Opinion on relations between the European Union and Mexico

(96/C 82/13)

On 30 March 1995 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on relations between the European Union and Mexico.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 11 December 1995. The rapporteur was Mr Rodríguez García-Caro.

At its 331st Plenary Session (meeting of 21 December 1995), the Economic and Social Committee adopted the following Opinion by a majority vote with two abstentions.

1. Introduction

1.1. Over the last few years the Economic and Social Committee has shown a keen interest in the development of relations between the European Union (EU) and the countries of Latin America and has drawn up a number of Information Reports and Opinions with the aim of helping to improve relations between the two regions. This Opinion represents a further link in the chain of work.

1.2. At its meeting in Essen on 9 and 10 December 1994 the European Council confirmed its desire to deepen and widen the EU's relations with the countries of Latin America and the Caribbean, calling upon the European Commission (henceforth 'the Commission') to put ideas on the future form of agreement-based relations with the United Mexican States (henceforth 'Mexico') 'into concrete form without delay'.

1.3. In the basic document on EU relations with Latin America and the Caribbean, adopted by the General Affairs Council of 31 October 1994, the EU expresses its readiness to begin negotiations on new, more ambitious agreements, in line with the economic potential of the signatories and the emergence of regional integration systems.

On 8 February 1995 the Commission consequently adopted a Communication () to the Council and European Parliament on a strategy for strengthening the European Union's relations with Mexico which proposes an economic partnership and political cooperation agreement.

1.4. Subsequently, and in accordance with the conclusions of the General Affairs Council of 10 April 1995, a solemn joint declaration () was signed in Paris on 2 May by representatives of the EU and Mexico. The declaration reaffirms the resolve to strengthen cooperation between both parties and conclude a new Political, Commercial and Economic Agreement.

The parties declare that they will act in keeping with the aims of strengthening democracy, human rights and individual liberties, safeguarding peace, promoting international security, and helping to create a healthy world economy characterized by sustained economic growth in line with market-economy principles and those of the new World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD).

1.5. In accordance with the conclusions of the General Affairs Council of 10 April 1995, on 23 October the Commission submitted a draft negotiating brief to the Council for the new Agreement between the EU and Mexico. The Spanish EU Presidency has put its weight behind the negotiating brief: it is expected, in principle, to be approved by the Italian Presidency during the first half of 1996.

2. Mexico's political, economic and social situation and outlook

2.1. Political

2.1.1. Ernesto Zedillo assumed office as President of Mexico on 1 December 1994, having been elected to the post on 24 August of the same year in the country's most widely observed elections in recent years. The appointment of the new President represented an important step towards preserving political stability in the wake of a series of upheavals affecting the country's institutional life between January and December 1994.

The President and his government team, which has already undergone a number of ministerial reshuffles, have launched various political initiatives. Prominent among these has been to distance themselves from the specifically party political activities of the Partido Revolucionario Institucional (Institutional Revolutionary Party, PRI): in other words, they do not wish to blur the distinction between the party and governmental action. It is clearly their intention to separate the party and the State.

2.1.2. Following various events by which it was severely shaken, including the assassination of its presidential candidate and of its Secretary-General, the PRI has engaged in a process of internal reform, as illustrated by the recent internal changes. The question has arisen as to whether the PRI will return to its roots, breaking with its past tradition of a virtually unchallenged exercise of highly centralized power. It is, however, too early to give an answer. The next two important dates in Mexico's electoral calendar (the 1997 general elections and the presidential ballot in 2000) should go some way to consolidating the introduction of pluralism to Mexican political life.

2.1.3. This has proved helpful to the opposition parties who, in recent elections, have strengthened their positions significantly. The Partido de Acción Nacional (National Action Party; PAN), a party historically of the centre-right (conservative, standing for Catholic values), has experienced a spectacular upturn in recent years, boosted by its pragmatic approach and the image of integrity and efficiency it has succeeded in projecting. The Partido de la Revolución Democrática; (Democratic Revolutionary Party; PRD), a centre-left leaning party, encompassing Mexico's traditional left and a dissident wing of the PRI, has gradually established its position as the third-largest party in electoral terms at national level, and coming second in some States.

2.1.4. The Mexican political system is today more open, and executive power less untrammelled. Congress - with more than a third of seats held by the opposition - exerts greater pressure on Government and is guiding it towards initiatives, the most significant example of which is the demise of the authoritarian culture which reigned unchallenged until very recently. President Zedillo's resolve in this direction and his clear commitment to put an end to corruption, strengthen the rule of law and press ahead with political reform will, if kept up, increase the respect of the general public.

2.1.5. The conflict in Chiapas, which burst upon the public scene in January 1994, is a further high-profile factor in the country's political life. It is, among other factors, a clear reflection of the substantial pockets of poverty which persist in Mexico today, making it a country of marked contrasts.

The negotiations between the Government and the Ejército Zapatista de Liberación Nacional (Zapatist National Liberation Army; EZLN), although making slow progress, should be acknowledged as representing a new approach to handling this kind of problem. The scale of the issues under discussion (principally social development and the rights of indigenous populations) means they are not easily settled. The Zapatistas called upon the Mexican electorate to decide whether their movement should be gradually brought into national political life. A popular referendum, organized by NGOs, was held on 21 August 1995.

Those Mexicans who voted were in favour of this, but 51 % opposed integrating the Zapatista movement into existing left-wing forces (PRD). Quite apart from the results, it should be stressed that for such a referendum to have been held, with more than 1,2 million people taking part, would have been inconceivable only a few years ago. This clearly shows the Mexican people's increasing awareness that political liberalization is not incompatible with maintaining national unity.

2.1.6. A genuine reshaping of roles both within and between the various political forces is currently under way in Mexico. A similar process is taking place between federal, state and local authorities.

On 1 September 1995, President Zedillo, acting under Article 69 of the Constitution, submitted to Congress an initial report on the general state of operations in the country's public administration. In it, he confirmed his intention of promoting action to help reform the legislative and judicial powers: a major future challenge for the Zedillo administration.

2.2. Economic

2.2.1. The financial and economic crisis which unfolded in late 1994 (on 22 December the Mexican central bank stopped intervening on the foreign exchange market) had been building up over a long period of time. Neither its features nor its scale stem from a single cause. Internal causes include the funding of the large and growing current account deficit with 'hot money'; the funding of long-term projects with short-term instruments; allowing excessive exchange rate appreciation and, faced with drastic changes in internal and external conditions, the preference for slow-acting, high-risk financial policies, such as the financing of debt with dollar-denominated bonds ('tesobonos').

2.2.2. Some of the factors contributing to the crisis were unprecedented: the non-bank source of much of the external capital which flowed into the country over many years, and the violent events of 1994.

2.2.3. The crisis would certainly have been less severe if domestic saving had not been neglected. While domestic saving accounted for 22 % of GDP in 1988, by 1994 this figure had fallen to 16 %. Weak domestic saving inhibited productive investment: this, combined with the use of external capital to cover the growing current account deficit, resulted in poor economic growth.

The lack of domestic saving, investment and growth made the Mexican economy vulnerable to short-term capital flows, aggravated by the tragic events of 1994 and the rise in external interest rates.

2.2.4. Mexico's national income was suddenly deprived of the abundant external savings which had accumulated for years, and capital began to leave the country. Exchange rate adjustment and higher interest rates failed to reverse the flight of capital, bringing the country to the brink of a collapse in its finances and production.

2.2.5. The world situation in turn acted as a catalyst for the Mexican crisis. Over recent years, the instability of international financial markets had been triggering marked fluctuations in interest and exchange rates, particularly in the more developed countries. More recently, during 1994 interest rates in the US - Mexico's principal trade partner - rose on seven separate occasions, constricting the flow of outside capital into Mexico.

2.2.6. Faced with this situation, Mexico implemented an adjustment programme including the strengthening of public finances, the negotiation of external funding to compensate for the loss of short-term capital, and special programmes to cushion the recessionary and inflationary impact of the crisis.

On 29 December 1994 the Mexican Government introduced an emergency programme of shock-therapy measures to bring the economic crisis under control. A sharp adjustment was planned to cut short the crisis and head off the danger of an inflationary spiral leading to a prolonged recession and mass unemployment. The 'Unity Agreement to Overcome the Economic Emergency' involved the social partners, with representatives of workers, peasants, employers, the Federal Government and the Bank of Mexico as signatories. The Agreement was strengthened in March 1995 with a programme providing further support () to the adjustment measures thus far adopted.

The principal aims of the programme are to curb inflation, stabilize the exchange rate, restore confidence in the financial market and promote the structural changes needed if the economy is to increase its international competitiveness. It also seeks to restore confidence among foreign investors.

2.2.7. During the course of 1995, the Mexican Government accelerated the privatization of major economic activities, as part of its policy of structural change. During the year, the necessary legal changes have accordingly been made permitting private capital to enter the following sectors: telecommunications, rail, airports, ports, secondary petrochemicals and, lastly, natural gas transport and storage.

To strengthen public finances, Mexico has cut back planned spending for 1995 to 10 % below last year's level, by adjusting public-sector prices and tariffs and increasing the VAT rate from 10 % to 15 %.

Turning to external financing, a credit line of up to US $ 20 billion was negotiated, and overall financial backing of some US $ 50 billion was agreed with the support of multilateral organizations, other countries and trade partners. These amounts do not represent a net increase in the national debt: they are credit lines, replacing short-term, high-cost liabilities with long-term, lower cost liabilities and reinforcing the country's international reserves. The threat of insolvency was thus defused, the foreign exchange and financial markets stabilized and the briefest possible adjustment process supported.

2.3. Social

2.3.1. We must not however forget the major social problems besetting the Mexican people: almost 20 % of the population lives below the poverty line as defined by the World Bank; the average educational level is low; and the conflict in Chiapas has highlighted the major social discrepancies of the country's most backward regions.

2.3.2. The social fall-out of the crisis has included the following:

- the unemployment rate jumped from 3,2 % in December 1994 to 6,6 % in June 1995;

- the Mexican Social Security Institute (IMSS) () has reported an 824 000 fall in the number of persons covered in the first seven months of 1995;

- a 35 % and 20 % hike in oil and electricity prices respectively;

- forecasts of a 12 % increase in pay levels in 1995, and of inflation reaching 45 %;

- according to IMSS figures, more than 19 500 companies have collapsed in the first quarter of 1995 alone;

- the National Autonomous University of Mexico's Centre for Multidisciplinary Analysis (CAM) forecasts that the Mexican public's purchasing power will fall by 25 % in 1995.

2.3.3. The crisis would have exacted a higher price if the economic adjustment programme had not been adopted.

To cushion the social effects of the crisis, special programmes are being implemented, under the overall adjustment programme, including the special programme for temporary employment, with 1 700 million new pesos of federal funding, and the special programme for the upkeep of rural minor roads, with a budget of 300 million new pesos. These two programmes are planned to create more than 710 000 temporary jobs.

Various food support programmes were also introduced in the areas experiencing the severest problems (). A new anti-drought programme has been set in motion, with a budget of 746 million new pesos, covering 3 274 communities and more than 480 000 farmers. Subsidies, such as those for electricity for agricultural use and for fertilizer price support, have been stepped up.

As part of the strategy to boost the productivity and profitability of agriculture and stock-farming and to improve farm incomes, a new price and marketing policy has been introduced to encourage farmers to make the most suitable use of their land and to adapt to changing market conditions.

Efforts have been made to extend health and educational services, especially in areas of extreme poverty and to maintain the existing infrastructure, extending health service cover for contributors losing their jobs from two to six months.

Partly with a view to its impact on employment, a special housing programme was launched in the second half of 1995, scheduled to create 200 000 more jobs. Restructuring mortgage lending, providing more resources for new loans, cutting red tape and reducing the indirect and administrative costs involved in home ownership will also aid recovery in the housing sector.

In order to develop an infrastructure geared to growth, an Infrastructure Investment Fund has been set up with an initial injection of public funding to the tune of almost US $ 2 000 million in 1995 for the construction of moderately-priced housing. Programmes to restructure company, farm and family liabilities with the commercial and development banking sector have been set up, also with the aim of boosting economic recovery. This has been made possible by the success of the adjustment programme. The debt relief programme involves more than 2 million users of banking services, providing reductions in interest payments, remission of moratorium interest, limits on restructured debt repayments, legal suspensions of debt repayments and restrictions on the additional guarantees which banks may demand.

2.3.4. Mexico needs to safeguard the continued rule of law and public order.

Citizens continue to experience a gulf between theory and practice in the application of laws and regulations and in the work of the courts.

If the law is effectively to govern social, political and economic coexistence, progress must be made on a thorough-going transformation of the justice and public order apparatus.

2.3.5. The upsurge in crime derives, to some extent, from economic and social factors. However, the particular scale of the problem is also due to the antiquated methods of the police and criminal justice system. National police forces and the judicial authorities lack effective coordination, and their procedures and equipment vary widely.

The shortcomings, limitations and lack of social credibility of law enforcement were highlighted during the investigations into the attacks on a number of the country's prominent public figures.

In view of the strength and impact of criminal gangs, Mexico must take effective action against organized crime and against lawlessness in general, of which the drugs trade is one of the most worrying manifestations. This arguably constitutes the most potent threat to the overall stability of Mexican society: it must therefore be fought energetically and courageously.

2.3.6. Mexico must go further in establishing a society governed by the rule of law, in which justice is guaranteed, without exceptions and completely free of favour. This is a difficult and arduous task in which all Mexicans, whatever their level of responsibility, must join.

2.4. Mexico's economic prospects

2.4.1. As a result of the package of economic policy measures adopted by the Mexican Government, backed by outside financial support, certain signs of economic recovery emerged in the first quarter of 1995. The exchange rate has risen significantly and appears, although with some slight wobbles, to have stabilized against the US dollar. The interbank interest rates have followed a generally downward course since March 1995. Similarly, monthly inflation figures have fallen considerably from the 8 % reached in April 1995.

2.4.2. However, external sector indicators have reacted fastest. The trade balance has moved into the black with surpluses throughout 1995, compared with the deficits throughout 1994. International reserves have grown significantly, mostly due to international financial contributions.

2.4.3. According to Mexican Government estimates, GDP began to grow - albeit modestly - in the third and fourth quarters of 1995, compared with the immediately preceding periods. Financial market stability, lower interest rates, support for debtors, the recovery in the housing sector, the planned increase in public investment, export growth and the resumption of foreign direct investment are all helping. This should lead to a strengthening of economic discipline. Maintenance of sound public finances, a monetary policy geared to reducing inflation and an exchange-rate policy designed to provide constant support for the export sector must be a permanent feature of Government action.

2.4.4. Mexico is without doubt a country of major economic potential, but the crisis it underwent at the end of 1994 laid bare the severe structural problems of its economy, which had been building up for several decades. The real challenge facing Mexico is to attain genuine economic stability by means of structural reforms which foster domestic saving and investment together with industrial competitiveness, and accompanied by machinery for a more balanced distribution of the profits it generates.

3. Relations between the EU and Mexico

3.1. Mexico maintains relations with the EU at all levels. Politically, it is pursuing a dual dialogue; as part of the Rio Group, and at sub-regional level, as part of the San José dialogue. At the economic and trade level, relations were put on an institutional basis with the 1975 agreement, subsequently replaced with the current Framework Agreement for cooperation of April 1991 ().

3.2. According to June 1995 figures, Mexico's external trade is principally with its NAFTA partners; the United States is by far its largest partner, accounting for some 78 % of total trade. Once Canada's percentage is added, it can be seen that NAFTA absorbs more than 80 % of Mexico's trade. The European Union is the country's second largest trading partner at 7 % (with Germany, Spain and France to the fore), although Asian countries (Japan, Korea, Taiwan and others) come close to EU levels, with 6,6 %. A fourth trading group comprising the remaining Latin American and Caribbean countries accounts for 4,4 % of Mexico's trade ().

Trade links between the EU and Mexico have developed over recent years, but one-sidedly. Since 1985, EU exports have doubled, in 1994 reaching 24 % of all EU exports to Latin America, but Mexican exports to the EU have scarcely risen, remaining at around 4,5 % of its total.

The EU's trade balance with Mexico thus moved from a deficit of ECU 2 184 million in 1985 to a surplus of ECU 4 144 million in 1994 ().

European investment in Mexico has been directed primarily to manufacturing industry (47 %), transport and communications (15 %) and public- and private-sector services (12 %). These investment flows have, however, shrunk in the last few years, while US and Canadian investment increased, particularly in 1993. European direct investment in Mexico amounted to US $ 2 105 million in 1994, accounting for 26 % of all foreign investment in the country.

3.3. As far as economic cooperation with the EU is concerned, Mexico is the principal beneficiary of the ECIP (European Community Investment Partners) programme (93 projects approved from a total of 129 proposals between 1988 and 1994) and one of the principal partners of the EU in the field of technological cooperation. There are also a number of other instruments designed to promote inter-firm cooperation, including BC-NET (Business Cooperation Network), BCC (Business Cooperation Centre) and the AL-Invest programme (Europe-Latin America business cooperation programme).

3.4. The long term benefits to the EU of a possible free-trade agreement (FTA) with Mexico would largely consist of a guarantee of present and future access to a dynamic market with the prospect of a high growth rate. From this point of view the particular attractions of Mexico should be underlined, especially its leading role in the process of modernization that has made its economy one of the most open in Latin America.

- In the last few years Mexico has enjoyed substantial and sustained GDP growth (per capita income has also risen), the growth rate being very favourable compared with that recorded in the 1980s.

- Mexico has achieved unprecedented progress in rationalizing its trade régime and reducing customs duties. It currently applies average customs tariffs of 10 %, while consolidated GATT tariffs are between 25 % and 50 %.

An average weighted import tariff of 11 % is applied by Mexico to products for which the EU is the first or second largest supplier.

- In the last decade Mexico has joined a number of major international organizations, thereby acquiring more influence on the international scene: contracting party to GATT in 1986, founder member of the EBRD (European Bank for Reconstruction and Development) in 1990 and full member of the OECD in 1994.

- Mexico is also involved in various trade liberalization agreements geared to exports and with a major potential for the development of intra-regional trade:

The NAFTA agreement between the United States, Mexico and Canada, which accounts for 20 % of world trade.

Free-trade agreements with Costa Rica (1 January 1995), Bolivia (September 1994) and an Economic Complementarity Agreement with Chile (1991).

Free-trade agreements with the Group of 3 (Colombia, Mexico and Venezuela). This Group accounts for 35 % of total GDP in Latin America and the Caribbean.

Further agreements are in preparation with the Guatemala-Honduras-El Salvador group, with Nicaragua, Peru and Ecuador and with MERCOSUR, with which a dialogue has been launched to step up economic and trade relations.

The Association of Caribbean States (AEC) which includes Mexico, Venezuela, Colombia and other Caribbean and Central-American states.

Mexico is a member of the Asia-Pacific Economic Conference (APEC).

3.5. A free-trade agreement would also be beneficial to the EU in that a long-term trade strategy is likely to maintain and strengthen the EU's position in the world economy. Mexico's involvement in various regional integration projects, particularly NAFTA together with the US, and the possible extension of this agreement to other economically important countries and groups of countries of Latin America might lead to a larger market share for the European Union.

Moreover, the increasingly prevalent idea that a free-trade area should include the whole of Latin America, as suggested in US President Clinton's 'initiative for the Americas', would mean that any FTA with Mexico would consolidate the EU's presence in Latin America as a whole and would facilitate its access to one of the world's markets with the greatest growth potential.

3.6. For Mexico, the advantage would mainly consist of easier, guaranteed access for its products to the European market, the world's largest. Between 1990 and 1994 Mexico's exports to the EU actually fell in real terms. It should be noted that the growing competitiveness of industrial goods from the countries of Central and Eastern Europe, with which the EU has free-trade agreements or to which it grants generalized preferences, is jeopardizing access to the Union market for Mexican industrial products. Given this situation, the possibility of Mexico negotiating an agreement of this type with the EU represents a crucial element in its strategy to recover its competitive position on the Union market and to strengthen its medium-term trade and economic presence. This would facilitate greater diversification of its economic and trade relations, a major proportion of which focus on North America.

An agreement of this type would enable Mexico to consolidate and increase the inward flow of European direct foreign investment. This is a most important factor, given Mexico's historic need to attract foreign capital in order to provide the total investment required to fuel growth.

An economic Partnership Agreement, on the other hand, would facilitate greater Mexican access to European technology and greater technical and financial assistance. This would make for a higher level of competitiveness and accelerate the process of internationalization of its economy.

4. European Commission proposals

4.1. The communication of 8 February on strengthening EU-Mexico relations argues that only an economic association and political cooperation agreement can fully satisfy the shared interests of the EU and Mexico. Such an agreement would have a three-fold political, economic and cooperation structure.

4.2. Political dialogue would be founded on respect of human rights and the principles of democracy and the rule of law, and would be in the form of meetings at presidential, ministerial and senior official levels. The method adopted will have to reflect the fact that Mexico is, through NAFTA, a partner of the US and Canada, with which the EU has a formal political dialogue and special security relationship.

4.3. The economic aspect would centre upon the progressive and reciprocal liberalization of trade, taking account of the sensitivity of certain products, the demands of the Common Agricultural Policy, and compliance with the Community's international obligations, such as World Trade Organization rules. Before negotiations began, a special protocol would be signed with Mexico on anti-fraud measures, mutual customs assistance, and rules of origin.

In addition to trade issues, movement of services and capital would also be liberalized, with particular emphasis on the progressive and mutual liberalization of investment conditions and regulatory measures governing products and services.

4.4. Turning to cooperation, it is planned to strengthen the business cooperation support programmes, develop administrative cooperation in order to facilitate exchanges between the two sides and focus special attention on environmental, scientific and technical cooperation, and education and training. More specifically, Mexico would be able to participate in certain European industrial, cultural, R& D, IT, telecommunications and information society cooperation projects and programmes. Furthermore, specific agreements in areas such as cooperation in education and training, statistics, customs, competition, indirect taxation, regulation and energy would be envisaged.

5. Guidelines for future EU-Mexico relations

5.1. The Economic and Social Committee welcomes the arguments and proposals put forward in the Commission communication in favour of strengthening relations between the EU and Mexico, the cornerstone of which would be the conclusion of a new agreement between the two sides, to replace the 1991 agreement. In the Committee's view, such an agreement must strengthen existing EU-Mexican relations in political, economic and cooperation terms, on a basis of shared interests and with a view to long-term stability.

5.2. The Economic and Social Committee is aware of the Mexican government's efforts to democratize the country's government apparatus, to underpin political pluralism and to implement a human rights policy. Nevertheless, recent human rights' abuses have disrupted this process, highlighting the scale of the problem.

The Economic and Social Committee considers it essential that a new Agreement should include a firm commitment by the Mexican government to make further progress on political democratization and upholding human rights as necessary elements in overall relations between the EU and Mexico. This democratic clause would apply to both sides.

5.3. Concerning the framework for dialogue, the communication does not mention the possible implications of this new dialogue for relations with the Latin American countries, in terms of both dialogue with the Rio Group () - of which Mexico is a key member - and relations with MERCOSUR ().

The Committee therefore believes that Latin America's newly-acquired international dimension of recent years demands a stepping-up of the political dialogue, both at the subcontinent (Rio Group) and regional (MERCOSUR, Andean Pact) levels, and bilaterally: in this case, by stepping up the EU-Mexico dialogue.

5.4. The Committee feels that the dialogue should cover the following main areas:

- the bilateral aspects of the relationship; and

- those multilateral aspects which involve coordination of respective positions both in international bodies such as the OECD, WTO and UN and in strategy with Latin America.

5.5. The communication proposes that the dialogue take the form of permanent contacts at various levels between the Mexican and Community administrations, and between the various political groupings in the Mexican and European Parliaments. The Committee believes that this structure should reflect the principles of efficacy, transparency and respect for political pluralism, with economic and social operators - in the case of the EU represented by the Economic and Social Committee (ESC) - being included in the dialogue.

In connection with the above point, and in view of the economic and social consequences of the agreement, the Committee could examine the possibility of establishing a permanent information interchange with the appropriate Mexican institutions on trade and development, and social and environmental issues, etc. Some of the questions touched upon by the Committee in previous Reports () are listed below by way of example:

- comparative experience of job creation, social issues and trade, vocational training, health, including anti-drugs programmes, unemployment and other social care systems;

- progress on regulatory policy, competition policy and model business principles;

- problems of economic and monetary policy;

- differences in agricultural policies, mutual reductions in export subsidies under WTO arrangements, agriculture's contribution to the protection of the environment;

- cooperation on education and training;

- environmental policy in the various sectors, life-style changes, information to consumers;

- the role of the socio-economic partners;

- innovative initiatives among NGOs, including civic, charity and voluntary organizations;

- cooperation in consumer issues such as cross-border redress, high health and hygiene standards, prudential control and maintenance of services in rural areas.

5.6. Concerning trade relations, the Committee favours the negotiation between the EU and Mexico of a new agreement which would boost trade between them and have the ultimate aim of gradually building up a free-trade zone in the industrial and services sectors, accompanied by a progressive liberalization of farm trade which takes account of the sensitivity of certain products and is compatible with WTO rules. The main reasons for such an approach include:

- the growing importance of the Mexican market for European exports. These have risen in recent years, making Mexico the eighteenth most important destination for EU exports and its principal trade partner in Latin America, accounting for 24 % of total exports to the region;

- the risk that the position of European exports on the Mexican market may be adversely affected by the difference between tariffs applied to European products and those applied to goods from countries with which Mexico has free-trade agreements ();

- the make-up of Mexican exports, concentrated mainly on the US, and sectoral specialization complementary to that of the EU;

- the Mexican economy's potential for growth. The recent monetary crisis should not obscure the radical economic transformation of the last few years;

- a low impact on the European market, as a result of the wide variety and modest volume of Mexico exports to the EU. In the list of Mexico's main exports to the EU, from the eighth item onwards, market share is less than 1 %.

Moreover, any free-trade agreement between Mexico and the EU would have to comply with the conditions laid down in WTO Article XXIV. This Article provides for derogations from application of the most favoured nation clause in the case of customs unions or free-trade areas.

5.7. Although the Committee considers the creation of a free-trade area between the EU and Mexico to be a valid long-term objective, it would nevertheless underline the unusual nature of two of its main features: firstly, it would bring together countries with very different levels of development - NAFTA offering the sole existing example - and secondly, it would involve two separate geographic regions.

Moreover, with an agreement of this kind with Mexico in view, it is worth recalling the idea, raised on a number of occasions, of a Transatlantic Free-Trade Treaty. On this point, the Committee would urge the Commission to give detailed consideration as to whether it should apply a joint strategy to the three NAFTA member countries.

5.8. The proposed EU-Mexico free-trade agreement should include social provisions, or even a social protocol, enshrining certain workers' rights. Both parties currently enjoy a high level of social consultation and protection: the existence of such provisions in both the Treaty on European Union and the NAFTA agreement illustrate both parties' commitment to safeguarding a number of basic labour standards. The inclusion of workers' rights in a future agreement is therefore desirable for both sides. The Community Charter on the Fundamental Social Rights of Workers should constitute the starting point, so as to ensure the greatest compatibility possible with the EU's current social provisions. The Committee considers that the five principles agreed by the Heads of State at the UN World Social Development summit (Copenhagen, March 1995) should constitute the minimum prerequisite for the free-trade area. These principles are: freedom of association, the right to collective bargaining, prohibition of forced labour, prohibition of child labour, and non-discrimination.

5.9. The Commission communication refers to the dismantling of tariff barriers in connection with negotiations on trade liberalization, but fails to highlight the importance of simultaneous removal of non-tariff barriers (certification, standards, etc.).

The negotiations will need to consider how trade liberalization will affect the Mexican assembly sector, which offers special incentives to exporters.

The Committee considers an undertaking by both sides to maintain genuine access to their respective markets during the trade negotiations to be a key element in their successful conclusion.

5.10. With the prospect of negotiations for a possible free-trade area, the Committee feels that the Commission should, as a matter of importance, study a number of technical questions in detail, including the definition of rules of origin specifying which Mexican and European products are to benefit from trade liberalization, the fixing of transitional periods for industrial goods with precise timetables for certain products, conflict resolution machinery and the safeguarding of European intellectual property rights on the Mexican market.

5.11. The emergence of the service sector as a key element in the world economy is confirmed by its inclusion in the multilateral GATT negotiations. In its communication, the Commission lists it as one of the sectors to be considered in the EU-Mexico liberalization process.

The Committee therefore considers that the following, amongst other points, should be taken into account in the negotiations:

- stronger legal safeguards for foreign investment ();

- non-discrimination with regard to the right of establishment;

- appropriate treatment of worker mobility;

- the drawing-up of a timetable to open up cross-border services;

- mechanisms to put the ILO's Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy into practice.

5.12. Unlike MERCOSUR's export profile, where farm produce accounts for almost 60 % of its exports to the Union agriculture represented an average of only 7 % of Mexico's exports to the EU between 1990 and 1994, concentrating mostly on chick peas, coffee, beer and natural honey.

Mexican agricultural and agro-industrial imports from the EU represented 7,5 % and 6,1 % of its total imports in 1993 and 1994 respectively. The main products involved were powdered milk - of which Mexico is the world's leading importer - dairy products, spirits and wines.

The EU has been running a surplus trade balance of more than two to one in this sector since 1989.

It should be pointed out that more than 85 % of Mexican exports of agricultural produce, basically fruit and vegetables, are to the US. On the other hand, Mexico is at the same time a major importer of farm produce: in 1994 imports in this sector almost touched the US $ 7 000 million mark. This is unquestionably an attractive market for European exports.

As recognized by the Commission, in contrast to other trade partners, the agricultural trade balance between the EU and Mexico is complementary and offers great potential to both regions. In other words Mexico, as an exporter, complements European agricultural production, while offering a highly attractive import market to Europe.

5.13. The development in recent years of economic cooperation between the EU and Mexico has highlighted its importance as a factor for internal change and as an effective means of identifying new opportunities for European economic operators.

The Committee agrees with the communication's approach on the development of advanced cooperation based on the exchange of information, the implementation of projects of common interest and the principle of co-financing.

The Committee is convinced that this approach will help create the right conditions for intensification of trade and investment flows and diversification of the levels at which they take place.

5.14. The Commission communication lists the sectors in which cooperation could take place. While acknowledging the importance of these sectors, the Committee would recommend that special attention be paid to tourism, education and training, fisheries, energy, agriculture, R& TD, regional development and SMEs. The Committee considers these sectors to be of particular interest given their contribution to the competitiveness and internationalization of the Mexican economy, and because European economic operators would thus be assisted in penetrating the Mexican market.

Tourism

Intensify exchange of information and experience, and step up joint action to promote tourism.

Education and training

Cooperation on education and vocational training involving universities and employers.

Fisheries

Promote joint initiatives and programmes covering research and new technology as well as commercial and economic aspects.

Energy

Promote information interchange and joint projects and initiatives encouraging technology transfer, approximation of each side's legislation, and improving the environment.

Agriculture

Facilitate greater harmonization of health, plant health and environmental standards which can boost trade.

R& TD

Carry out joint actions for easier technology transfers and the identification of common objectives, establishing closer links between the industrial sectors concerned.

SMEs

Promote mechanisms facilitating joint cooperation between economic actors and the creation of a favourable climate for SME development.

5.15. The Committee believes that the environment should be a prominent aspect of EU-Mexican cooperation. The main aim should be to safeguard the quality of the environment through greater use of natural resources and stricter controls on pollution. In the Committee's view, this cooperation could take the form of information swapping, joint action on education and training, and the promotion of more transfers of 'clean' technologies.

5.16. The communication makes scant reference to social conditions in Mexico, with no mention of the social issues at stake in the areas in which cooperation is planned.

Although social conditions are not central to an assessment of the potential strategic advantages for Mexico of an FTA with the EU, in the long term social conditions will affect macroeconomic conditions, which in turn are relevant to the value of an FTA for both sides. The Committee is therefore of the view that cooperation in the social field should be included, based on dialogue and the pursuit of shared ideas on issues such as poverty, disadvantaged populations, demographic trends and education.

5.17. With regard to financing, the communication does not suggest major increases in the amounts the EU has been allocating to cooperation with Mexico in recent years. The Committee supports this line, but calls for funding to be adjusted in line with the requirements of a new agreement, with the bulk earmarked for economic cooperation. Similarly, the Committee recommends that Mexico make greater use of European Investment Bank (EIB) loans.

Done at Brussels, 21 December 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() COM(95) 3 final.

() EU-Mexico Solemn Joint Declaration, 2. 5. 1995 (Paris).

() Action Programme to strengthen the Unity Agreement to Overcome the Economic Emergency, 9. 3. 1995.

() Reform of the IMSS was approved by the Mexican Congress on 9. 12. 1995.

() These include the family food and nutrition programme, the tortilla (maize pancake) subsidy programme and the social milk supply programme.

() Council Decision of 7 October 1991 on the Cooperation Agreement between the European Economic Community and Mexico, OJ No L 340/1, 1991 (Third generation agreement).

() Source: Mexican Embassy to the EU.

() Source: COM(95)3 final and Eurostat: Foreign Trade 8-9/1995.

() Mexico, Argentina, Brazil, Paraguay, Uruguay, Columbia, Venezuala, Ecuador, Peru, Bolivia, Chile, Panama and one representative of the Central American and Caribbean countries.

() Argentina, Brazil, Paraguay and Uruguay.

() Information Report on Relations between the European Union and the United States, 13 and 14. 9. 1995.

() Although precise studies are not available, it is estimated that the main impact of the introduction of NAFTA has been felt by European companies in the telecommunications, textiles, car, petrochemical and farm (sugar, meat, dairy produce) sectors.

() Negotiations have begun within the OECD on a Multilateral Investment Agreement (MIA). Mexico's membership of this organization will make it easier to secure enhanced guarantees for European investors.