EU and Mexico Reach New Agreement on Trade

Saturday, 21 April 2018, the European Union and Mexico reached an agreement on a new free trade deal. “With this agreement, Mexico joins Canada, Japan and Singapore in the growing list of partners willing to work with the EU in defending open, fair and rules-based trade,” said European Commission President Jean-Claude Juncker. The EU and Mexico wanted to update a trade deal agreed 21 years ago that largely covers industrial goods. The latest agreement also gives some clues to the requirements the EU could impose on Britain when Theresa May seeks to negotiate a free trade agreement with the bloc after Brexit.

The European Union and Mexico agreed in 2015 to modernize their trade relations and held two rounds of talks last year. The election of U.S. President Donald Trump has reinforced Mexico’s need to reduce its reliance on the U.S. imports and exports. Trump has pledged to renegotiate the 23-year-old North American Free Trade Agreement (NAFTA) and Mexicans face the possibility of higher U.S. import duties. With EU-U.S. trade talks frozen, the European Union has turned its focus to sealing deals with three other partners - Japan, Mercosur and Mexico.

The new EU-Mexico deal adds farm products, more services, investment and government procurement, and include provisions on labour and environmental standards and fighting corruption. It will also allow Mexican companies to bid for government contracts in Europe and EU companies for those in Mexico, including at state level. On investment protection, the agreement improves investment conditions and includes the EU's new Investment Court System, ensuring transparency and the right of governments to regulate in the public interest, and will also ensure that Mexico and the EU work towards the setting up of a Multilateral Investment Court. One of the main obstacles against the cancelled Transatlantic Trade and Investment Partnership (TTIP) with the U.S.  and Comprehensive Economic and Trade Agreement (CETA) with Canada has been the European public opinion against the Investor-State dispute settlement (ISDS), because of a lack of transparancy in potential suing of governments by investors and (multinational) companies.
Overall, this agreement will strengthen Europe's leadership in shaping globalisation by putting in place trade rules that are in line with the EU's core values and safeguard the EU's interests and sensitivities. Brussels is particularly keen to prove it is a champion of free trade to counter Trump’s protectionist trade policy.

Plurilateralism and differentiated integration

The term "plurilateral agreement" is used in the World Trade Organization (WTO). A plurilateral agreement implies that WTO member countries would be given the choice to agree to new rules on a voluntary basis. This contrasts with the multilateral WTO agreement, where all WTO members are party to the agreement. For many trade policy-makers, the collapse of the Doha Round has demonstrated that multilateral trade negotiations and governance have become ineffective and inefficient. Nowadays, the WTO has grown into a truly global organisation with a highly diverse membership ranging from developed and emerging economies to least developed countries. Unlike in multilateral trade rounds, only a subset of likeminded WTO members negotiates and agrees in plurilateral agreements on rules and commitments. An example of a typical plurilateral agreement within the WTO is The Agreement on Government Procurement.

Robert Basedow writes that the WTO could learn from the EU’s use of ‘differentiated integration’ as a mechanism for allowing likeminded member states to deepen and broaden integration. In the 1980s, the EU ran into a similar decision-making paralysis as the WTO recently. To overcome the joint decision trap due to the member states’ self-interest in protecting their sovereignty a turn toward ‘differentiated integration’ was introduced. The principle was that the EU should allow likeminded member states to deepen and broaden integration, while hesitant member states should be allowed to stay on the side-lines. The creation of the euro, the European Monetary Union and the Schengen Area are the most famous examples of differentiation in the EU. Differentiated integration takes many forms ranging from Treaty opt-outs for hesitant member states, to enhanced cooperation, intergovernmental treaties beyond the EU’s legal framework and informal cooperation arrangements. EU experience highlights the importance of keeping differentiated policies transparent, open and inclusive for outsiders. EU requires differentiation initiatives to be firmly embedded in the EU’s legal and institutional framework to avoid fragmentation and maintain a common focal point for policy-making. Projecting these policy recommendations and insights seem valid on WTO’s approach to plurilateralism: hesitant members can stay on the side-lines and are not bound by plurilateral agreements, but may join later. Plurilateral agreements are typically of narrow sectorial focus, form part of WTO law and are subject to the WTO’s dispute settlement procedures. Robert Basedow comes to the conclusion: "Only a well-crafted governance approach can ensure that plurilateralism reinvigorates rather than undermines the foundations of the WTO regime."

After a few major hits, the new Mexico-EU free trade agreement is welcome news for world trade. Now multilateral trade negotiations are though and multilateral trade agreements are under fire or even torpedoed (TTIP), the alternative is in bilateral and plurilateral trade agreements to keep international trade (relations) alive and prospering. Trade barriers, protectionism and trade wars usually lead to serious trade damage on both sides of the trading parties.