Does Mexico Really Even Need a Joint NAFTA-EU Deal?

Commentary by Doug Donahue
As this article in Fox News Latino demonstrates, Mexico is hoping for a trade deal between NAFTA and the European Union that could broaden the scope of free trade agreements (FTAs) already in place individually between all three NAFTA nations and the EU. The Mexican government’s goal is to maintain their presence as a world leader of FTAs and not allow the US to get a leg up with respect to leveraging FTAs to encourage investment, particularly from foreign manufacturers. The truth is that Mexico has nothing to worry about the US encroaching into its status as an open trading partner.

A NAFTA-EU trade pact would benefit both entities, consolidate trade deals already in the works and deliver enhanced benefits to all three NAFTA countries beyond what separate deals would bring. And while Mexico already has a trade deal with the EU, Canada and the US are currently in talks on their own trade deals with Europe.

Because Mexico is the world leader in FTAs – they have deals with 44 countries spread across three different continents – their desire to facilitate a NAFTA-EU pact is more about extending, or protecting, their status as one of the world’s most open trading partners than it is about strengthening trade with Europe.

A History of Openness
For the past 20 years, Mexico has been negotiating bilateral trade agreements all over the world: NAFTA, Europe, Asia. Across their free trade deals, the Mexican government insists on a minimum level of value to be added within Mexico to goods produced for export markets – whether that market is the US, Canada, South America, Europe or Asia. This amount varies by product, but is typically between 50-60%.

Therefore, Mexico, with its low-cost labor, solid infrastructure and status as a low-tariff or tariff-free trading partner with many nations worldwide, serves as an excellent trading platform for a variety of industries.

The Audi Q5 is just the latest example of this trend. If a threshold percentage of the vehicle’s value is added in Mexico (around 60%), the finished product qualifies for “rules of origin” status, for low-cost export to a variety of countries worldwide.

Thus the Mexican government, by opening its borders to the largest number of free-trading partners in the world, encourages investment within its borders and makes itself one of the most desirable manufacturing destinations anywhere on the planet.

Source: Fox News Latino

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