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The Trans-Pacific Partnership is Now in Effect

The Trans-Pacific Partnership is Now in Effect

In 2019, Mexico and nine partner countries will be trading under the rules of the new Trans-Pacific Partnership (TPP).

 

The Trans-Pacific Partnership (TPP) will be of benefit to Mexico in that it will expand the number of countries to which firms that are manufacturing in Mexico can export on a duty-free basis.  It is anticipated that the TPP will enable Mexico-based manufacturers to boost their exports in the areas of automotive, aerospace, medical devices, and electronic components.  In addition to manufactured products, agri-food such as tequila, mezcal, beer, avocados, beef, pork, and orange juice will enjoy the benefits of this significant expansion in duty-free trade.

For instance, New Zealand has eliminated tariffs of between 5 and 10 percent on almost ninety-five percent of the products that it imports.  This means that the Trans-Pacific Partnership agreement will generate immediate benefits for Mexican exports to New Zealand.  Items that will feel the impact most positively from the outset include motor vehicles, navigation instruments, electrical panels, and railway and machinery parts.

Another example of the benefits of the Trans-Pacific Partnership as it applies to Mexico can be seen in its trade relations with Singapore.  Prior to December 30, 2018, Singapore imposed a duty of US $16 for each imported liter of Mexican beer.  Now the US $8.1 billion in trade of this item with the Southeast Asian country will be conducted on a tax-free basis. Additionally, provisions in the Trans-Pacific Partnership will make it beneficial for Singaporean companies to carry out joint ventures in Mexico in the automotive and medical device industries.

The United States under the presidency of Barack H. Obama was the original driving force behind negotiations of the Trans-Pacific Partnership, although his successor, Donald Trump, withdrew the USA from deliberations on the accord on January 23, 2017.  This was only three days after the Trump administration had taken power.  Mexico became a party to the original TPP negotiations during the presidency of Felipe Calderon.  This was continued, subsequently, during the term of Enrique Pena Nieto.  The newly inaugurated administration of Andres Manuel Lopez Obrador (AMLO)is also a supporter of the agreement.  AMLO recently noted that “with the implementation of the Trans-Pacific Partnership, firms that are producing in Mexico for export will have access to a trading bloc that represents 13.3 percent of GDP worldwide.”

The Trans-Pacific Partnership Gives Mexican-Made Products Tax-Free Access to Ten New Countries

Prior to the advent of the Transpacific Partnership, Mexico already had trade agreements with four of the ten countries that are party to the agreement.  These nations are Canada, Japan, Chile, and Peru.  As of December 30, 2017, Mexico has six new partners with whom it will trade on a duty-free basis.  They are Australia, Brunei, Malaysia, New Zealand, Singapore, and Vietnam.  These six countries were the recipient of only 1.38 percent of Mexico’s export during 2017.  This number is sure to increase going forward, as these nations are home to a total population of 161 million consumers.

In addition to defining the framework for duty-free trade between the ten signatory countries, the Trans-Pacific Partnership also contains chapters that promote innovation and define anti-corruption rules.  The agreement also includes provisions that support small and medium-sized businesses (SMEs).

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This quarterly publication will be populated with content that is useful and relevant to readers that are contemplating Mexico investments, have operations already within the Republic, as well as to other individuals that have an interest in Mexico and its manufacturing sector.