United States: What Might Be Next For U.S.-Mexico Bilateral Trade After The Election?

Last Updated: November 16 2016
Article by Carlos Vejar

Carlos Véjar is a Senior Counsel in Holland & Knight's Mexico City office.

HIGHLIGHTS:

  • If implemented, positions held by new U.S. President-Elect Donald Trump during the presidential campaign could have consequences on trade and investment regulations applicable to Mexican and U.S. traders and investors.
  • From a legal point of view, denouncing the North American Free Trade Agreement (NAFTA) is feasible, making the World Trade Organization (WTO) agreements the fallback legal instrument for Mexican-U.S. trade relations.
  • However, adopting protectionist measures for specific sectors of the U.S. economy would be possible without the need to withdraw from NAFTA or the WTO agreements.

This week's electoral results in the United States require a serious analysis of the consequences due to some of the statements made by new President-Elect Donald Trump during the campaign, which could impact trade and investment regulations applicable to Mexican and U.S. traders and investors if those positions are implemented.

From a legal point of view, denouncing the North American Free Trade Agreement (NAFTA) is feasible. Article 2205 of NAFTA states the following:

A party may withdraw from this Agreement six months after it provides written notice of withdrawal to the other Parties. If a Party withdraws, the Agreement shall remain in force for the remaining Parties.1

The fallback legal instrument for Mexican-U.S. trade relations would be the World Trade Organization (WTO) agreements. As for U.S.-Canada trade relations, those countries would still have a chance to reinstate their previous bilateral Free Trade Agreement (FTA), which has been suspended since NAFTA took effect.2

Withdrawal Effects

Some immediate effects of NAFTA withdrawal would be the possibility to exclude U.S. goods and suppliers from Mexico's FTA government procurement processes. NAFTA Chapter X obligations would not affect Mexican companies as much since they rarely participate in U.S. proceedings due to, among other things, Buy American Act restrictions that were permitted under NAFTA. U.S. suppliers would have to carefully identify Mexican procurement processes to assure that they can participate in international processes not restricted to nationals and other FTA partners.

Another immediate consequence would be the elimination of the investor state dispute settlement provisions contained in NAFTA Chapter XI, excluding any chance for investors to bring expropriation claims (among others) before a neutral arbitration tribunal against the Mexican or U.S. authorities. This is a scenario that investors should consider right away before losing the right (the consent of governments to arbitration contained in NAFTA) for raising a dispute.

Elimination of the Chapter XIX antidumping dispute settlement mechanism would be another big loss for both sides, bringing back local administrative proceedings as the sole opportunity to challenge such measures aside from the WTO mechanisms, which hold a different standard of review than that of NAFTA.

Since Mexico is not a party to the WTO Government Procurement Agreement and there are no dispute settlement mechanisms such as NAFTA Chapters XI and XIX under the WTO, there would be no alternatives other than those mentioned above.

A bilateral trade and investment relation ruled solely by the WTO would imply, among other things, the elimination of free trade and the reinstatement of tariffs. The simple average applied Most Favored Nation (MFN) tariff rate of the U.S. under WTO is 3.51 versus 7.52 from Mexico, and the simple average bound tariff is 3.47 for the U.S. and 36.12 for Mexico. In other words, NAFTA withdrawal would increase tariffs to U.S. imports immediately by a 7.52 rate, allowing Mexico to raise those tariffs up to 36.12, which would also have to be applied to every other WTO member. Meanwhile, Mexican exports to the U.S. would be subject to an increase from a free trade zero tariff to a 3.47 tariff automatically and up to a 3.51 MFN tariff (average) without violating WTO commitments. This scenario would require an immediate analysis on trade preferences from third-party countries to assure the best prices on supplies that comply with other existing regulations and maintain their businesses.

Withdrawing from WTO is another scenario that has been suggested by Trump, one that is also legally possible.3. This would have far more complex consequences and seems much more unlikely than a NAFTA withdrawal. A WTO withdrawal would require a look back in time to the world economy before 1947, when the General Agreement on Tariffs and Trade (GATT) took effect.

Other Options

NAFTA withdrawal might not be the only alternative to keep U.S. companies from moving production offshore – assuming that is one of the main goals for such a withdrawal. Adopting protectionist measures for specific sectors of the U.S. economy would be possible without the need to withdraw from NAFTA or WTO. Such measures would require a more detailed and specific analysis, as has previously occurred when NAFTA has been breached with disputes involving cross-border trucking, tuna, broom corn broom and poultry, as well as other bilateral disputes involving tomato or softwood lumber.

The only legal obstacle for this type of unilateral measures for breaches of international obligations are dispute settlement mechanisms that could be triggered to seek an authorization to retaliate and "compensate" against them. Unfortunately, unlike WTO's dispute settlement mechanism, NAFTA's Chapter XX mechanism is broken since there is no agreement on the roster of individuals who could participate in a dispute settlement panel. Therefore, closely examining such measures would be necessary to identify WTO violations and refer all disputes to that forum.

This might not be the case for Chapter XI investor-state or Chapter XIX antidumping mechanisms that would continue to operate but could increase in use, particularly Chapter XI since some trade protective measures might be challenged by investors if they encompass an economic harm to their investments in the other country. That happened to Mexico when a tax on sodas using high fructose corn syrup (fructose) was adopted to protect the Mexican sugar industry, whose sugar production was being displaced by fructose. In that instance, three U.S. investors brought claims against Mexico resulting in three arbitration awards that said Mexico should pay millions of dollars to compensate U.S. investors.

Attorneys in Holland & Knight's International Trade Group have the experience to help your business prepare for and navigate any upcoming changes in NAFTA or the WTO. We follow international trade developments closely, including in regards to the Trans-Pacific Partnership, which in spite of the election results might still be placed before the U.S. Congress for approval.    

Footnotes

1.   U.S. statutory provision 19 U.S.C. §2135(e) seems to confirm the president's ability to achieve this goal.

2. See Sec. 107 of the North American Free Trade Agreement Implementation Act.

3.   See Article XV of the Marrakesh Agreement establishing the World Trade Organization.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.