COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT ACCOMPANYING THE FINAL TEXT OF THE DRAFT DECISIONS BY THE EC-MEXICO JOINT COUNCIL - Proposal for a COUNCIL DECISION on the Community position within the EC-Mexico Joint Council on the implementation of Articles 3, 4, 5, 6 and 12 of the Interim Agreement

(presented by the Commission)

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT

ACCOMPANYING THE FINAL TEXT OF THE DRAFT DECISIONS BY THE EC-MEXICO JOINT COUNCIL

Summary

The attached draft Decisions by the EC-Mexico Joint Council cover all the trade aspects of the Economic Partnership, Political Co-ordination and Co-operation Agreement signed with Mexico on 8th December 1997.

This Global Agreement which is based on democratic principles and the respect for human rights institutionalizes a regular political dialogue and extends the bilateral co-operation. It definitively marks a new phase in the EU's relations with Mexico.

The attached texts contain the results of the trade negotiations conducted by the Commission on the basis of the negotiating directives approved by the Council on 25th May 1998. These results are comprehensive in scope and will foster trade and investment flows between the EC and Mexico.

In terms of coverage, this package will provide EC operators with more rapid preferential treatment than Mexico has ever before granted to any of its preferential partners and will place them in a much better position to compete on the Mexican market which is strategically important and has a significant growth potential. All industrial goods will be free of tariffs by 2007.In trade volume, 52% of EC exports will enter the Mexican market duty free by 2003 and for the remaining 48% a maximum duty of 5% will be applied by 2003. Whilst preserving EC sensitivities for agriculture and fishery products, the package negotiated for these products will grant quick and full market access for the EC's most important export products. For services EC operators will be granted better access than that currently enjoyed by Mexico's other preferential partners and in particular the USA and Canada. This package will be completed by a commitment to liberalise investment and related payments. Substantial access to the Mexican procurement market, similar to NAFTA, will also be secured. Finally, the package will include substantive disciplines for competition matters, the protection of intellectual property and an effective dispute settlement mechanism.

Substantially all trade in goods will be covered, with a total coverage amounting to 95% of total current trade, and elimination of substantially all discrimination in trade in services. The Commission is therefore of the opinion that the agreement is compatible with the relevant WTO provisions and, in particular, Article XXIV of GATT and Article V of GATS.

1. Free Trade Area in Goods

Mexico is traditionally one of the EC's most important trading partners in Latin America and a strategically important market for its exports, with significant growth potential. The EC is Mexico's second trading partner after the USA. Bilateral trade in goods amounts to EUR 11.2bn (EC exports amounting to EUR 7.6bn, whereas Mexico's exports to the EC only represent EUR 3,9bn leaving the EC with a trade surplus of EUR 3,6bn) [1].

[1] Average figures of total bilateral trade 1996-1998.

1.1 Industrial goods

The balance found within the industrial package aims at ensuring effective market access, both in terms of tariffs and rules of origin. It will allow EC products to compete on the Mexican market on an equal footing with the USA and Canada on the basis of rules of origin for which most of all EC harmonised rules will apply.

1.1.1. Industrial tariffs

For industrial products, which amount to 92,8% of total bilateral trade in goods, the main objective has been to restore the competitiveness of EC exports to Mexico and secure equivalent access to that market, in particular with respect to that enjoyed by products originating from the NAFTA countries.

In this regard, the tariff package finally agreed can be considered satisfactory. Mexico will liberalise all industrial products, with the tariffs on 52% of goods being eliminated by 1st January 2003 (47% at entry into force and 5% by 2003). For the remaining 48% to be liberalised by 2005 or 2007, a specific tariff dismantling schedule was agreed in which a maximum tariff level of 5% will apply by 2003, thereby ensuring conditions of access that will allow EC products to compete effectively with US and Canadian products. In exchange, the EC will liberalise all industrial products by 1st January 2003, with 82% at entry into force and the remaining 18% by 1st January 2003.

On both sides the starting point for tariff dismantling will be the effectively applied duty. For Mexico this means a commitment to eliminate from the date of entry into force the tariff hikes of 1st January 1999. In addition, Mexico will eliminate the tariff hikes applied since 1995 to footwear and certain textile products (rollback to a 15% or 20% level of the duties currently at 25% or 35%). For the EC, the tariff dismantling will start from the applied GSP levels, or, where not applicable, from the applied MFN rates.

A specific package was agreed for the automotive sector which includes a commitment by Mexico to eliminate its automotive decree by 1st January 2004, as well as improved market access for EC originating cars. EC cars will enter the Mexican market under the same, and in certain cases better conditions than NAFTA cars. Tariffs will be reduced from 20% to 3.3% at entry into force and will be eliminated by 2003. Unlike in NAFTA, EC vehicles imported by companies which are not established in Mexico will also benefit from these preferential conditions. These conditions will apply within a preferential tariff quota of 15% of the Mexican market (for comparison, current imports from the EC represent around 2% of the Mexican market) and this quantitative limitation is to be lifted by 1 January 2007. In addition very favourable access will be assured to main car-parts and components.

1.1.2. Rules of origin

As requested in the negotiating directives, the rules of origin agreed with Mexico are "inspired by the model proposed for the harmonisation process of preferential rules of origin applicable to third countries". The general structure and provisions of the EC standard protocols have been maintained for the Annex concerning the definition of the concept of originating products and the methods for administrative co-operation.

As far as the specific rules are concerned, EC harmonised rules of origin will apply to most of all industrial products (well over 90% of the rules). In a few areas, compromise solutions were however necessary to cater for both Parties' specific concerns and agree on a satisfactory market access package. For that purpose, different avenues were followed. In certain sectors (e.g. for vehicles and complex car-parts such as engines and chassis and for garments), a transitional relaxation of EC rules was agreed in order to give time to the Mexican industry to adapt to European standards. Some other rules were re-drafted in a spirit of simplification, whilst avoiding simple assembly (e.g. for certain automotive parts and electromechanical appliances). In most of the cases in which origin rules have been adapted, account has been taken of the lack of raw materials or components in Mexico (e.g. for some chemicals, car parts and machinery). Finally, the tightening of rules in some cases (some textiles, shoes) has been accompanied by ad hoc solutions to accommodate for effective continued market access under preferential tariff treatment (see Mexican quotas granted for Community cotton and man-made fabrics and for footwear). This limited number of concessions in rules of origin were successfully used to obtain a considerably larger market access package.

1.2 Agricultural and fisheries products

Of agricultural products, amounting to 7% of total bilateral trade in goods (around EUR 0,8bn average figures 1996-1998), 62% will be fully liberalised. The EC will obtain full and rapid access for a number of its key export priorities such as wines, spirits and olive oil. In addition, in a Joint Statement both sides have committed themselves to start negotiations on a wine agreement shortly. In exchange for these concessions, whilst fully taking into account the particular sensitivities of certain EC products, the package includes partial liberalisation for certain products of interest to Mexico such as concentrated orange juice, avocados, and cut-flowers. This tariff package will be complemented by provisions on sanitary and phytosanitary measures (SPS), with the establishment of a special committee to address and solve possible problems in this area. In this regard Mexico has also committed itself to promptly resolve an outstanding SPS issue related to pig meat products from the EC.

On fisheries, a satisfactory package was agreed that will assure liberalisation of over 99% of current trade volume (EUR 74 million in average 1996-1998 figures), whilst taking account of particular EC sensitivities.

EC rules of origin will apply to all agricultural products which are currently included in tariff concessions, as well as to all fisheries' products.

2. Trade in services

The negotiated trade package includes an economic integration agreement in services which is of key offensive interest to the EC. As provided for in the negotiating directives, the agreement will "progressively liberalise trade in services between the parties over and above commitments made under the GATS, within a time frame of, in principle, not more than ten years". It will cover all sectors - including inter alia financial services, telecom, distribution, energy, tourism and environment - with the exception of audio-visual services, maritime cabotage and air transport. From the entry into force, through a standstill provision, the agreement will secure services operators from the EC with an access to the Mexican market which will be equivalent if not superior to that currently enjoyed by operators from Mexico's other preferential partners, in particular the USA and Canada. In the financial services sector, EC banks and insurance companies will be authorised to operate and establish directly on the Mexican territory, like their US and Canadian counterparts. Finally, the outlined agreement contains mechanisms that will allow the parties to go beyond this already ambitious level of liberalisation within a maximum timeframe of 10 years.

3. Investment and related payments

The package for investment and related payments foresees that liberalisation of investments will start in three years, whereas the progressive liberalisation of payments related to investments will take place from the entry into force. This package is based on a Presidency compromise which was agreed between all Member States.

4. Procurement

The agreement will provide for access to the Mexican procurement market which is basically equivalent to NAFTA. Key EC priorities such as petrochemicals (PEMEX), electricity (CFE) and construction are very substantially covered. In exchange, the EC will grant access similar to that it offers to its partners in the framework of the WTO Government Procurement Agreement. For the time being, the sub-central levels are not included in the agreement. As for statistical information, both sides agreed inter alia to exchange information with regard to an indicative list of utilities. The procurement chapter will enter into force once that information has been exchanged.

5. Intellectual property, competition & dispute settlement

The protection of intellectual property rights e.g. patents, trademarks and copyright is set at the highest international standards. In addition a special Committee will be established in order to address questions relating to the effective enforcement of these rights.

As for competition matters, the agreed package will include co-operation mechanisms to ensure and facilitate the enforcement of the parties' respective competition laws.

Finally, the agreed package will include an effective dispute settlement mechanisms in order to guarantee the enforcement of the provisions of the agreement, without prejudice to the respective rights the parties have in the WTO framework.

6. WTO compatibility

The compatibility of any regional trade agreement with the relevant WTO provisions can only be definitively confirmed when the agreement has been notified and examined under the relevant WTO provisions. However, on the basis of existing practice and jurisprudence, the Commission is of the opinion that the negotiated trade package should be considered compatible with the relevant WTO provisions.

6.1 Trade in Goods

In respect of trade in goods, full liberalisation under the agreement will cover 100% of trade in industrial products, 62% of trade in agricultural products [2] and 99.5% of trade in the fisheries sector². This amounts to a total trade coverage of 95% of current bilateral trade. Article XXIV:8(b) of the GATT 1994 requires that duties and other restrictive regulations of commerce are eliminated on 'substantially all trade' between the parties. Although the exact definition of the latter term is still open, the established internal EC benchmark for this purpose is that full liberalisation must cover at least 90% of trade. As the agreement meets this benchmark, and furthermore as no major sector of trade is excluded, the Commission considers that these requirements are met.

[2] Average trade figures 1996-1998.

Liberalisation will be on a balanced basis and will be completed within a transitional period of a maximum duration of ten years which is the maximum permitted under the requirements of Article XXIV:5 and Paragraph 3 of the Understanding on Article XXIV of the GATT 1994. Furthermore, nothing in the agreement requires the parties to raise the level of duties applicable to the trade of third Party Members of WTO. This is consistent with the requirements of Article XXIV:5(b) of the GATT 1994.

6.2 Trade in Services

As far as trade in services is concerned, the Commission considers that the agreement is an economic integration agreement which meets the relevant tests of GATS Article V. Although certain services sub-sectors i.e. audio-visual and air transport (with the exception of aircraft repair, selling and marketing and CRS services), as well as maritime cabotage, are explicitly excluded from the coverage of the agreement, it should still be considered to have "substantial sectoral coverage" in the sense of GATS Article V:1(a). Furthermore, no mode of supply is a priori excluded from coverage. The agreement will prohibit the introduction of any new discrimination between or among the parties in the covered sectors, and will provide for the elimination of substantially all existing discrimination in the covered sectors within a time frame of no more than ten years. Although there is no consensus in WTO on the maximum length of the "reasonable time-frame" foreseen for the elimination of substantially all discrimination under GATS Article V:1, the EC has defended the position that a ten-year maximum is indeed reasonable in this context.

The Agreement will not lead to the raising of overall levels of barriers to the trade in services of non-parties Members of the WTO in the covered sectors and sub-sectors. Furthermore, equality of treatment of the service suppliers of other WTO Members established within the territory of any of the parties to the Agreement will not be affected. In these respects, therefore, the Agreement can be considered compatible with the obligations of GATS Articles V:4 and V:6.

7. Implementation of the negotiating results

These results will be implemented via two decisions of the Joint Councils established respectively by the Interim Agreement on Trade and Trade-related matters and the Economic Partnership, Political Co-ordination and Co-operation Agreement.

A proposal for a common position of the Community is attached to this communication in order to allow the Joint Council established by the Interim Agreement to take all the decisions foreseen in that agreement with respect to trade in goods, procurement, competition and the establishment of a consultation mechanism for intellectual property matters. Upon the entry into force of the Economic Partnership, Political Co-ordination and Co-operation Agreement, the Interim Agreement will cease to exist and this Decision shall be deemed to have been adopted by the Joint Council of the former Agreement. [3]

[3] Art 16 of Interim Agreement & Art 60 of Global Agreement.

The Decision covering services, investment and the aspects of intellectual property which are not covered by the Interim Agreement can only be taken once the relevant procedures required for the entry into force of the Economic Partnership, Political Co-ordination and Co-operation Agreement are fully completed and the Joint Council provided for therein is established. Once these prerequisites will be completed, the Commission will present a proposal for a common position of the Community with a view to permit the adoption of these latter decisions.

CONCLUSION

The Commission requests the Council:

- To approve the results of the trade negotiations between the EC and its member States, on the one part, and Mexico, on the other part, as set out in the attached draft decisions by the Joint Council EC-Mexico established by the Interim Agreement on Trade and Trade-related matters and by the Joint Council EU-Mexico established by the Economic Partnership, Political Co-ordination and Co-operation Agreement, as well as in the attached Joint Statement concerning the negotiation of an agreement between Mexico and the EC on trade in wine.

- To adopt the proposal for a Council Decision attached to this communication establishing the position of the Community within Joint Council EC-Mexico established by the Interim Agreement on Trade and Trade-related matters

2000/0024 (CNS)

Proposal for a

COUNCIL DECISION

on the Community position within the EC-Mexico Joint Council on the implementation of Articles 3, 4, 5, 6 and 12 of the Interim Agreement

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular to Articles 47 (2), last sentence, 55 and 133, in conjunction with the first subparagraph of Article 300 (3) thereof,

Having regard to the proposal from the Commission [4],

[4] OJ C

Having regard to the opinion of the European Parliament [5],

[5] OJ C

Whereas:

(1) The Interim Agreement on trade and trade related matters between the European Community and the United Mexican States entered into force on 1st July 1998.

(2) Article 3 of the Interim Agreement provides that the Joint Council shall decide on the arrangements and timetable for a progressive and reciprocal liberalisation of trade in goods.

(3) Article 4 of the Interim Agreement provides that the Joint Council shall decide on the appropriate arrangements and timetable for the gradual and mutual opening of agreed government procurement markets on a reciprocal basis.

(4) Article 5 (1) of the Interim Agreement provides that the Joint Council shall establish mechanisms of co-operation and co-ordination among their authorities with responsibility for the implementation of competition rules.

(5) Article 6 (2) of the Interim Agreement provides that the Joint Council shall decide on a consultation mechanism with a view to reaching mutually satisfactory solutions in the event of difficulties in the protection of intellectual property.

(6) Article 12 of that Agreement provides that the Joint Council shall decide on the establishment of a specific trade or trade related dispute settlement procedure compatible with the relevant WTO provisions in this field.

HAS DECIDED AS FOLLOWS:

Article 1

The position to be taken by the Community within the Joint Council established by the Interim Agreement on trade and trade related matters between the European Community and the United Mexican States on the implementation of Articles 3, 4, 5, 6 and 12 of that Agreement is that set out in the attached draft decision of the Joint Council.

Done at Brussels,

For the Council

The President