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Mexico minister confirms 'side deal' with US to protect auto sector

Bnamericas Published: Thursday, September 06, 2018
Mexico minister confirms 'side deal' with US to protect auto sector

Mexican economy minister Ildefonso Guajardo (pictured) confirmed on Thursday that Mexico had obtained a so-called side agreement to the US-Mexico trade agreement announced last week that will ensure the country would be protected from US "national security" tariffs of up to 30%.

"If they were to establish tariffs against everyone for reasons of national security [under the so-called rule 232], what Mexico did with this agreement is an attached letter that does not allow the country to be included, and that is part of the agreement," Guajardo said at The Economist's Mexico Summit in the Mexican capital.

"We have an agreement, that for any reason, if the US is going to violate the agreements of WTO, change [the duty] from 2.5% to a higher number, for Mexico it will be maintained," said the minister, "And that 2.5% tariff is not going to deter anybody from entering the market."

"If you are going to do this [apply rule 232] to Japan or Germany, you are not going to impose it on Mexico."

The US imposed steel and aluminum tariffs against Mexico and Canada at the end of May, sparking counter-tariffs, as the Donald Trump administration ramped up what many view as a global trade war.

Under the terms of the side letter, those tariffs would end as part of the final bilateral or trilateral deal. Barring delays, that agreement is to be signed at the end of November, just before president-elect Andrés Manuel López Obrador takes office on December 1.

With regard to protections offered to the auto sector, the minister said that Mexico's side agreement, in effect, "saves" existing auto production capacity as well as capacity at plants under construction - including those being built by BMW and Mercedes Benz - from facing potential tariffs ahead.

"[The letter] furthermore gives us a relative space to grow moving forward," he added. "That is to say, it is not an element that would limit [growth], it is buying an insurance policy so that a million employees in the auto sector are protected as well as the dynamism of the sector."

Guajardo added that the US-Mexico trade agreement is that of a trilateral format to allow Canada to join, and that he expects a deal between the US and Canada this week or next.

Should the US-Mexico trade deal go through as he expects, Guajardo noted that 70% of Mexican exports would qualify for treaty zone benefits at the start of 2019.

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