Latin America

New Zealand - Mexico: Report of Joint Experts Group on the Strengthening of Bilateral Economic Relations

Executive Summary

New Zealand and Mexico enjoy a warm and positive relationship. In considering the state of the broad relationship – both its political and commercial dimensions – it is considered the latter lags behind the former.

Reflecting this, both countries agreed in 2002 to analyse the trade and economic benefits of negotiating a closer economic partnership (CEP). Both studies saw a closer economic partnership as having the potential to promote greater well-being in both economies and to serve as a vehicle to further strengthen the bilateral relationship and diversify trade.

These positive findings encouraged both Governments to establish this Joint Experts Group (JEG) which was charged with the responsibility to explore further the case, and options, for a closer trade/economic relationship.

The Joint Experts Group, which included experts from the official, academic and private sectors from both countries, has concluded through its formal meetings that a case exists for deepening and widening the existing trade relationship. The following key points are highlighted:

• In broad terms, Mexico and New Zealand are complementary, not competing, economies. Mexico’s export profile is dominated by manufactured goods whilst for New Zealand the primary sector is more significant.
• Neither country has secured a large market share in the other, suggesting there is significant potential for two way growth. However, in certain specific products New Zealand is an important, albeit not dominant, supplier.
• Potential for growth is constrained due to the existence of tariffs and various other barriers to two-way trade.
• Some Mexican exports to New Zealand face tariffs of 17.5%, and its significant electrical/machinery exports face tariffs of 7%. These tariffs constrain the growth of Mexican exports to New Zealand.
• At the same time, tariffs on New Zealand’s exports to Mexico, range in the main from 10%-25%.

A more formal Government-to-Government trading environment between New Zealand and Mexico could be expected to improve:

• two way trade flows (allowing each country to maintain and develop its market share of imports in the other, vis-à-vis third country suppliers);
• technology transfer and cooperation (discussions highlighted the potential for this to flow as a part of an enhanced trading relationship in a range of areas: agriculture, agribusiness, science, and education);
  o tourism and international education links and;
• investment (whilst both countries are net capital importers it was recognised that outward investment does take place and typically follows trade flows).
• It was recognised that increasingly Government-to-Government trade agreements involve a mutually beneficial blend of promotion, liberalisation and cooperation. New Zealand highlighted its most recent experience with the ‘Trans-Pacific Strategic Economic Partnership’ (involving New Zealand, Singapore, Chile and Brunei) which incorporates a strategic partnership chapter and has an open accession clause.
• The private sector is generally supportive of the initiative to promote the trade and investment relationship between Mexico and New Zealand. It was recognized, however, that some agricultural sectors in Mexico (dairy, meat and temperate fruits) were reluctant to embrace a closer relationship. New Zealand acknowledged these sensitivities, but noted it did not expect the impact on these sectors to be significant (and that, nonetheless, appropriate phasing arrangements could address such concerns).
• The Joint Experts Group discussed a range of possible options for taking the relationship forward:

1. Maintain in the short term the current state of the trade relationship – seeking to strengthen it by adopting a more active bilateral trade and investment promotion programme.
2. Negotiate a ‘Free Trade Agreement’ which, recognising the differences in the levels of development and size between Mexico and New Zealand, establishes mechanisms to deal with more sensitive sectors.
3. Negotiate an ‘FTA plus’ agreement which, going beyond a traditional FTA, establishes a mechanism for ‘strategic economic cooperation’ which will look to more fully capture the benefits of a closer bilateral economic partnership.
   The JEG acknowledged that Options 2 or 3 would represent a more significant change in the relationship than would Option 1.