On June 23, 2016, voters of the United Kingdom of Great Britain and Northern Ireland approved a referendum to withdraw from the European Union. The far-reaching consequences of this separation (known as Brexit) have been widely discussed, with impacts felt across the EU and around the globe, and Mexico is no exception. Trade between the UK and Mexico increased 177% between 1999 and 2019, making the UK Mexico’s 16th largest trading partner, highlighting the importance of reaching a new agreement to replace the Economic Partnership, Political Coordination and Cooperation Agreement (EPPCCA) between the EU and Mexico that became void with the UK’s exit from the EU.
Consequently, the two countries began negotiations for a continuity agreement to maintain the preferential tariff treatment and terms between the two countries under the EPPCCA, avoid disruptions in their supply chains, and the default application of the World Trade Organization’s Most-Favored-Nation (MFN) treatment. MFN treatment implies higher tariffs and less favorable commercial conditions than those provided in the EPPCCA.
The result of the negotiations is the UK-Mexico trade continuity agreement (TCA). The agreement was signed on December 15, 2020 went into effect on June 1, 2021. It ensures tariff-free exports on 88% of all goods imported to Mexico from the UK. Overall, the new agreement contains very similar provisions as those from the EU-Mexico Agreement, with some necessary changes to reflect the new political context of the UK.
Due to the delay between the expiration of the EPPCCA and the entering into force of the EU-Mexico agreement, although Mexican exports of goods benefited from preferential tariffs since January 1, 2020, the Mexican Government applied the tariffs outlined in the MFN until the new agreement entered into effect in June of 2021. This means that that UK businesses exporting goods between January 1 and June 1, 2021 were required to pay the MFN treatment, but will be able to claim a refund on the difference.
As the TCA is mainly aimed at maintaining pre-Brexit trade conditions and will only be effective for three years, both governments are committed to relaunching negotiations in the near future. With 15 million dollars in FDI coming into Mexico from the UK between 1999 and September of 2020, the countries must generate improved trade deals that will benefit both countries and be better tailored to the UK and Mexican economies’ and rapidly-changing political and global realities.
With a consistent increase in trade between the countries, even post-pandemic, with the UK being Mexico’s 4th most important trade partner in the first quarter of 2021 (representing 5.5% of total trade), there is a desire to build on the TCA and implement a new generation of trade deals that go further than the existing rollover agreement. These negotiations are part of the UK’s commitment to boosting trade with economies of the future, like Mexico, and finding innovative ways to handle topics like digital trade, climate, and women’s economic empowerment.
This continuous collaboration and willingness to further open trade between the two countries is a clear win for international companies in Mexico looking to take advantage of new trade agreements and foster improved global trade relations and economic collaboration.
If you are interested in finding out more about the benefits of starting up business in Mexico, don’t hesitate to reach out to schedule your free business case analysis.
By Sandra Malottky | Chihuahua Business Development Manager | American Industries Group®
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