rules of origin Technical standards Sanitary and phytosanitary standards Safeguards Investment and related payments Trade in services Government procurement Competition policy Intellectual property Dispute settlement

A Broad and Ambitious FTA ð The Mexico – EU FTA provides the complete elimination of tariffs on industrial products § For Mexico since January 1, 2003. § For the EU on January 1, 2007. ð Substantial trade in agriculture will also be liberalized by 2008 § For Mexico 95 percent of agriculture products will be duty free. § For the EU 53% of agriculture products will be duty free. ð There are products in a “waiting” list for further discussion contingent on progress in WTO (e. g. meat products, dairy, grains, sugar, etc. ).

The Mexico – EU FTA after three years Mexico - EU total trade (billion US dollars) 27. 1% Source: Ministry of the Economy, with data from Banxico and Eurostat

Mexican products are already competing successfully in the European market Mexican exports to the EU: selected products (million US dollars) HTS Products Value jul 02 -jun 03 jul 99 -jun 00 Growth rate % 840734 Spark-ignition engines 83. 7 98. 7 17. 9 847170 Hard drives 51. 5 139. 5 170. 9 847180 Data processing machines 0. 2 60. 3 30, 045 040900 Natural honey 22. 7 41. 6 83. 1 220890 Tequila 33. 5 60. 2 79. 6 950100 Toys with wheels 9. 6 117. 9 1123. 4 841112 Turbines 13. 9 64. 7 365. 7 851790 Parts for line telephony 8. 4 21. 6 157. 7 291524 Acetic anhydride 10. 0 27. 1 171. 4 721391 Syringes 6. 2 8. 2 32. 3 Source: Ministry of the Economy, with data from Banxico

ADAPTATIONS TO THE MEXICO-EU FTA 28

The Mexico – EU FTA vis – a - vis the EU’s enlargement ð As of May 1, 2004, the ten new Member States (MS) incorporated into their domestic legislation standards, directives and regulations approved by the European Community, which include aspects such as: § Common Commercial Policy § Preferential trade agreements with third countries § Common External Tariff § Commitments undertaken by the EU under the WTO Agreements ð The incorporation of new MS made necessary to adapt certain provisions of the Mexico-EU FTA, wich did not imply a re-negotiation of the Agreement. ð These adaptations guarantee that Mexico-EU FTA rights and obligations apply in all 25 EU Member States, and that the products originating in Mexico receive the same preferential treatment in the ten new MS as in the previous EU-15.

LEGAL GROUND OF THE ADAPTATIONS ð Article 55 of the Global Agreement defines “Parties” as: §Mexico; and § The Community or its Member States or the Community and its Member States, in accordance with their respective areas of competence, as derived from the Treaty establishing the European Community. ð The accession of new Member States to the European Community does not change the concept of “Parties” of the Global Agreement as they are MS of the European Community, according to the Treaty establishing the EC. ð The enlargement process does not imply the accession of new Parties into the Global Agreement and its Decisions 2/2000 and 2/2001. 29

LEGAL GROUND OF THE ADAPTATIONS ð Artícle 56 of the Global Agreement defines “Territorial Application” as: §Territory of the United Mexican States; and §Territory in which the Treaty establishing the European Community is applied under the conditions laid down in that Treaty. ð Due to the Mexico-EU FTA territorial application clause, the Agreement will apply in the territory stated in the Treaty establishing the European Community. Therefore, as of May 1, 2004, the FTA will apply in the territories of all the EU which comprises that of the ten new MS. 29

The adaptations update the Mexico-EU FTA to the new EU reality ð The main objective of the adaptations to the Global Agreement and its Decisions is to continue making operational both instruments in light of the accession of ten new MS to the European Community. ð Through these adaptations, it is intended to guarantee that traditional trade flows between Mexico and the ten new MS continue uninterrupted in an EU enlarged to 25 members. 36

Adaptation Instruments 1. Additional Protocol to the Global Agreement 2. Decision 3/2004 amending the Joint Council Decision 2/2000 (trade in goods) 3. Decision 4/2004 amending the Joint Council Decision 2/2001 (trade in services) 4. Agreement on the Mutual Recognition and Protection of Designations for Spirit Drinks (tequila and mezcal) 29

1. ADDITIONAL PROTOCOL TO THE GLOBAL AGREEMENT ðIncorporates names of new Member States ðIncorporates new official languages (9 additional languages) ðApproved by the Mexican Senate on April 22, 2004, and effective on May 1, 2004. 29

2. Decision 3/2004 amending Mexico – EC Joint Council Decision 2/2000, Trade in Goods ð MARKET ACCESS – THE EU ESTABLISHED TWO QUOTAS FOR MEXICAN PRODUCTS: § § Banana – 2000 tons (75 euros/ton tariff) Pectines – 250 tons (2% tariff) The quotas intend to guarantee Mexico’s continued exports of these products to the new MS. ð CUSTOMS COOPERATION AND RULES OF ORIGIN § Recognition of merchandise in transit from the New Member States into Mexico. § Adaptations to the certificate of origin formats (EUR 1) to incorporate the ten new MS languages.

2. Decision 3/2004 amending Mexico – EC Joint Council Decision 2/2000, Trade in Goods ð GOVERNMENT PROCUREMENT § Includes the coverage lists of government entities of each new MS. § Includes the official publications lists that inform about public tenders of the ten new MS. ð Published in Mexico’s Official Journal on April 30, 2004 and in effect on May 1, 2004.

3. Decision 4/2004 amending Mexico – EC Joint Council Decision 2/2001, Trade in Services ðIncorporates the reserve list on financial services of the ten new MS. ðIncludes the financial authorities list of the ten new MS. ðEffective in Mexico on May 1, 2004. Published in Mexico’s Official Journal on April 30, 2004. 29

4. Update of the annexes containing the protected designations for spirit drinks ð Update of Annex I with the names of the 34 new denominations for spirit drinks of the ten new MS. ð Mexico requested to update Annex II with the names of the following denominations: § § § Charanda Sotol Bacanora 29

IMPLICATIONS FOR MEXICO 10

Enlargement of the European Union to 25 members Estonia Latvia Lithuania Poland Czech Republic Slovakia Hungary Slovenia Cyprus Malta

IMPLICATIONS: EU - 25 ð Starting on May 1, 2004, the EU has become the largest trade bloc in the world, representing a market of 455 million consumers with a GDP of around 9. 5 trillion euros. ð According to the EC, the average simple tariff of the ten new MS with respect to third countries will decrease from 9% to 4%. ð The EU-25 will generate 46% of the world’s foreign direct investment, and will receive 24%.

Foreign direct investment in the ten new MS Total: 19. 7 Source: UNCTAD, FDI country Report (2001)

TRADE IMPLICATIONS: EU - 25 ðThe enlarged Union will account for more than 20% of total world trade (without considering intra-community trade). ðSince the 1990 s, trade between the ten new MS and the EU has been governed by preferential trade agreements. Around 95% of this trade was already liberalised before the fifth enlargement took place. ðEnlargement will not disrupt trade with third countries since around two thirds of the new MS trade is done with the former EU-15. 26

Ten new Member States total trade (Billion euros) 62. 7 % Source: Ministry of the Economy with data from EUROSTAT

Natural market for the enlargement countries Enlargement countries trading partners Source: Ministry of the Economy with data from EUROSTAT 28

Total imports of the ten new MS Billion euros 183. 5 Source: Ministry of the Economy with data from EUROSTAT Billion euros 194. 1 29

MEXICO ENJOYS PREFERENTIAL ACCESS ð The Mexico-EU FTA has put Mexico in a privileged position with respect to third countries to enjoy preferential access in the market of the ten new MS. ð Through their incorporation to the EU market, the ten new MS will enjoy the preferences and assume the obligations established in the Mexico-EU FTA. This will bring new markets and business opportunities to Mexican entrepreneurs, exporters and investors. ð Mexico’s network of free trade agreements around the world now covers a market of 42 countries and 920 million potential consumers. 25

Advantages of enlargement ð Given that most Mexican exports already enjoy duty free access to the EU-15, enlargement will give Mexico a better position to access the ten new MS market since the average weighed tariff will decrease from 5. 7% to 0. 1% Source: Ministry of the Economy with data from EUROSTAT 31

Mexican trade with the ten new MS ð Even though trade between Mexico and the ten new MS is relatively low, during the last four years it grew 80%, while in 2003 it increased 25%. The tariff reduction that took place on May 1, 2004, should help to substantially increase trade with these countries. ð Mexico’s trade with the accession countries concentrates on four countries that represent around 80% Million USD 99) incr. 80 /19 2003 %( Source: Ministry of the Economy with data from Banco de México 27

Mexican trade with the ten new MS ð Main export markets: § Czech Republic § Hungary and § Poland ð Main import markets: § Malta § Hungary § Czech Republic and § Poland 27

Examples of Mexican products that will enjoy better access to the enlargement countries 27

Examples of Mexican products that will have better access to the enlargement countries 35

CONCLUDING REMARKS

CONCLUDING REMARKS ðThe fifth enlargement of the EU to Central and Eastern Europe, plus Malta and Cyprus, will offer new markets under better conditions for Mexican products. ðMexico’s development level is similar to that of the ten new MS and that will contribute to facilitate the creation of new business as well as new strategic alliances in both directions. ðSince the ten new MS have to adopt the current body of EU legislation, Mexican entrepreneurs will enjoy access to these new markets under the same rules as in the former EU-15. 39

CONCLUDING REMARKS ðThe adaptations to the legal instruments that govern the trade relationship between Mexico and the EU are necessary to keep up to date the regulatory framework that regulates trade between Mexico and the EU as of May 1, 2004. ðIn the following months it will be necessary to intensify the promotion of the FTA, both in the new MS and in Mexico in order to help Mexican entrepreneurs and European investors to better understand the trade and investment opportunities for both Parties. ðThe Undersecretariat for International Trade Negotiations of Mexico’s Ministry of the Economy has developed the Commercial Intelligence System, to help the exporters and entrepreneurs to identify business and trade opportunities in the EU. To obtain more information, please visit: www. economía-snci. gob. mx or www. economia-bruselas. gob. mx