Mexico and the UK sign trade deal

On 15 December, 2020, the United Kingdom and Mexico signed the UK-Mexico Trade Continuity Agreement. This follows the UK securing similar continuity agreements with many nations, including Singapore and Canada. After the end of the UK's transition period with the European Union (EU) on 31 December, 2020, the continuity agreement, set to come into force on 1 January, 2021, will guarantee preferential access for trade between the UK and Mexico. It will permit trade to resume on the same terms as the current EU-Mexico Global Agreement. The signing of the continuity agreement follows the UK and Mexico's commitment to a prosperous future trading relationship, formalised in the landmark "Mexico and UK: Partnership for Sustainable and Inclusive Growth" agreement.

Mexico and the UK share a long history of trade, and their bilateral trade relationship accounted for over $5 billion in 2019. The continuity agreement will ensure that this carries forward. It provides imperative coverage over pharmaceutical, automotive, textiles, food, drink, agriculture, and other manufacturing industries.

Most importantly, the continuity agreement ensures tariff-free trade for British businesses. This prevents any additional duty burden which would otherwise be instated under World Trade Organisation (WTO) Most Favoured Nations (MFN) terms. MFN tariffs are what countries promise to impose on imports from other WTO members unless the country is a part of a preferential trade agreement (PTA). PTAs such as the continuity agreement provide an exemption from the MFN treatment and offer trade preferences such as zero tariffs.

Tariffs on UK car and beverage exports will remain at 0% compared to 20% under the WTO. This is estimated to save over $40 million in duties in 2021 on UK exports. Further, under the UK-Mexico spirits agreement signed earlier this month, Irish whiskey and Scotch whisky will retain their protected Geographical Indications (GI) in Mexico. Mezcal and tequila will also continue to be protected in the UK. As per the United Nations' World Intellectual Property Organisation, a GI is a sign used on products with a specific geographical origin or have qualities or a reputation due to that origin. Investment relations will continue to be governed by the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States for the Promotion and Reciprocal Protection of Investments.

However, the continuity agreement is meant only to be a stopgap. It acts as a precursor to a new free trade agreement (FTA) that is set to be as liberal as the recently agreed EU-Mexico Modernised Agreement with an ambition to go further into areas of mutual interest. A deep dive into details around investment, intellectual property rights, and digital trade and data is to be expected. While negotiations for the FTA are expected to begin in 2021, the continuity agreement would ensure that both parties avoid any trade disruption and provides certainty to UK and Mexican businesses in the interim period.

The continuity agreement also constitutes a step towards the UK's accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Should the UK formally join the CPTPP, it would be at the centre of a prominent trade network of 11 enterprising economies in the Indo-Pacific region. The CPTPP accounts for 13.5% of the global GDP and is expected to rise by up to 3% upon the UK's entry. Mexico and the UK are in agreement that future bilateral negotiations ought to run in parallel to this process.

Mexico has more FTAs than any other country and is a trading partner with more than 50 countries, offering manufacturers access to low-cost trade. These FTAs reduce barriers to trade in support of the exchange of goods and services. They are an important driver that encourages multinational corporations to operate in Mexico, thus stimulating Mexico's economy. These trade agreements are important to the UK in establishing a global competitive presence after it leaves the EU. Mexico is also a valuable location for UK manufacturers looking for an easy and cost-effective entry into the US market.

From India's perspective, earlier this month, an ambitious 10-year roadmap to broaden and strengthen ties while boosting strategic cooperation in the Indo-Pacific region was agreed upon with the UK. There was also a discussion on an Enhanced Trade Partnership, which could be a stepping stone towards an FTA in the future. This is likely to be on the discussion agenda when British Prime Minister Boris Johnson visits India next month to attend Republic Day celebrations as the chief guest. However, with the most recent COVID-19 developments in the UK, some doubts have been cast over the likelihood of this visit.

The way the UK's strategy is unfolding makes it seem like it will face limited disruption in trading with non-EU countries post-Brexit. The many trade deals now in progress between the UK and non-EU countries also provide optimism about a post-Brexit UK's prospects. However, the core issue still lies with UK-EU negotiations. The prospect of a free trade agreement seems slim due to the large differences between the parties. However, some analysts seem positive that a last-minute deal may be struck. Businesses and consumers would both benefit from certainty being provided soon, be it deal or no-deal.