As the transition period following the United Kingdom’s (the UK’s) withdrawal from the European Union (the EU) comes to an end, so too will the preferential trade terms of various EU free trade agreements (FTAs) from which the UK has historically benefitted as a result of its membership of the EU. While the UK and its non-EU trade partners have voluntarily continued to comply with the preferential treatment afforded under the EU during the transition period, such treatment expired as of 11 pm UK time, on December 31, 2020. Poised to chart a new course for its trade future, the UK has negotiated and/or entered into various trade agreements with non-EU counterparties with the purpose of replicating, to the extent possible, the preferential treatment afforded to the UK (and reciprocated by it) under the EU FTAs.1 In the latest exercise in this initiative on December 15, 2020 the UK and Mexico signed the Mexico-UK Trade Continuity Agreement (the Agreement).2
In a joint statement issued by the UK and Mexico, the two countries affirmed that the Agreement is intended to “maintain preferential access for trade between Mexico and the UK following the end of the UK’s Transition Period with the EU on 31 December 2020, when the EU-Mexico Global Agreement will no longer apply to the UK. Both sides will strive to bring the agreement into force on 1 January 2021, subject to parliamentary procedures and legislative approvals.”3 Indeed, the Agreement instills certainty in the countries’ ongoing trade relationship, which accounts for over $5 billion per year and covers the automotive, pharmaceutical, textile, agriculture, food and drink, and other important manufacturing industries.
Importantly, the Agreement seeks to “prevent the additional duty burden that would be levied under [the World Trade Organization's (WTO) most favored nation] terms,”4 and officials estimate such an agreement could save an estimated £59 million worth of duties that would otherwise have been levied on UK exports to Mexico alone.5 This includes almost £30 million in levies on UK-exported vehicles, for which tariffs will also remain at zero percent, as opposed to the 20 percent rate that would otherwise apply under WTO terms.6 In addition to the Agreement, both signatories have also entered into a separate accord concerning the mutual recognition and protection of designations for spirit drinks, to enhance further trade in one of the most important sectors for bilateral trade, and simultaneously attempt to protect the geographical designations of products such as Scotch Whiskey, Irish Whiskey, Tequila, and Mezcal.7
The primary objective of the Agreement is to reproduce the preferential conditions relating to trade between Mexico and the EU from the EU-Mexico Global Agreement8 and to provide a platform for further trade liberalization between the two countries.9 This objective is furthered by article 9 of the Agreement, which commits both parties to (i) enter into negotiations for an ambitious, modern, and comprehensive free trade agreement as soon as possible and within one year from the date of entry into force of the Agreement; (ii) consider positively any proposal by the other party with respect to a subject to be included in the objective of the negotiations; and (iii) endeavor to conclude negotiations within three years from the date of entry into force of the Agreement. Thus, while a more fulsome trade agreement could be engineered over the coming years, the Agreement serves as a crucial precursor aimed at ensuring existing trade between Mexico and the UK remains uninterrupted.
Importantly, the Agreement represents a furtherance of the UK’s commitment to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership10 (of which Mexico is already a member), as well as Mexico’s commitment to support the UK in that process. The Agreement also underscores the countries’ commitment to the ambitious trading relationship made under their 2019 accord, concerning the Partnership for Sustainable and Inclusive Growth, which was entered into as a means of building and strengthening the countries’ political dialogue, economic links, and widening cooperation between them.11
It should be noted that the Agreement does not simply mirror the EU-Mexico Global Agreement. While a complete analysis of the modifications from the EU-Mexico Global Agreement are beyond the scope of this client alert, the Appendix to the Agreement identifies specific amendments to the EU-Mexico Global Agreement,12 Decision 2/2000, and Decision 2/2001, and other decisions of the EU-Mexico Joint Council. These amendments should be consulted by all commercial participants whose goods and services flow between the UK and Mexico, in order to assess fully the Agreement’s potential impacts on their businesses. More long term, cross-border participants active in both jurisdictions would be well served to continue to monitor negotiations and other developments regarding the future trade agreements that the countries aspire to implement.