T-MEC in Mexico enters into force

T-MEC (Free Trade Agreement between Mexico, the United States, and Canada) came into force, replacing the old NAFTA (North American Treaty) as the main trilateral instrument between the countries included.

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

Despite the fact that practically all the efforts of the Mexican government and society are focused on fighting the COVID-19 epidemic that has already left more than 11,000 dead, the country is approaching July 1 every day, one of the most important days of the year for the nation.

T-MEC is the new trade agreement between Mexico, the United States, and Canada that replaces NAFTA. On November 30, 2018, the three nations signed a new agreement to begin the process of updating the Treaty within the framework of the G-20, held in Buenos Aires.

These negotiations made it possible to retain the key elements of this trade relationship, as well as to incorporate new and updated provisions aimed at solving the so-called trade challenges of the 21st century and promoting points of sale by people living in North America.

As a precedent to the T-MEC, in 1994, the United States, Mexico, and Canada created the largest free trade region in the world through the North American Free Trade Agreement (NAFTA), which led to economic growth and contributed to raising the standard of living of the population of the three-member countries.

By strengthening the rules and procedures governing trade and investment, this agreement has proven to be a solid foundation for strengthening the already strong economic ties between the three nations.

The Mexican government, headed by President Andrés Manuel López Obrador, has said that the entry into force of the T-MEC will help the Mexican economy, after suffering a decline, derived from the Covid-19 pandemic.

"This will mean investment for Mexico, that is, foreign investment will continue to arrive. It is very important that the treaty comes into force and very timely, because we are about to get out of the pandemic and we need to revive the economy out of the economic recession, the fall that produced the coronavirus in the world economy," said the president.

What changes were made to the T-MEC?

Although Mexico had already approved the treaty, it will have to vote on it again after the modifications.

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.