12004

The Mexican agro industrial sector under the Mexico – EU FTA

2

The Mexico- EU FTAThe Mexico- EU FTA

The Mexico EU FTA is part of a broader Global Agreement (Economic Partnership, Political Coordination and Cooperation Agreement).

The trade aspects of the Global Agreement were adopted through two decisions of the EU – Mexico Joint Council:

The Decision 2/2000 known as the FTA in goods effective since July 1, 2000, and

The Decision 2/2001 called the FTA in Services effective since March 1, 2001.

3

The Mexico- EU FTA: Decision 2/2000The Mexico- EU FTA: Decision 2/2000

The Mexico – EU FTA provides that by 2007, around 96 per cent of bilateral trade will be duty free.

The bulk of tariff dismantling for agricultural products will be completed by January 1, 2010.

Specific packages were agreed for products considered sensitive such as the agro-industrial sector.

4

The ago-industrial sector under The ago-industrial sector under the Mexico-EU FTAthe Mexico-EU FTA

As an importer, Mexico:

maintained protection for products subsidized by the EU kept sensible products in a “waiting list”: (e.g. dairy products, cereals, meat).

As an exporter, Mexico:

obtained preferential access to products of interest with high export potential;

obtained a better tariff treatment for the majority of Mexican agricultural products with export potential than that granted to Mexico’s main competitors.

5

Market AccessMarket Access Given the special conditions of the sector, a ten year linear

phase-out was established for most agricultural trade along with, import quotas and specific exemptions.

Category 0% Duty

I July 2000

II 2003

III 2008

IVa 2009*

IV 2010**

V Waiting list

VI Tariff-rate quotas

VII Duty concessions

“O” Geographic indications* This category is applied by Mexico to European products** As of the third year, the tariff elimination becomes linear

Under the Mexico – EU FTA, Under the Mexico – EU FTA, 95%95% of Mexico’s agro industrial of Mexico’s agro industrial exports to the EU benefit form preferential treatment.exports to the EU benefit form preferential treatment.

6

Market AccessMarket Access

Most of Mexico’s vegetables and vegetable mixes, fresh and refrigerated will enter the EU duty free no later than 2010.

In tropical and semitropical fruits, Mexico obtained significant advantages to enter the EU market through quotas.

Mexico obtained an eight year duty elimination in grape juice and tropical juices.

7

11.8

5.9

2.60.08 0.01

02.1

1.5 0.7 0.03 0.01 00

5

10

15

Base Rate 2000 2003 2008 2009 2010 European imports

from Mexico

Mexican imports

from the EU

Weighted average of MEUFTA tariff-phase out

Duty Phase-OutDuty Phase-Out

Source: Ministry of the Economy

Agricultural trade

8

Duty Phase-Out: MexicoDuty Phase-Out: Mexico

Source: Ministry of the Economy, with data from Bank of Mexico and EUROSTAT

10

20

30

40

50

60

70

80

90

100

%

0

2000 2003 2008 2010

Phase out period

76.8

89.5 9.7

90.3

70.7

I (immediate)

II (three years)

III (eight years)

IV (ten years)includes IVa

V (waiting list)

VI (quotas)

VII (preferential access to agro industrial products)

Participation by category of EU agricultural imports from Mexico

9

2000 2003 2008 2010

80

100

60

40

20

0

Duty Phase-Out: EUDuty Phase-Out: EU

Participation by category of Mexican agricultural imports from the EU

Phase out period

Source: Ministry of the Economy, with data from Bank of Mexico and EUROSTAT

I (immediate)

II (three years)

III (eight years)

IV (ten years)includes IVa

V (waiting list)

VII (preferential access to agro industrial products)

26.630.4

41.4

100.0

10

Duty Phase-OutDuty Phase-Out

The base rate for the duty phase is established in Annex I of the Mexico – EU FTA (Tariff elimination schedule of the Community). For products with quotas, the base rate is a percentage of the Generalized System of Preferences (GSP) or Most Favored Nation (MFN) duty at the moment of export.

At the entrance into force of the agreement or starting 2003, the following Mexican exports are already duty free.

Coffee, green, toasted or milled

Guava Flower bulbs

Chickpeas Mango Cigars

Tequila and mezcal Papaya Cigarettes

Cocoa, and cocoa butter Tamarind Maize oil

Horse meat Foliage Copra

Lemon and grapefruit Chewing gum Beer

11

Duty Phase-OutDuty Phase-Out

Out of Mexico’s total exports to the world in the agro industrial sector, 70% of them constitute Mexico’s actual exports under the Mexico – EU FTA.

Of Mexico’s total exports to the EU:

products that represent 87% of Mexican exports to the world will enter the EU duty free in 2010;

products that represent 10% of Mexico’s exports to the world already have preferential access (quotas or partial preferences) to the EU;

products that represent 3% of Mexico’s exports to the world

have no preferential treatment, but it access will be reviewed under the agreements agriculture review clause.

12

Waiting listWaiting list

Both Parties decided to put the most sensitive products in a “waiting list”, which will be reviewed in the coming years, this revision could be done by:

Incorporating new products

Increasing preferential quotas

Increasing partial preferences

Products under category “O” are also excluded from the Agreement, as they are protected by their geographic indication. Their integration to the Agreement will depend on progress mode the WTO.

13

Waiting listWaiting list

The EU provides export subsidies to agriculture products that if given preferential access could have a negative impact on Mexico’s agricultural sector. Therefore both Parties decided to keep on the waiting list the following products:

Cereals and their derivatives (maize, wheat, barley, beans, sorghum, flour, and cereal food preparations);

Dairy products (milk, cheese, lactose preparations, etc.);

Meat products (bovine, swine, poultry, etc.)

Sugar and chocolate;

Fruits of tempered climate (apples and peaches).

14

Product Quota Duty within quota

Pathogen free eggs 300 50% of the lowest between MFN and GSP

Egg yolk, dry, liquid or frozen 1,000 50% of the lowest between MFN and GSP

Honey 30,000 50% of the lowest between MFN and GSP

Canned tune 2,000 7.9% - 8.1 %

Other flowers (from June 1 to October 31) 400 0%

Sensitive flowers (form November 1 to May 31) 350 0%

Other flowers (from November 1 to May 31) 400 0%

Asparagus (form March 1 to November 30) 600 0%

Peas 500 50% of the lowest between MFN and GSP

Avocado (from June 1 to September 30) 20,000 0%

Melon (during Jan., April, May, October, Nov. and Dec.) 1,000 50% of the lowest between MFN and GSP

Frozen strawberry 1,000 50% of the lowest between MFN and GSP

Cane molasses 275,000 0%

Chewing gun with or without sugar 1,000 No higher than 6%

Canned asparagus 1,000 50% of the lowest between MFN and GSP

Canned tropical fruits 1,500 50% of the lowest between MFN and GSP

Fresh orange juice 1,000 50% of the lowest between MFN and GSP

Frozen orange juice 30,000 25% of the lowest between MFN and GSP

Pineapple juice 2,500 50% of the lowest between MFN and GSP

Egg albumins 3,000 0%

Banana 2,000 0%

Tariff-rate quotas for Mexican products in the EUTariff-rate quotas for Mexican products in the EU

15

Market Access: Quotas for Mexican productsMarket Access: Quotas for Mexican products

Under the Mexico – EU FTA, Mexico administers the preferential access quotas to the EU.

In all the cases the quotas Mexico obtained are by far superior to Mexico’s exports averages to the EU, which leaves room for trade expansion.

16

Rules of OriginRules of Origin

The agreed rules of origin guarantee that the regional products will benefit from the preferential treatment (Decision 2/2000) upon submission of either:

(a) a movement certificate EUR.1; or

(b) an invoice declaration, given by the exporter which describes the product concerned in sufficient detail to enable them to be identified.

17

Rules of OriginRules of Origin

For agro-industrial products, rules of origin are based on the concept of wholly obtained goods with some modifications:

For products that use sugar in its fabrication, it was agreed that the content of non-originating sugar should not exceed 30% of the value of the product;

The process of roasting or decaffeinating coffee grants origin. This rule is just for Mexico because the EU does not have preferential treatment into Mexico;

For orange juice, the rule establishes that the oranges used must originate in the region.

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Sanitary and phytosanitary measuresSanitary and phytosanitary measures

Sanitary issues in the Mexico – EU FTA are in conformity with the Agreement on the Application of Sanitary and Phytosanitary Measures of the WTO.

There is a recognition to the right of each Party to adopt standards necessary to protect the health of humans, animals and the environment, as long as they do not constitute a trade barrier.

A Special Committee was established to:

Follow the commitments reached;

Act as a forum to found mutually satisfactory solutions;

Develop specific provisions needed for the application of regionalization or for the evaluation of standards equivalence;

Information exchange.

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Commercial development of the Mexican Commercial development of the Mexican

agro-industrial sector under the agro-industrial sector under the

Mexico-EU FTAMexico-EU FTA

Commercial development of the Mexican Commercial development of the Mexican

agro-industrial sector under the agro-industrial sector under the

Mexico-EU FTAMexico-EU FTA

20

5.6

3.9

6.9

4.4

4.9

6.2

7.1

6.3

6.9

7.0

7.7

7.3

7.9

7.5

8.9

8.3

10.3

8.1

10.8

8.2

11.7

9.4

0

5

10

15

20

25

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

MexicanExports

MexicanImports

Mexican Total Trade of agro-industrial products*, (billion US$)

Mexico is a natural importer of agro industrial goodsMexico is a natural importer of agro industrial goods

Source: Ministry of the Economy with data from Bank of Mexico* Chapters 1 – 24 of the HS

21

In 2003, Mexico’s top ten agriculture and agro-industrial exports accounted for 48.5% of the total exports of the sector

Product Total US EU Rest

Beer 1,210.1 1,052.2 73.3 84.6

Tomatoes 830.8 827.8 0.0 3.0

Tequila 517.0 404.1 53.4 59.5

Other live bovine animals 480.2 480.0 0.0 0.2

Srimps and prawns 311.4 306.9 2.6 1.9

Other vegetables 294.6 291.1 0.9 2.6

Cucumbers and gherkins 242.5 241.8 0.0 0.7

Sweet peppers 226.3 226.0 0.0 0.3

Sugar confectionery 219.9 201.3 1.8 16.8

Avocados 203.3 102.5 32.4 68.4

Source: Ministry of the Economy with data from Bank of Mexico

Top ten agro-industrial productsexported by Mexico in 2003, million of US$

22

583

237

549

273

353

482

500

494

575

600

427

475

468

591

591

425

547

424

686

362

650

484

0

200

400

600

800

1000

1200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EU Importsfrom Mexico

MexicanImports fromthe EU

Agro industrial trade between Mexico and the EU has Agro industrial trade between Mexico and the EU has followed the same pathfollowed the same path

Mexico – EU Trade agriculture and agro industrial products, (million US$)

Source: Ministry of the Economy with data from Bank of Mexico and Eurostat

23

For the Mexican agro-industry, the European market offers a great potential given its size

51

31

59

34

68

37

70

40

65

45

67

46

62

48

59

51

60

51

6054

79

60

05

10152025303540455055606570

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

EU* US

Bill

ion

Do

llars

Total imports of agro industrial products

*Extra EU importsSource: Ministry of the Economy with data from EUROSTAT and USDOC

24

The EU represents a big market opportunity for Mexican The EU represents a big market opportunity for Mexican products products

Source: Ministry of the Economy with data form Eurostat

Product Imports Exports Balance

Live animals 754.0 814.3 60.3

Meat products 3,349.2 3,155.5 -193.7

Milk, eggs & honey 1,384.4 4,644.9 3,260.5

Fish 12,989.5 2,637.7 -10,351.8

Cereals 2,294.1 2,359.4 65.2

Fruits 9,343.4 1,969.9 -7,373.5

Vegetables 2,677.1 1,765.8 -911.4

Sugar 1,644.2 1,903.1 258.9

Coffee and tea 3,433.5 923.8 -2,509.8

Cocoa 3,457.0 2,000.8 -1,456.2

Animal food 5,785.4 1,821.1 -3,964.3

Food products 5,251.5 9,604.6 4,353.1

Beverages 3,627.9 13,371.8 9,743.9

Tobacco 2,043.5 2,419.4 376.0

The EU is the world’s main importer of agro industrial goods and the second exporter.

The Mexico – EU FTA provides Mexican products access to a potential market of almost 455 million consumers, with a per capita income of more than 26 thousand dollars.

EU’s agro industrial trade balance, 2003 million euros

25

Trade between Mexico and the EU in the agro industrial Trade between Mexico and the EU in the agro industrial sector is concentrated on few specific productssector is concentrated on few specific products

Source: Ministry of the Economy with data from Bank of Mexico and Eurostat

Product

EU Imports form Mexico

(%)

Beer 12.0

Tequila 11.0

Avocados 10.0

Coffee (excl. roasted) 10.0

Chickpeas 9.0

Natural Honey 7.0

Table grapes 4.0

Light air tobacco 3.0

Foliage and branches 3.0

Other frozen Octopus 2.0

Product

Mexican Imports form

the EU (%)

Preparations for infant use 8.0

Wine 6.0

Mixes for the preparations of bakers

5.0

Powder milk 5.0

Brandy 4.0

Other cheese 4.0

Other food preparations 4.0

Whisky 3.0

Other butter and other fats derived from milk

3.0

Other virgin olive oil 3.0

The EU supplies 5.5% of Mexico’s total agro industrial goods, while Mexico provides the EU with 0.62% of its imports in 2003

26

Mexican agro industrial products compete successfully in Mexican agro industrial products compete successfully in the world marketsthe world markets

Main suppliers of agro industrial products imported by the EU and the development fo theese mexican products in the US

(2002)

Source: Ministry of the Economy with data from EUROSTAT and USDOC

1° Ecuador

2° Costa Rica

3° Colombia

(27) Mexico

1° Ivory Coast

2° Ghana

3° Nigeria

1° Ukraine2° Russia3° US

29.3

21.5

17.5

0.01

48.0

20.4

17.1

30.2

18.0

15.5

Soy beans

Oil - cake

Coffee

Product EU Supplier

1° Canada

2° Argentina

3° China

1° Brazil

2° Canada

3° China

1° Colombia

2° Brazil

3° Guatemala

(4) Mexico

1° US

2° Brazil

3° Argentina

1°Argentina

2° Brazil

3° US

1° Brazil

2° Colombia

3° Vietnam

(15) Mexico

Bananas

Cocoa beans

Spelt, wheat and muslin

US SupplierPart%

47.6 47.53.3

50.9 45.1

2.7

29.4

13.2

7.7

2.2

Position Part%

Position

EU supplierPart%

Position Part%

Product

US supplierPosition

25.8

23.1

23.1

1.3

48.4

29.1

6.9

0.4

75.0

7.5

0.25

64.021.56.5

59.7 40.0

0.14

23.3

16.2

12.9

10.1

1° Ecuador

2° Guatemala

3° Costa Rica

(6) Mexico

1° Ivory Coast

2° Indonesia

3° Dominican Rep.

(9) Mexico

1° Canada2° Mexico3° Jordan

27

Up to June 2004 Mexico has received US$ 291.9 million of Up to June 2004 Mexico has received US$ 291.9 million of FDI in the agro industrial sectorFDI in the agro industrial sector

Source: Ministry of the Economy

As of June 2004, 284 firms with FDI were registered in Mexico’s agro industrial sector.

Between 1999 and 2003 firms with FDI in this sector realized investments for 184.3 million UD$;

The main investors in this sector were: US (67.6%), Spain (4.9%) and Canada (3.2%).

The main EU investors were: Spain, Germany, the Netherlands, France, the UK and Italy.

28

Mexico´s National Development Plan 2001-2006, establishes as one of the priorities increase and extent competitiveness in the country. Therefore the Ministry of the Economy has produced “Competitiveness Programs”.

For the moment, Mexico has developed some specific programs for the textile-garment sector, the electronic sector and the software sector. The agro-industrial sector competitiveness program is on the verge of being concluded.

Challenges aheadChallenges ahead

29

To obtain further information visit:

www.economia.gob.mxwww.economia-bruselas.gob.mxbruselas@economia.gob.mx

Mexico’s Mission to the EUMexican Ministry of the Economy

94, Av. Franklin Roosevelt1050 Brussels, Belgium