The Ofi Press Magazine

International Poetry and Fiction from Mexico City

The European Union and Mexico

ByJohn Read, UK/Mexico (Published in Issue 14)

 

Many Mexicans are not aware of the substantial agreements that exist, and the progress that has been made, in Mexican relations with the 27 sovereign European nations of the European Union (The EU).  Suffice to say, Mexico is now a critically-important emerging country for the European Union, not only in trade terms, but as a country that is now perceived to be far more politically-stable and democratic. Here I will explain the motives behind the establishment of EU-Mexican relations, and what political and trade arrangements exist, (cooperation programs are not included here and are better explored separately) before finally providing an overview of the current state of affairs.

 The Motives – Free Trade and Diversification

 

 In 1997, both Mexico and the EU15 decided that there was a need to reinvigorate relations.  Although there have been “diplomatic” relations (The EU’s legal status is a subject for a separate discussion) between Mexico and this organisation of sovereign states since 1960, [1] (the former European Economic Community) the evolving nature of the EU, and the increased importance of Mexico as an “emerging” country,  and major trading partner, became more obvious.

 From the Mexican side, there were three main motives.   First, the EU was essential in Mexico’s quest to diversify its economic activity.  Mexico was indeed becoming one of the most networked economies in the world. (Reiter, 2003: 67)  With a large dependence on the United States, the old adage of “never put too many eggs in one basket” dominated thinking.  Second, the symbolic signing and impact of the North American Free Trade Agreement in 1994 (and indeed, Jaime Zabludovsky was chief Mexican negotiator for both the FTA with the US as well as with the EU) characterised a culmination of several moves towards trade liberalisation that had taken place throughout the 1980s (Gurría Trevino, 1995) - Mexico could simply not ignore the prospect of new economic relations with the wealthiest and most powerful countries outside of the US at the time.  They were, after all, the only true US economic rivals.   The third motive was political, but by no means unimportant, and this was the cementing of Mexico’s foreign policy aim as a “bridge” in Latin America.  A substantial relationship with the European Union which included a FTA meant that Mexico was ideally positioned to enter the world’s two largest single markets; (in economic terms) a position that would reap political benefits and influence, to the cost of competitor nations such as Chile and Brazil.  By 2003, President Fox of Mexico was clear that Mexico was “no longer a passive international actor” (Negocios, 2003: 6)

 Indeed, the unfettered access to the US and Canada was an immensely attractive proposition for the European Union, the guardian of the European single market, and commander of all trade policy for its member states.  The EU wanted to use Mexico’s preferential access to the US for the benefit of its own companies, given that Mexico was now developing “freer” trade than what the EU itself enjoyed with the US.  This was priority number one.  New markets, yes, new opportunities for economic growth yes, but here was a country, who, armed with this FTA with the US and membership of the Organisation for Economic Cooperation and Development, (and is still the only member in Latin America apart from Chile, who joined quite recently in May 2010) was rapidly taking a new place in the global economy.

 However the EU was not without its practical motives.  It had been established that EU trade to Mexico fell to 6% of its total trade in 1996, down from 11% of its total trade just two years previously, although when looked at from another viewpoint, the EU still enjoyed a large trade surplus with Mexico in 1996 of 1,986m ECU, although the fall had been quite steep from a surplus of 4,407m ECU in 1994. (European Report, 1997)

 The bloc also had political motives of its own, in particular to project its own foreign policy aims and its ideals.  Profound political agreements were therefore part of a wider EU projection of power and recognition on the international stage, (Hill & Smith, 2005, Smith, 2002) albeit not recognised as “sovereign,” with its own “Embassies” and able to conclude its own agreements until the EU’s Lisbon Treaty of 2009.

 

 What exists and where are we now?

 The outcome of the aforementioned motives was a comprehensive agreement known as the Economic Partnership, Political Co-ordination and Co-operation Agreement, or quite simply the “Global Agreement[2]” to reflect its remarkable depth.  Signed on 8th December 1997, the GA contained agreements in three distinct areas, namely Political Relations, Trade Relations and Cooperation Programs. [3]  Jose Angel Gurria, Mexico’s Minister of the Interior at the time, (now Secretary-General of the Organisation for Economic Cooperation and Development) was clear in his view:

 “Con este acuerdo iniciamos una nueva y ambiciosa relación con la Unión Europea. (…) Europa es hoy una prioridad máxima para nuestra política exterior.”[4] (Smith, 2004 :97)

 The Global Agreement entered into force on 28th October 2000, days before Mexico’s political landscape changed permanently with the election of Vicente Fox as President of the National Action Party (Spanish: Partido Accion Nacional – PAN) Government.

 

 Political Relations and Dialogue

  Most notably, the establishment of the EU-Mexico Joint Council[5] and the EU-Mexico Joint Committee[6] represented a step towards quasi-institutionalisation that neither side had tried before.  For the EU, Mexico was political new-ground, and being the first transatlantic agreement, was the perfect opportunity to implement new ideas.  Practically, it has been argued that the Joint Council was a way of distinguishing the EU agreement from that of NAFTA.  On the surface this doesn’t seem like a worthy point, because NAFTA has its three Secretariats, but the major difference is that the Joint Council not only monitors the Global Agreement but manages it.  Both sides essentially delegated their decision-making powers over the Agreement to the Joint Council, and for Mexico in particular this was a political evolution.

 The other major political development contained in the Global Agreement was the human rights conditionality clause.  This clause is a fundamental part of the projection of EU soft power, and was the first time the EU had successfully done so.  Mexico signed the Global Agreement with the full understanding that it could be suspended in the face of serious human rights abuses.  For some this was seen as a violation of sovereignty, but it clearly was a new political frontier, from which all future dialogue was based. (Szymanski & Smith, 2005)

 The one area where there have been substantial efforts has been engagement with Civil Society, most visible through a series of four EU-Mexico Civil Society Forums that have taken place over the years, the last one being in October 2010 in Mexico.  Discussions have been wide and varied, and there has been considerable EU influence in the establishment of a Mexican civil society, given that Mexico has no direct equivalent of the institutionalised European Economic and Social Committee. (EESC)  The continual conclusion of the Civil Society forums has been the need for an EESC equivalent, but this has not yet come to pass. (Secretaria de Relaciones Exteriores, 2010)

 The most recent political progress took place in 2008 with Mexico being given “Strategic Partnership” status with the EU.  Upon first sight this means little more than a recommitment to the wide variety of cooperation programs that exist, (more than 30 in total) but it must be noted that both sides committed to more “coordinated positions” on a wide range of global issues.  Therefore, we could reasonably expect Mexico’s behaviour within international institutions and other multilateral forums to become more aligned with the EU in future.  This is an area to watch as it represents a clear influence over Mexican domestic politics.

 

To conclude, other than one major meeting of the Joint Council every two years, and more frequent meetings of the Joint Committee (essentially composed of civil servants who implement the Joint Council’s decisions) political dialogue has not been as extensive as expected.  With regards to Civil Society, whilst there has been marked progress, full institutionalisation of civil society into the Global Agreement has been repeatedly mentioned since 2008, but no concrete action has taken place.  Therefore, civil society is merely a voice, and not yet one with a concrete influence.  Mexico’s new status of “Strategic Partnership” sounds wonderful but has the potential to create an asymmetry of influence between both sides in their wider foreign policy aims at the global level.  Finally, political relations as a whole still have a long way to go as the EU competes for influence with its member states and their well-developed bilateral relations – this is a second area to watch for the future.

 

Trade Relations:  The big goal, with challenges

  The Global Agreement was packaged as more than a trade deal, but 11 years on, one early conclusion we can draw is that trade still dominates the overall EU-Mexico relationship.  Had it not been for foreign policy aims and the need to “construct” Europe in the eyes of the world (now enthusiastically managed by the relatively-new European External Action Service) the “new” relationship may in fact never have evolved beyond a free trade area.

 Trade was a key area for the EU because of how trade policy is decided by the EU for its members.  In other words, the EU, being essentially an economic bloc, can really flex its muscles, and use trade to project soft power, as previously mentioned.  This was done with Mexico, and rather successfully.

 However, trade is an immense area to discuss and requires its own scholarly investigation, but in brief, since 1999[7] the trade relationship between the two parties has been fairly successful.  Imports and exports are up on both sides, with the financial crisis of 2007-2009 being a major exception.  The figures below show this clearly.  But the trade relationship still has its challenges to overcome, namely:

 (a)  Despite overall trade increasing (and foreign direct investment in particular to more than 90 billion US$ between January 1999-June 2010) total trade between the two parties for 2000-2009 only increased by a total of 17.5%.  For the years 2000-2008 the figure would be 66%.  The crisis therefore has had quite an impact, and with the uncertainty of the Eurozone crisis (as at December 2011) it is difficult to predict the recovery rate of EU-Mexican trade. 

 

 

Trade figures

 

 

(€m)

2000

2005

2008

2009

2010 (Estimated until October)

Exports (to the EU)

7,392

9,245

13,814

9,832

12,879

Imports (from the EU)

14,242

16,837

22,082

15.580

20,934

Deficit

6,850

7,592

8,268

5,749

8,055

Total Trade

21,635

26,082

35,896

25,412

33,813

 

 

Source:  http://eeas.europa.eu/delegations/mexico/eu_mexico/trade_relation/index_en.htm.

 

(b)  Mexican Small and Medium-sized Enterprises (SME’s) remain a particular challenge in that they haven’t been able to access and fully take advantage of the EU FTA in the same way as EU companies have, primarily because of the structure of the Mexican economy, which has acted as an impediment rather than strength in Mexico’s external trade relations.

 The majority of businesses in Mexico are SME’s – as high as 90%.  Furthermore, of these SME’s a significant number can actually be classified as micro enterprises, or family businesses.  This particular structure arose due to a wide range of geographical, historical and political reasons.  Ultimately, business owners felt that their enterprises were best kept private and inside the family, which meant that very few businesses were able to expand successfully and even fewer were made public, leading to a lack of investment and possible growth.

 Herein lays the problem: Micro enterprises, and many SME’s in general, lack the skills they need to be able to fully take advantage of the EU FTA.  How can a micro enterprise grow to expand into the European Union?  How does a small family business, which might not even keep records and respect accounting conventions, convince others to invest in their business?  Just how can small businesses take advantage of the EU, when they lack business knowledge, all types of resources, expertise and capital investment?

 It is ironic that a FTA that is designed for Mexican businesses to be able to compete in Europe is hindered by the very nature of the Mexican economy.  The net result is that only the biggest businesses with the most resources can really take advantage of the FTA, and indeed there are some great Mexican success stories, such as the cement producer CEMEX.  But unless SME’s can be helped to understand the opportunities, a great potential is being lost.

 Thankfully, the EU and the Mexican Government have both come to realise the issue and there are various initiatives in place to facilitate the inclusion of SME’s.  These are:

 ·         On the Mexican side, the “Proyecto de Facilitación del Tratado de Libre Comercio entre México y la Unión Europea.”[8] (PROTLCEUM) Since 2006 this initiative has been helping government institutions to facilitate and promote commerce, a part of which means communication and working with SME’s. 

·         A second initiative, not so government-focused, is called “El programa de Competitividad e Innovación México-Unión Europea,[9] (PROCEI) and this complements PROTLCEUM’s activities.  However, PROCEI only currently has an €18m budget. 

·         Finally, the major programme (and arguably the most important) that exists is known as “Programa Integral de Apoyo a Pequeñas y Medianas Empresas.” [10] (PIAPYME) This programme has existed for a number of years and is a project jointly established and administered by the “Centro Empresarial México-Unión Europea[11]” (CEMUE) on behalf of the European Commission and the Mexican Ministry of Economic Development.

 

Further research is necessary to understand the inner workings of these programmes, and to accurately evaluate the current level of success that Mexican SME’s enjoy when attempting to export to and do trade with the EU.  Also not mentioned here are the challenges that European SME’s may face when they in turn wish to export to Mexico.

 

(c) The final notable challenge that the Mexico-EU trade relationship has to overcome is the asymmetry of trade, which remains a problem.  The trade deficit has been long-standing, and there are numerous sources analysing the topic, even as long ago as 2004.  (Rozo, 2004: 257)  Mexico continues to import more from the EU than what it exports, despite being the number 1 producer of silver in the world, and one of the world’s leading copper exporters.  The developing, but still industrial, Mexican economy requires vast amounts of machinery that it lacks the expertise to produce for itself, so this partly explains the figures.  However, the trade deficit is reflective of the aforementioned fact that Mexican companies just haven’t been able to “access” and take advantage of the EU-Mexico FTA.  For as long as this remains true, and given that the EU is far more competitive and productive than Mexico, the asymmetry of trade will remain.

 

Overall Conclusion and Recommendations

The chart below is a useful summary of what can be done to continue to build upon the excellent relationship that the EU countries and Mexico now enjoy.

 

  To explain each briefly in turn:

 ·         Focus on the Trade Deficit.  Mexico and the EU should continue to aim to reduce the trade deficit, for a fairer trade relationship in the long run.

·         Widen Sectors of Trade.  Both parties should aim to widen trade, for it remains largely focused in sectors such as machinery.  This narrow trade pattern however does partly reflect the comparative advantages of both sides, as well as differences in competitiveness.

·         Invest in SME’s.  As already mentioned, a key aspect to improving the overall relationship will be to increase the participation of small and medium sized businesses in the Free Trade Agreement.

·         Continue educational links by expanding scholarship opportunities.  Although not mentioned here, education is a key area of growth for the EU-Mexico relationship.  Programmes that award scholarships to the most gifted Mexican students for EU study need to be vastly expanded, as the number of scholarships awarded each year remain limited.  This is a perfect area for both parties to focus on in order to build a stronger EU-Mexico Global Agreement for the foreseeable future.

 

Bibliography

 

EUROPEAN EXTERNAL ACTION SERVICE (2010) Trade Relations with Mexico, http://eeas.europa.eu/delegations/mexico/eu_mexico/trade_relation/index_en.htm Accessed January 2012

 

EUROPEAN REPORT (1997) EU-Mexico: Partnership Agreement signed, No 2275, December 10 1997, pp.6-7.

 

GURRÍA TREVINO, J.A. (1995) ‘Las Relaciones entre la Unión Europea y América Latina:  Un camino hacia adelante’, in Relaciones con la Unión Europea:  Una Visión Latinoamericana, Centro Latinamericano para las Relaciones con Europa - CELARE (ed.) Santiago, pp. 15-29.

 

HILL, C. & SMITH, M. (2005) International Relations and the European Union, Oxford University Press

 

NEGOCIOS (2003) Mexico moving forward, Published by the Mexican Bank for International Trade, (Bancomext) February 2003.

 

REITER, J. (2003) ‘The EU-Mexico Free Trade Agreement:  Assessing the EU approach to regulatory issues’, in Regionalism, multilateralism and economic integration:  The recent experience, Sampson, G.P. & Woolcock, S. (eds.) United Nations University Press, pp. 62-99.

 

ROZO, C.A. (2004) ‘El Tratado de Libre Comercio entre la Unión Europea y México: flujos comerciales y de capital,’ Comercio Exterior, Vol. 54:3, pp.  246-257.

 

SECRETARIA DE RELACIONES EXTERIORES (2010) 4to Foro de Diálogo Sociedad Civil México-Unión Europea, http://participacionsocial.sre.gob.mx/cuarto_foro_mexue.php  Accessed January 2012

 

SMITH, H. (2002)  European Union Foreign Policy: what it is and what it does, Pluto Press, London.

 

SMITH, P.H (2004) ‘Opciones estratégicas para América Latina’, in América Latina en el nuevo sistema internacional, Tulchin, J.S & Espach, R.H. (eds), Edicions Bellaterra, Barcelona, pp. 67-114.

 

SZYMANSKI, M. & SMITH, M.E. (2005) ‘Coherence and Conditionality in European Foreign Policy:  Negotiating the EU-Mexico Global Agreement,’ Journal of Common Market Studies Vol. 43:1, pp. 171-192.

 


[1] Gurría Trevino (1995) provides an interesting history of EU-Mexican relations that helps us to put the Global Agreement into context.

[2] You can download a copy of the GA as a pdf from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2000:276:0045:0061:EN:PDF.  In Spanish, the link is http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2000:276:0045:0061:ES:PDF

[3] The Global Agreement was the legal “base” from which all other agreements would stem, although the FTA was legally separated and completed prior to the entering into force of the Global Agreement as a whole, which took place on 28th October 2000.

[4] “With this agreement, we begin a new and ambitious relationship with the European Union…..Europe is today a maximum priority for our external relations (foreign policy)”

[5] Article 45 of the Global Agreement

[6] Under Article 48

[7] The FTA element of the Global Agreement came into effect before the whole package, having been negotiated separately.

[8] Literally “Project to facilitate the Free Trade Agreement between Mexico and the European Union

[9] Literally “Program of Competitiveness and Innovation for Mexico and the European Union

[10] Literally “Integral Program of Support for Small and Medium Businesses

[11] Literally “Mexico-European Union Entrepreneurship Centre