Mexico eyes pros and cons of trade under TPP

TPPIn October 2015, officials from 12 countries bordering the Pacific ocean, including Mexico and the United States, reached agreement on the Trans-Pacific Partnership (TPP) trade facilitation accord. The text of the pact, which still must be approved by the participants’ parliamentary bodies, was released only this past November, opening debate on its merits to the sectors of the economy that may be affected by the deal in each country. Although Mexico, the United States and Canada have long enjoyed free trade under the North American Free Trade Agreement (NAFTA), the new agreement stands to impact North American relations by increasing access to trade with Asian TPP member nations.

The Mexican government has enthusiastically pursued participation in the TPP since joining the negotiations in 2012. Mexican officials have long sought to diversify the country’s exports to reduce dependence on the North American market, and they see improved access to Asian markets as an important part of this effort. Mexico is hoping to take advantage of tariff reductions on food products such as avocados and berries, as well as in areas including automobiles, chemicals, steel, cosmetics and toys, among others. Mexican export manufacturers expect the TPP to lower the cost of some supply chain inputs, boosting competitiveness, and officials are projecting overall Foreign Direct Investment (FDI) in manufacturing to increase under the agreement.

Along with optimism over opportunities for increased exports, Mexican officials and business leaders also harbor concerns about potential threats to domestic industries in the country. A top worry is that China will take advantage of the TPP to triangulate exports to Mexico through Japan or Vietnam within the permissible rules of origin percentages of non-TPP components, in product categories such as textiles, footwear and vehicles. Regarding direct imports from TPP partner countries, industry associations in Mexico have expressed particular concern over an influx of products such as garments, footwear and rice from Vietnam, dairy products from New Zealand and rubber products from Malaysia. Mexican sugar producers also fret that Australian sugar exports to the United States could erode their share of the U.S. market.

While Mexico worries about new competitors for its domestic industries at home, U.S. exporters may consider how the TPP could affect their business in Mexico as well. Import duties in Mexico ranging from 5 to 15 percent, for example, stand to be phased out on various types of industrial machinery and equipment. Such reductions would help Japanese products in these categories to compete against similar U.S.-made products in the Mexican market. U.S. exporters competing with products from countries such as Australia, New Zealand or Vietnam may want to check any potential changes in duties under the TPP if they are targeting the Mexican market.

Regardless of whether they import, export or provide services, however, business people in Mexico are hopeful that the TPP will bring advances in the overall conditions for trade in the country. Mexican officials repeatedly have referred to ambitious plans to improve processes and training in the country’s Customs administration, as well as to expand and upgrade logistics infrastructure. Any gains achieved in these areas will enhance opportunities and competitiveness on both sides of the border.

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