Mexico has a great opportunity with T-MEC in Asia-Pacific after Covid-19

30/10/2020

The Trade Agreement with the United States and Canada (T-MEC) represents a great opportunity for Mexico in the Asia-Pacific region after the covid-19 pandemic, said this Thursday, October 29, 2020, the representative of the Confederation of Industrial Chambers (Concamin) in Singapore, Alessandro Perrota.

T-MEC ready to go into effect in Mexico
T-MEC ready to go into effect in Mexico

Mexico's position is also key for negotiations with European countries, Perrota said at the forum Integral and Progressive Treaty of Trans-Pacific Association (TIPAT): challenges and opportunities, of the Annual Meeting of Industrialists 2020, which is being held virtually.

"Mexico has had an advantage in signing the T-MEC because it has managed to access the North American market (...) under this scheme Mexico becomes a key opportunity for China and for the Asia-Pacific region," said Perrota.

He assured that the importance of Mexico "is obvious" because it has access to the U.S. but also has the opportunity to support the European market. "Some of our customers use Mexico as a springboard to other markets," he added.

He pointed out that the coronavirus pandemic has shown that consumer goods in the United States are key and therefore Mexico has a great opportunity in Asia, where its companies will have to adapt to the new normality "because of the importance of the supply chain is critical for Asian companies".

Mexico started a "new normal" economic recovery plan on June 1st, and in July the T-MEC came into effect.

Perrota said the current crisis "has demonstrated the importance of cooperation and strong trade relations" and TIPAT members have responded appropriately to current trade in the context of this pandemic by strengthening the supply chain.

He warned that Asian companies will seek to be resilient and focus on the end consumers, and that is where Mexico has a key opportunity in China, as both countries have a strategic geographical position.

Richard Lee, Concamin's ambassador to Taiwan, pointed out that commercial exchange between both countries allows for the prediction of "optimistic evolution opportunities" for industries in both nations.

Noboru Takimoto, Ambassador of Concamin to Japan, said that all the countries of the region that participate in the Trans-Pacific Partnership Comprehensive and Progressive Treaty (TIPAT) should take advantage of the opportunities opened up by this agreement.

The TIPAT establishes the rules and disciplines under which the commercial relationship of the 11 countries of the Asia-Pacific region will be governed: Japan, Australia, Canada, Mexico, Peru, Chile, Malaysia, Vietnam, New Zealand, Singapore, and Brunei and is considered the most relevant multilateral trade negotiation of the last 25 years.

Changes made to the T-MEC

Labor Standards

U.S. unions accused NAFTA of stealing manufacturing jobs because Mexican labor is cheaper. Democrat Nancy Pelosi, Speaker of the House of Representatives, had warned that she would not admit the new agreement unless they provided guarantees that Mexico would meet labor standards.

After months of negotiations, Pelosi said Tuesday that the agreement was "infinitely better" than the original. The new text was also welcomed by the powerful AFL-CIO union whose president, Richard Trunka, said that for the first time there will be labor standards whose compliance can be monitored.

The new provisions will force Mexico to comply with labor reforms it has already approved and to allow verification of its labor standards for goods and services, under penalty of sanctions.

The verification will be carried out by "independent labor experts. Mexico did not allow factory inspections.

Environmental regulations

The Democrats insisted on including strict environmental standards and mechanisms to monitor compliance.

As with labor, the agreement creates "environmental aggregates" in Mexico City that will oversee its laws and regulations.

Medicines

The revision of the text included the chapter on medicines.

The changes removed rules requiring the three partners to grant at least 10 years of exclusivity for biological drugs, which will facilitate the rapid entry of generics into the market and thus reduce prices.

Economic impact

From its entry into force, NAFTA boosted U.S. trade, helped stabilize Mexico's economy, and restructured the manufacturing sector into a tri-national production chain.

Some, including Trump, accuse NAFTA of destroying U.S. jobs, but more jobs were lost to technology.

And NAFTA gave a big boost to GDP that surpassed the jobs lost by the treaty, according to the Peterson Institute of Economics.

An analysis by the U.S. International Trade Commission said that in six years, the T-MEC will raise U.S. real GDP by 0.35 percent and generate 176,000 jobs, especially in the manufacturing sector.

Increased trade

The Commission believes that the new pact will increase U.S. imports from Canada and Mexico, and equally so exports to those markets.

In 2017 Canada and Mexico were among the United States' largest partners.

The United States exported goods worth 292 billion dollars to Canada and 243 billion dollars to Mexico in 2017.

In comparison, the United States exported to China, its third-largest customer, goods for only $130 million dollars.

Meanwhile, the leading global economy received products from Canada for $314 million dollars in 2017 and $299 million from Mexico.

Cars: higher wages

Car manufacturing was a key element. To be traded duty-free, T-Mec will require that 75 percent of the composition of the vehicles originate in the region, when under NAFTA the rate was 62.5 percent. Also, between 40 and 45 percent of it must be manufactured by operators who earn at least 16 dollars per hour.

Mexico has admitted to respecting the safety standards established by the United States, unless the Mexican authorities conclude that they are inferior to theirs.

Dispute Resolution

At Canada's insistence, the United States agreed to maintain the system of dispute settlement among partners; formerly known as Chapter 19.

But some changes were made to the mechanism known as "Investor-State Dispute Settlement. Critics say this allows powerful companies and investors to override local laws or judgments through a mechanism that is not subject to arbitrations demanding accountability.

Digital Commerce

When NAFTA was born in 1994, digital trade hardly existed at all, but 25 years later it became a key negotiating factor for a new agreement. The T-MEC prohibits the application of customs duties to digitally distributed goods such as software, games, books, music, and films.

It also restricts the power of governments to force companies to reveal ownership of source code or impose restrictions on where data can be stored.

Chinese clause

Included in the agreement is a provision that seems designed to prevent Mexico or Canada from seeking a better agreement with Beijing.

If a signatory seeks a free trade agreement with an economy not considered as "market" - read China - the other parties can cancel the trilateral agreement and establish a bilateral one.

Twilight clause

The new agreement will be in force for 16 years, but will be reviewed every six years. If the parties decide to renew it, it will be in force for another 16 years. But if a problem arises, a period of 10 years is opened to negotiate a solution and if it is not reached, the T-MEC will expire.