USMCA: Mexico’s International Trade Pilar.
In 2020, the most relevant event was the entry into force of the Mexico-United States-Canada Treaty (USMCA), specifically on July 1. USMCA consists of 34 chapters, 12 more than NAFTA, plus a Protocol and annexes.
Reshoring and USMCA Rules of Origin
In the post on the economy and Mexico in 2021, Susana Muñoz commented on the (false?) idea that investment will pour into Mexico from Asia as a result of the USMCA. In this regard, we cannot ignore the phenomenon of reshoring of value chains, consisting of the reorganization of productive activities, a situation that is accelerating due to the pandemic, according to international organizations such as UNCTAD.
Obviously, the most important topic for reshoring value chains is the chapter on USMCA’s Rules of Origin. Future or potential investors should pay close attention to this chapter if they come to Mexico. Where are you going to bring your supplies? Will the production process satisfy the rule of origin? Do you have to look for a national supplier, if applicable? This is going to be the topic for years to come.
Emilio Arteaga
DBM Contributor
Mr. Arteaga is DBM’s director and is a trade and business lawyer.
USMCA Significant Trade Changes
Certificate of Origins
USMCA’s most significant change to daily commercial operations was the elimination of the certificate of origin format to establish a “free format” that should contain the minimum elements of information provided in Annex 5-A. Thus, exporting companies have to be sure that their certificate of origin complies with USMCA standards and that they have the records to prove the origin of the goods. In turn, importing companies have to make sure that their suppliers must engage in origin verification procedures.
Trade Facilitation for 2021?
A crucial issue for 2021 will be promoting trade facilitation because the Mexican economy has to be reactivated. In this sense, USMCA has a specific chapter on trade facilitation, i.e. Chapter 7 (Customs Administration and Trade Facilitation), which includes the notion of advance rulings; Chapter 5 (Origin Procedures) also refers to Chapter 7 and advance rulings.
Advance Rulings in Mexico
The advance rulings tool is not new since the WTO Trade Facilitation Agreement provides its existence. Mexico has ratified said treaty, which has already been published in the Official Gazette of the Federation. Now, paragraph 15 of Article 7.15 USMCA provides that all advance rulings have to be published on a free website.
On June 30 and September 30, 2020, the Ministry of Finance (SHCP) issued a couple of decisions regarding customs regulations under USMCA, including trade facilitation. But, these regulations do not mention the publicity of “USMCA” advance rulings.
Websites
Mexico’s customs authority (SAT) and the Ministry of Economy’s relevant website do not have a section where users may consult customs and/or FTA related advance rulings. The result of this research raises doubts about Mexico’s commitment to facilitate international trade, in particular, the SCHP and the SAT.
Why are advance rulings important?
Personally, advance rulings can be a very useful mechanism for importers and exporters in the region. Not only can the petitioner “verify” that the goods comply with USMCA’s rules of origin, but other agents may find the criteria of the customs authority on a wide array of matters including customs valuation, tariff classification, among other issues, generating greater security and predictability in international trade operations.
As a Mexican international trade adviser, I believe that this issue is something that advisors must bear in mind and explore.
International Trade Policy Developments
Turning to issues of tariff and international barriers, I highlight the following decisions:
1. New Electric Cars and Trolleybuses
An interesting event is the Import Duty exemption for new electric cars (Decree dated September 3, 2020) and new electric trolleybuses (Decree dated October 22, 2020). These are temporary decrees, which will remain in force until September 30, 2024, so we’ll see if the Ministry of Economy eventually renews such benefits.
2. Electronic Cigarettes and Vapers
Another interesting topic that arose at the beginning of the year is the prohibition of electronic cigarettes, vapers, and their parts for import and export through an Extraordinary Measures Decree, dated February 19, 2020.
3. Cannabis in 2021
On the other hand, the Senate recently approved the General Law for the Control of Cannabis and, eventually, cannabis and its derivatives may be imported in the event that the Chamber of Deputies also approves it. However, electronic cigarettes and vapers are prohibited. In my opinion, I think that the Mexican State is not very consistent on that point.
4. Steel and Automatic Export Licences to avoid a dispute with the US.
An issue that impacted certain supply chains was the export automatic licenses for steel and/or steel products to the US. Mexico adopted this measure to avoid not only the transshipment of Chinese products in Mexico, but avoiding possible US steel tariffs on Mexican products. This fear was grounded on the events that the Trump administration (re-)imposed tariffs on Canadian steel products, arguing that Canada was not complying with an agreement.
CPTPP Liberalization Schedules
As noted in the international trade guide, Mexico has a network of free trade agreements. Obviously, USMCA is the most important as a result of the volume and value of trade. But, our readers should not forget about the Comprehensive and Progressive Trans-Pacific Partnership Agreement (or CPTPP), which recently celebrated its anniversary in December. A new anniversary implies that a tariff reduction of the sensitive products per the schedule of liberalization between the six original members, Japan, New Zealand, Australia, Singapore, Mexico, and Canada, while Vietnam’s schedule is one year behind.
Vietnam, a growing trade partner.
Interestingly, imports from Vietnam have increased considerably in the last two years, which could eventually trigger anti-dumping investigations against products from that country. Obviously, COVID has impacted trade flows between almost all nations, but the trade growth between Mexico and Vietnam is notable thanks to the CPTPP, unlike the other six CPTPP members.
Mexico and International Trade in 2021
Mexico’s trade topic for 2021 will not be trade per se, but rather the implementation of the labor reform to comply with USMCA’s labor chapter. Of course, other significant events occurred in 2020 that will develop in the following months, such as (1) the end of the negotiations to modernize the Free Trade Agreement with the European Union, (2) the Trade Continuity Agreement that maintains free trade between Mexico and the United Kingdom, (3) the Commercial Identification Numbers for customs purposes, and (4) the creation of the Chetumal Free Zone.
Labor will be in the spotlight in 2021. Few months after the entry into force of the USMCA, the AFL-ICO, the most important union in the US, mentioned that it was going to file a labor complaint against Mexico. Today, we finally know –per reports– that AFL-ICO perceived some resistance on behalf of Trump’s USTR and that it will be filing the complaint as soon as Biden takes office. Furthermore, the Independent Mexico Labor Expert Board delivered an interim report to the US Congress with very serious concerns regarding the implementation of Mexico’s labor reform.
In that sense, I have no doubts that USMCA’s labor chapter will be the international trade hot topic for 2021, particularly, with an active USTR.