After more than two years of negotiations, the new trade agreement between Mexico, the US and Canada, now called the T-MEC has entered into force on 1 July 2020.  Although most of the agreement did not have significant changes, some modifications will impact the way of operating companies within the region, as well as the performance of the North American economy. 

 

From NAFTA to T-MEC 

 

With the entry into force of NAFTA in 1994, trade within the North American region grew considerably. In 2018, total trilateral merchandise trade (the total of each country’s imports from one another) exceeded US$ 1.1 trillion. From 1994 to 2018, the volume of commercialization between Mexico and the US went from 82 billion dollars to 612 billion dollars, that is an increase of 651%. Also, the exchanges between Mexico and Canada increased 808% in the same period which from a much lower base ($ 2.7 billion). Trades between Canada and the US more than doubled. 

 

Besides, the agreement has gradually eliminated tariffs on most products, the agreement came with investment opportunities, job creation, greater competitiveness, development of a variety of sectors of the regional economy, and mainly, fostering better practices in different sectors. 

 

Despite the economic benefits that NAFTA brought, some important commercial considerations were not included, such as, digital trade, labour, environment, technical standards, etc. This and other aspects led to the renegotiation of the terms of the new trade agreement between Mexico, the United States and Canada for more than two years. 

 

NORTH AMERICA REGION AND THE “NEW NORMAL” 

 

The pandemic and trade war are forcing companies to redesign their supply chains. In this scenario, regional trade and investment agreements provide an ideal infrastructure to shorten and reduce the risk in supply chains. More than ever, companies are in need to have supply options within the same hemisphere of their main consumption centre, to avoid shocks in the supply and demand sides. In this sense, Mexico becomes an excellent opportunity to bring new value chains, new industries and new economic activities. 

 

What are the main provisions on T-MEC that protect free trade and investment within the North America Region? 

 

Chapter 2 on National Treatment and Market Access 

 

  • Free trade is maintained for all originating goods, the prohibition of export taxes, regulation for the application of import and export restrictions, refund and deferral of customs duties, and the prohibition of applying performance requirements for exemption from customs duties. 
  • Disciplines regarding temporary imports of goods, goods reimported after repair or alteration are updated; commercial samples and printed advertising materials. 
  • New disciplines on import and export license establishing commitments on notification and transparency. 
  • New disciplines to regulate the trade of remanufactured goods in the region to prevent these products. 

 

Chapter 14 on Investment 

 

  • This Chapter updated the NAFTA disciplines on the protection of North American investors and outlined the mechanisms through which foreign investors may resolve differences that may arise from the alleged violation of the provisions of the Agreement.  

 

Chapter 15 on Cross-Border Trade in Services 

 

  • The principles applicable to trade in services include: National Treatment, Most Favoured Nation Treatment, Market Access (prohibiting the implementation of quantitative limitations, economic necessity tests) and Local Presence (to avoid the obligation to establish or maintain a representative office or a company in a respective territory as a condition for the cross-border supply of service). 
  • Support for the development of trade in services for the benefit of Small and Medium-sized Enterprises (SMEs). 
  • Free and immediate transfers and payments related to the cross-border supply of a service. 

 

There is no doubt that T-MEC will not only strengthen the North America regional economic integration but will also create opportunities for foreign companies to make successful investments in manufacture, financial and services sectors. As the trade war continues, companies need to redefine their business strategy taking advantage of the multiple trades and investment benefits included in regional free trade agreements. 

 

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Susana.munoz@gbalatamtradeandinvestment.com 

Written by Susana Muñoz Enríquez, Managing Director in GBA LatAm Trade and Investment Advisors