Mexico’s International Trade Agenda for 2017

mexico1International events such as “Brexit,” the United States’ potential withdrawal from the Trans Pacific Partnership Agreement (TPP) or the possibility of renegotiating the North American Free Trade Agreement (NAFTA) are all extremely relevant for Mexico’s economy – which has the fourth-largest gross domestic product (GDP) in the Americas and the 15th-largest GDP in the world. The Mexican economy rests heavily on its exports, making 2017 a particularly challenging year for Mexico’s international trade agenda during this last year of the current administration. In 2018, Mexico will hold federal elections to designate a new president and Congress.

The Mexican international trade agenda will be most likely occupied by existing negotiations – such as the modernization of the European Union (EU)-Mexico Global Agreement – as well as with current trade issues such as China’s steel overcapacity and the sugar export restrictions imposed on Mexican exports to the U.S., but there are certain likely events that deserve a close examination:

  • likely formalization of the United Kingdom’s exit from the EU – widely known as “Brexit” – a formal invocation of Article 50 of the Lisbon Treaty that may have an impact in the current free trade agreement (FTA) negotiations with the EU and also may require bilateral negotiations with the UK
  • renegotiation of NAFTA or a possible U.S. withdrawal
  • formal U.S. withdrawal from the TPP and/or possible revival of the initiative in a different format – with or without the U.S.
  • surge of trade protectionist measures, not only through the adoption of additional unilateral measures allowed under international trade agreements, either by Mexico or against Mexican exports, such as antidumping and countervailing duties, but also through more aggressive unilateral actions (customs duties increases, safeguards investigations, tax or export restrictions, etc.), all of which may result in additional dispute settlement proceedings under the World Trade Organization (WTO) or bilateral FTAs – such as NAFTA Chapter XIX­– and investment treaties
  • increase activism by Mexico to diversify its export destinations and foreign direct investment sources, particularly with China, Korea and Japan, to expand and increase trade flows. (Mexico already has an FTA with Japan, has explored the possibility of an FTA with Korea and has not formally expressed yet any interest to negotiate with China)
  • increased pressure by China to obtain recognition from Mexico as a market economy, which could have a serious impact on new antidumping investigations and on the 27 existing antidumping duty orders against Chinese products (out of the current 52 products that are subject to antidumping orders in Mexico); China recently filed for consultations with the EU and the U.S. under the WTO to address this matter

On its own, 2017 will be a busy, uncertain year for Mexico’s trade agenda. The uncertainty over Mexico’s relationship with the U.S. will add additional stress to the system. While the debate will continue to rage in the U.S. as to whether NAFTA was a good trade deal for the U.S., NAFTA brought benefits to Mexico that created a more stable neighbor for the U.S.

Article originally published here
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Non-Tariff Barriers Can Connect Trade to Sustainable Development

flagsIn the landscape of the 2030 Agenda for Sustainable Development, trade is a means of implementation towards the Sustainable Development Goals (SDGs). The Addis Ababa Action Agenda (AAAA) on financing for development further specifies the role of trade as “an engine for inclusive growth and poverty reduction, and contributes to the promotion of sustainable development.” That is, trade should function as a means for achieving “sustained, inclusive and sustainable” economic growth. More importantly, trade-led growth should enhance, rather than undermine, the potential for social development and environmental sustainability.

In the past several decades, however, many developing countries witnessed that trade growth contributed to aggregate economic growth, and also increased the within-country income inequality. This would suggest that a country’s trade policy reflects the interests of the country’s economic giants rather than small and marginalized players, and that these interests can override the importance of conservation of natural resources and ecosystems.

There is a need to rethink policymaking in order to link trade growth to sustainable development, including its social and the environmental dimensions. The recent UNCTAD report, ‘Trading into Sustainable Development: Trade, Market Access and Sustainable Development Goals,’ looks into this issue, focusing on the interactions between market access conditions – such as customs duties (tariffs) and non-tariff measures (NTMs) – and achieving the SDGs.

What are non-tariff measures?

Historically, market access conditions in international markets were determined by the level of tariffs on imported products. However, tariff barriers have fallen significantly across countries: the trade-weighted average tariff rate in the world fell from just over 5% in 1995 to 2.5% in 2014/2015. Against the trends of falling tariffs, the influence of NTMs upon trade costs has increased. In 2014, around 70% of agricultural products traded in the world market faced sanitary and phytosanitary (SPS) measures, and over 60% of manufactured products faced “technical barriers to trade (TBT),” such as technical regulations and product standards.

Such regulatory measures are designed to meet important social and/or environmental objectives, such as by setting maximum levels for toxic residues in food, ensuring the sustainable sourcing of natural resources, or limiting trade in polluting substances. But they can directly affect trade flows and economic development when they are applied to imported products. In many cases, NTMs can be more trade-restricting that tariffs. UNCTAD estimates that existence of SPS measures to agricultural exports may increase production cost by 22%, compared to the average tariff facing the same exports at around 5%. NTMs can be particularly restrictive for low-income countries constrained by limited capacity to comply with NTMs thus significantly increasing their trading costs.

Because the vast majority of NTMs directly target key determinants of sustainable development, such as food security, health and environmental protection, countries are likely to implement more such measures for the achievement of the SDGs. That is, the number of NTMs in world trade may be increasing fast.

How to make non-tariff measures work for sustainable development

Will an increase in NTMs squeeze low-income countries’ capacity to use trade as a means of implementation of the SDGs? Not necessarily. In fact, the presence of NTMs can be the source of regional or international collaboration that can help countries to achieve a win-win situation: (i) collectively improve policy environment towards achieving the SDGs; and (ii) reduce trade distortionary impact of NTMs. The key is to eliminate trade-distortionary effect of NTMs.

Trade distortions arise from NTMs when they increase production costs for exporting countries to meet the regulatory requirements, including the costs associated with conformity assessment and certification. These costs will be higher when exporters have to meet different requirements for different markets including domestic market. That is, NTMs can be trade-distorting when the “regulatory distance” between an exporting country and its market countries is large. Therefore, reducing the regulatory distance among trade partners is the way to achieve the win-win situation.

Regulatory distance between countries is measured by the similarity of regulatory patterns of NTM types applied to a specific product classified at the HS 6-digit level. For example, if two countries each apply ten different product requirements to lemons, the regulatory distance is huge and it increases trade costs significantly. UNCTAD has assessed the potential impact of reducing costs related to NTMs in the 15 member countries of the Southern African Development Community. The gains amount to US$6 billion through a 25% reduction of NTM-related trade costs. No member country is worse off from the reforms. The largest gains stem from reducing the restrictiveness of SPS measures and TBT for partners from the whole world through alignment with international standards. In the case where barriers to trade from NTMs are reduced only to SADC exporters, the gains are much lower, with a total of about US$1.3 billion.

Moreover, when regulatory convergence is achieved among countries, it implies that countries will be implementing policy measures in a manner coherent with their trading partners. Such collaboration can jointly improve the effectiveness of policy measures, particularly in the areas where policy impacts can be cross-border, such as environmental regulations.

NTMs provide an important “policy interface” between the SDGs and trade, particularly in the framework of regional economic cooperation among developing countries.

Article originally published here

IDB Approved Billions for Caribbean Projects in 2016

caribbean_mapThe Inter-American Development Bank (IDB) says it had provided US$11.7 billion for various projects in Latin America and the Caribbean in 2016.

The Washington-based financial institution said funds were also provided by its subsidiary Inter-American Investment Corporation (IIC).

“Between the IDB and the IIC, disbursements exceeded US$9.6 billion during the year, confirming the IDB Group’s role as the region’s leading source of multilateral financing,” the IDB said in a statement.

It said both the approvals and the disbursements were “in line with the priorities set by the IDB Group’s 48 member countries, such as ensuring that at least 35 per cent of the new financing goes to the region’s smallest and least developed economies”.

The IDB said 2016 was the first full year of operations of the renewed IIC, which is now in charge of the IDB Group’s non-sovereign guaranteed operations.

During 2016, the IDB said the IIC approved a total of 153 deals for US$2.26 billion, of which 100 corresponded to the Trade Facility (US$457 million).

Of the larger transactions, the IDB said 41 per cent went to infrastructure projects, 40 per cent to financial institutions and 19 per cent to corporate financing deals.

The IDB-led sovereign guaranteed operations went to state modernisation projects (33 per cent), infrastructure and energy (30 per cent), social programmes (24 per cent), climate change (12 per cent) and trade and integration (One per cent).

During 2016, the IDB said its group continued to implement administrative cost controls that it had put in place last year, “reflecting the austerity policies adopted by many of its member countries”.

Article originally published here