presentation of the sia mexico inception...
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Sustainability Impact Assessment in Support of the Negotiations for the Modernization of the Trade Pillar of the Global Agreement with Mexico
Civil Society Dialogue Meeting, 18 December 2017
Introduction
Objective of the SIA: To develop the analysis of expected economic, social, human rights and environmental impacts of the modernization of the EU-Mexico Global Agreement. This is to be done by complementing the existing EU-Mexico GA impact assessment, incorporating:
• Quantitative and qualitative analysis
• Stakeholder consultation contributions
• Activities of the EU-Mexico SIA started in September 2017
• Inception report
• Initial literature review
• Descriptive analysis of status quo of Mexico’s economy, trade policies, and bilateral trade
• Methodological refinement of each component of the analysis
• Identification of sectors to evaluate in depth
• Initial description of sectors and identification of key issues.
• Refinement of stakeholder engagement plan
• Launching sectoral work analysis
Background on EU-Mexico Global Agreement
• In 1997, the EU started negotiations to sign an Economic Partnership, Political Coordination and Cooperation Agreement with Mexico
• The agreement entered into force in 2000
• The agreement focused primarily on the elimination of tariffs and other “shallow” measures.
• Measures addressing deep integration, including non-tariff barriers were covered less intensively
• EU and Mexico launched the modernisation of the GA in May 2016
A new context for EU-Mexico relations
• EU enlargement (from 15 to 28 countries)
• Mexico as an emerging economy
• Value chains have become increasingly important. They benefit from tariff elimination but increasingly from addressing regulatory, institutional and other measures.
• Growing significance of NTBs, IP, etc.
• Rise of “non-trade” issues
• Resurgence of protectionism
Methodology: Overview of Tasks
Task 4: Policy Recommendations
• Recommendations to mitigate negative effects of the modernization of the EU-Mexico GA
• Economic elements
• Social elements
• Environmental Elements
• Human Rights
• Sectoral Elements
• Draw on Stakeholder Recommendations
Task 3: Stakeholder Consultation Process
• Active engagement of relevant stakeholders in negotiations of the modernization of the EU-Mexico GA
• Electronic Communications
• Online Public Consultation
• Roundtables
• Civil Society Dialogue
• Partner Country Workshop
Task 2: Detailed Analysis of Specific Sectors
• Sectoral SIA for the modernization of the trade pillar of the EU-Mexico GA
• Preliminary Sector Selection
• General Approach
• Impact on SMEs
• Impact on LDCs
• Impact on Consumers
Task 1: Overall Analysis of Sustainability Impacts
• Overall SIA arising from the negotiations of the modernization of EU-Mexico GA
• Economic Analysis
• Social Analysis
• Environmental Analysis
• Human Rights • Cross cutting
issues • LDCs
• SMEs
• Consumers
• Impact on outermost regions
Task 1: Overall Analysis of Sustainability Impacts
Cross Cutting Issues Mainstreamed Across the Four Areas:
Least Developed Countries Small and Medium Enterprises Consumer Impacts
Economic Analysis
1. Trade Creation and Diversion
2. Baseline Scenario
3. Thorough Analysis of existing CGE Results
4. Qualitative analysis
5. Overall and additional economic analysis
Social Analysis
1. EU’s Approach to Labour Standards
2. Baseline and Analysis
3. Quantitative analysis (Poverty, Income distribution)
Environmental Analysis
1. Baseline Indicators
2. Thorough Analysis based on existing CGE Results
3. LMDI to assess
1. Scale Effect
2. Structural Effect
3. Technique Effect
Human Rights
1. Baseline Commitments
2. Screening Task
3. In-depth Scoping
4. Detailed Assessment
5. Cross-Linkages
Economic Analysis: Quantitative
• The quantitative analysis of this study complements and develops the results from the CGE model (GTAPv9) run by the Commission for the first impact assessment (IA) of the EU-Mexico Global Agreement conducted in 2015.
• The role of the team is to provide a thorough analysis of the underlying variables and assumptions and put the results into the context two years after the initial analysis. The geographical and sectoral disaggregation used by the CGE simulations will be followed by the team.
• The simulation which is based on a neoclassical closure and assumes perfect market clearing, includes the following main indicators
• Changes in consumer welfare
• GDP
• Bilateral trade flows
• Sectoral output change
• Consumer prices
• Wages (for unskilled and skilled labour)
• Reallocation of jobs
• Changes in CO2 emissions
Economic Analysis: Qualitative
Certain dimensions of analysis cannot be quantified and thus require other methodologies. Where quantitative methods are applicable, qualification will still be employed on quantitative results to assess likelihood.
• Literature Review: Each component of the analysis will include a literature review exploring ex-ante and ex-post analysis of similar trade agreements including the involved countries, in order to screen key issues.
• Consultation with Experts: Network of contacts via researchers and institutions involved will be used to perform interviews about thematic issues difficult to quantify including NTBs, service provision barriers, FDI barriers, intellectual property rights, and geographic indications and origin denominations that may introduce limitations to expansion or contraction of specific products
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Mexico GDP per Capita
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Initial Economic Analysis: Descriptive Statistics
Mexico has become one of the world's most dynamic emerging economies, with Gross Domestic Product (GDP) per capita up almost 20% in real terms since 2000. The EU has as well experienced substantial growth reflecting a 39% increase in GDP since 2000.
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EU GDP
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Initial Economic Analysis: EU Trade at a Glance
Initial Economic Analysis: EU-Mexico Trade at a Glance
• Key EU imports from Mexico:
• Fuels and mining products, office and telecommunication equipment, transport equipment and other machinery;
• Travel services, transport services.
• Key EU exports to Mexico:
• Machinery, transport equipment, chemical products and fuels and mining products;
• Transport services, telecommunications, computer and information services.
Initial Economic Analysis: Investment
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Mexico to EU FDI Stock (Bn EUR)
Inward Outward
While EU investment in Mexico has historically been greater, both inwards and outwards FDI Stock have increased from Mexico to the EU since 2009. However, inward FDI stock from the EU is increasing at a faster rate than outward FDI stock.
Initial Economic Analysis: Cross-Cutting Issues
LDC Impacts
The impact of changes in trade flows as well as trade-induced changes in production structures may impact on third countries, including LDCs.
Consumer Impacts
Consumer protection is a key priority to EU policy making. As illustrated by the literature, trade agreements can impact on various supply and demand features that are relevant to consumers.
Investment
Net inflows and outflows in both partners have been rather volatile, with Mexican foreign direct investment (FDI) being much smaller than the EU FDI.
Public Procurement
Mexico’s recent structural reforms and the ensued expanded access to government bids have rendered public procurement an issue of particular interest in FTA negotiations.
Regulatory Issues
Through its participation in FTAs, Mexico has showcased its commitment to growingly stringent regulatory coherence mechanisms, and thus, to potentially modernize trade agreements to this effect.
IP Rights
The ambition of both partners is to include a comprehensive IPR chapter, which goes beyond the existing rules under the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement.
Social Analysis
Aim Assess the impact of the modernization of the EU-Mexico GA, along with the consideration of different institutional mechanisms to foster cooperation on labour standards and encourage the diffusion of best practices in workers’ rights.
Methodology Quantitative
• CGE model results aim to provide insights on wage differentials across five labour categories in different sectors;
• Gini Coefficient to be developed based on CGE model results to analyse change in inequality and impact on poverty before and after liberalization in EU, Mercosur and other countries;
Qualitative
• Desk research and academic literature, specifically relevant studies on EU and Mexico relations respectively, as well as studies on Mexico’s experience with other trade negotiations will be relied on for the analysis;
• Party compliance to core ILO conventions will additionally be investigated to assess potential effects.
Social Analysis: Indicators
Social Analysis: Initial Findings
The overall decline in poverty and the corollary emergence of a middle class society over the past two decades suggest improvements in Mexico’s income equality. However, the income inequality trends reveal that Mexico achieved more limited results than its Latin American counterparts.
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Food poverty (%) Patrimonial poverty (%)0
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MEX BRA PER ARG
2000*
2004
2009°
2014
Trends in food and patrimonial poverty
(1992-2016)
People living on less than international poverty line ($1.90)
Comparative Income Inequality Gini Index
Human Rights Analysis
Aim
Builds on the quantitative analysis undertaken in the existing SIA by conducting further qualitative analysis of the human rights impacts not covered by the social and environmental analysis.
Methodology
Baseline
• The baseline for the human rights analysis has four components. A description of the EU and Mexico’s domestic and international human rights commitments is followed by a brief overview of human rights challenges in the EU and Mexico. Thereafter a mapping of human rights performance over time is offered and finally stakeholder input will be incorporated to ensure the rights of vulnerable citizens in Mexico are considered during the renegotiations.
Analysis
• Assessment according to 3 step process outlined in “EC’s Guidelines on conducting analysis of human rights impact in impact assessments for trade-related policy initiatives”
1. Screening: identification of measures to be assessed in regards to human rights issues
2. Scoping: collection of data for each measure
3. Detailed assessment: examination of supply and demand side factors of human rights in assessment of collected data in establishing effects on specific rights, populations affected, and impact on the potential agreement as a whole.
Cross-Linkages
• The study as a whole, but particularly the human rights and social analysis, focuses on women and vulnerable groups in the EU and Mexico
• Where measures are found to have potentially negative impacts on gender equality, the study will identify additional measures for gender equality promotion
Human Rights Analysis: Indicators
Human Rights Analysis: Initial Findings
Human Right (UDHR) Does trade and/or a
trade agreement directly,
indirectly, or not affect
enjoyment of the right?
Included in
trade
agreement
language?
Included in
exceptions in
any trade
agreement?
Right to security — — Possible
Right to life — — Possible
Right to liberty — — —
Right to prevention of torture — — —
Right to prevention of arbitrary arrest — — —
Right to political participation Directly (Implicit) Yes —
Right to due process Directly Yes —
Right to fair public hearing Directly Yes —
Right to presumption of innocence — Yes —
Right to access to information Directly Yes Yes
Right to protection of intellectual
property
Directly Yes —
Right to protection of property rights Directly Yes —
Right to social security — — —
Right to work Indirectly — —
Right to education Indirectly Yes —
Right to culture Directly Yes Yes
Right to equal pay for equal work — — —
Human Right (UDHR) Does trade and/or a trade
agreement directly,
indirectly, or not affect
enjoyment of the right?
Included in
trade
agreement
language?
Included in
exceptions in
any trade
agreement?
Right to just and favourable remuneration — — —
Right to privacy Directly Yes Yes
Right to protection of personal data online Directly Yes Yes
Right to a sustainable standard of living — — —
Right to special care, motherhood, and childhood — — —
Right to health — — Possible
Right to freedom of movement — — —
Right to leave the country and return — — —
Right to seek and enjoy asylum — — —
Right to a nationality — — —
Right to freedom of thought, conscience, & Religion — — —
Right to non-retroactive penal code — — —
Right to equal access to public services Directly Yes Yes
Rights of vulnerable groups+ —
Women's rights (gender equality) — — —
Integration of persons with disabilities Directly Yes
Rights of indigenous peoples Yes Yes
Rights of gypsies (EU only) — —
Vulnerable/contingent workers Directly — —
Right to asylum and rights of refugees — —
Migrant rights — —
Several commitments under the Universal Declaration of Human Rights (UDHR) are included in the trade agreement language and have the potential to be directly impacted.
Human Rights Analysis: Initial Findings
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Trading across Borders - DTF Enforcing Contracts -DTF
Quality of Governance Related to Enforcing Contracts and
Trading Across Borders
2005 2010 2011 2012 2013 2014 2015
Right to Health Index 88.60 88.07 88.21 88.35 88.55 88.74 88.79
Right to Work Index 82.16 83.41 83.41 95.20 85.22 84.28 84.28
Right to Education Index 84.03 79.85 79.92 86.94 88.56 89.02 89.02
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México’s Respect for Social and Economic Rights, 2005 – 2015
In assessing potential impacts on the enjoyment of human rights, it is also important to assess Mexico’s capacity in respecting and enforcing its relevant commitments. Mexico’s scores on indices for the Respect for Social and Economic Rights are stable, with the strongest pertaining to the Right to Health.
Environmental Analysis
Aim The analysis will focus on GHG emission and climate change; energy use; land use; resource use and efficiency; waste production; ecosystems and biodiversity; forestry and trade in environmental goods and services.
Methodology Baseline
• Benchmark of Mexico’s current environmental performance against that of the EU’s using indicators of environmental quality (i.e. Environmental Performance Index), and overview of current regulations and obligations.
Quantitative Analysis
• Based on the existing results of the CGE modelling, the study aims to analyse the scale, structural, technology and product effects in terms of both welfare and GHG emissions using the emission intensity factors in GTAP data base and model.
• Results will be explained in terms of changes in various sectors where a Log Mean Divisia Index (LMDI) based on input-output tables will be used for separating these different effects.
Complementary Qualitative Analysis
• Results of the stakeholder consultation
Environmental Analysis: Indicators
Initial Environmental Analysis
Average overall EPI for
Mexico and the EU (2016) EPI for Mexico and the EU by category
(2016)
EPI Growth for Mexico and
the EU Overtime
Overall, the EU scores higher in regards to its Environmental Performance Index (EPI). However, Mexico performs better in regards to fisheries and forests and specifically, and its overall performance is growing at a faster rate.
Initial Sectoral Analysis: Criteria for Selection of Sectors
Preliminary Sector Selection
A detailed analysis will be carried out on 9-11 sectors defined jointly with DG trade based on the quantitative and qualitative evidence. Selection criteria focuses around three central themes:
1. Importance of the sector to the EU and Mexican economies – assessing the expected economic impacts and changes in trade flows
2. Importance of the sector to the outermost regions – assessing impacts on income and employment
3. Assessment of suggestions from the existing impact assessment
General Approach
1. Policy
2. Trade
3. Production & Employment
4. Market Configuration
5. Social, Gender & Environmental
6. Effects on LDCs
7. Consumer Impacts
Impact on SMEs
1. Consultation
2. Identification
3. Impact Measurement
4. Offensive Costs
5. Defensive Costs
Initial Sectoral Analysis: Selection of Sectors
Sector Justification
Fruits & Vegetables (including
bananas)
Fruits and vegetables represent a key sector in agricultural trade between the EU and Mexico, with a specific emphasis on bananas for its high
export value as well as its significance in OMRs. In agreement with DG Trade, this study will not conduct an in depth analysis of sugar recognizing
that negotiations will not be considering an ambitious offer of trade in sugar. Additionally, Mexico is not a key international player in trade in
sugar.
Other Meats The EU holds a defensive position in respect to beef, where Mexican interest in the sector is not high enough for it to become a concern in
negotiations. Meanwhile, other meats including pork, poultry and horse are key export products for the Mexican economy.
Other beverages Beverages including coffee, orange juice, and spirits represent high value export goods for Mexico, where it is specifically interested in the
protection of appellations of origin regarding spirits. Wine and beer will not be included in the analysis as trade in such goods is already
liberalized.
Honey Trade in honey produces a value over €60 million annually, representing 6% of all of Mexico’s agricultural exports.
Energy Commodities Energy commodities represent an important sector for trade flows between Mexico and the EU countries.
Chemicals Impacts on trade in chemicals, including pharmaceuticals, will be assessed in depth as stakeholders have voiced concerns over the sector’s
regulatory framework and issues surrounding intellectual property.
Machinery (Electrical + Other) When combined, the motor vehicle and other machinery industries account for almost 30% of Mexican manufactured exports to the EU.
Motor Vehicles In upcoming years, Mexico is expected to become an even bigger competitor within the automotive industry on a global scale.
Metal Parts Metal parts represent an important sector in trade flows between the EU and Mexico, but in particular, an important sector in the employment of
unskilled workers.
Business Services The study will conduct an in-depth assessment of the agreement’s impacts on business services recognizing that trade in services between the EU
and Mexico is dominated by travel and transport services as well as telecommunications.
Financial Services Although trade in the services sectors is much smaller, bilateral trade flows were shown to have increased significantly since the original FTA.
Initial Sectoral Analysis: Agriculture
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EU imports from Mexico EU exports to Mexico
Mexico exports to EU Mexico imports from EU
Share of EU and Mexico in agriculture trade (2000-2016) (in %)
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OTHER AGRICULTURAL PRODUCTS
24 TOBACCO AND MANUFACTURED…
23 RESIDUES AND WASTE FROM THE…
22 BEVERAGES, SPIRITS AND VINEGAR
21 MISCELLANEOUS EDIBLE PREPARATIONS
20 PREPARATIONS OF VEGETABLES,…
19 PREPARATIONS OF CEREALS, FLOUR,…
18 COCOA AND COCOA PREPARATIONS
17 SUGARS AND SUGAR CONFECTIONERY
16 PREPARATIONS OF MEAT, OF FISH OR…
15 ANIMAL OR VEGETABLE FATS AND OILS…
14 VEGETABLE PLAITING MATERIALS;…
13 LAC; GUMS, RESINS AND OTHER…
12 OIL SEEDS AND OLEAGINOUS FRUITS;…
11 PRODUCTS OF THE MILLING INDUSTRY;…
10 CEREALS
09 COFFEE, TEA, MATÉ AND SPICES
08 EDIBLE FRUIT AND NUTS; PEEL OF…
07 EDIBLE VEGETABLES AND CERTAIN…
06 LIVE TREES AND OTHER PLANTS;…
05 PRODUCTS OF ANIMAL ORIGIN, NOT…
04 DAIRY PRODUCE; BIRDS' EGGS;…
02 MEAT AND EDIBLE MEAT OFFAL
01 LIVE ANIMALS
Export Import
Structure of EU-Mexico agricultural trade (average 2011-16)
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% of Employment in the Agricultural Sector
EU Mexico
Beverages constitute the most important product traded between the EU and Mexico, but NTBs include cumbersome procedures, high compliance costs, arbitrary measures, and labelling.
Initial Sectoral Analysis: Manufacturing
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30
OtherMachinery
TransportEquipement
Chemicals
Top 3 Exports EU Mexico
% of Trade
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30
Fuels &Mining
Products
TransportEquipement
OtherMachinery
Top 3 Exports Mexico EU
% of Trade
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% of Employment in the Industrial Sector
EU Mexico
While crude oil constitutes the single largest exports from Mexico to the EU, at 32% of merchandise exports, a few other key exports include other machine equipment (17%), electronics (14%), motor vehicles (15%), and chemicals, rubber and plastics (8%). EU exports to Mexico largely constitute other machine equipment at 31% of EU-Mexico exports along with chemicals, rubber, and plastics, motor vehicles, petroleum products, metal products, and other transport equipment.
Initial Sectoral Analysis: Services
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2010 2011 2012 2013 2014 2015
% of Employment in the Services Sector
EU Mexico
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10
2013 2014 2015
EU Mexico Trade in Services (€ bn)
EU imports EU exports Balance
EU Imports from Mexico
EU Exports to Mexico
Travel services Transport services
Transport services Telecommunications, computer & info systems
Top EU – Mexico Traded Services
Trade in services between the EU and Mexico is much smaller in volume. EU imports in services from Mexico consist mainly of travel services and transport services, while EU exports in services to Mexico are dominated by transport services alongside telecommunications, computer & info
Source: Worldbank Data
Initial Sectoral Analysis: Identification of Issues
Ad valorem Equivalent (AVE, %) for NTMs in Selected
Sectors
EU Mexico
Energy 0 100.3
Chemicals 31.8 72.0
Electrical
Machinery
30.9 24.7
Motor
Vehicles
29.3 55.1
Other
Machinery
6.5 19.5
Insurance 6.6 17.0
Business 17.7 16.0
The initial analysis for the selection of sectors reflects a dominance of the manufacturing and agricultural sector in the EU-Mexico trade structure. Non-tariff measures are on average higher in Mexico, especially in regards to energy commodities.
Issues / NTM TRQ + Impact
Beverages Mexico is a major exporter of beverages – very sensitive sector
High EU tariffs Expansion of Mexico exports may be limited by geographic indications
Motor Vehicles High value chain integration with EU firms. High SME involvement in car part production
Business Services EU presents lower levels of protection. High proportion of SMEs and individual providers.
Limitations under EU Mode 4
Potential positive effect for EU banks
Initial Identification of Sectoral Issues
Stakeholder Consultation Process
Electronic Communications
Raising awareness and facilitating stakeholder engagement through
1. Dedicated Website:
2. Email Address
3. Dedicated Twitter Account
4. Dedicated Facebook Page
Online Public Consultation
Commencing in January, the 12 week consultation aims to
1. Generate Ideas Through Stakeholder and Target Country Engagement
2. Identify Groups Impacted by GA
3. Validate Findings through External Input
Roundtables
1. Four Roundtables in Brussels
2. Interviews
3. Face-to-face meetings
Civil Society Dialogue
Stakeholders invited to contribute during implementation phase through
1. Month 3 CSD Presentation for Preparation of Inception Report
2. Month 6 CSD Presentation for Preparation of Interim Report
3. Month 13 CSD Presentation for Preparation of Final Report
Partner Country Workshop
1. One Day Workshop in Mexico City
2. 50 Participants from Mexico
3. Joint Opening Plenary
4. Parallel Events on Sectorial Specific and Thematic Specific Issues
Next Deliverables
Interim Report
To be delivered within five months. It will contain
• The preliminary findings of the stakeholder consultation
• Specific analyses to be conducted during implementation phase
• A summary of progress made
• An account of difficulties encountered and outlined solutions
Report on Workshop in the Partner Country
To be delivered after the workshop. It will contain
• Comprehensive summaries of the proceedings
• List of attendees
• Views expressed
• Report on roundtables and bilateral meetings
Draft Final Report and Final Report
The draft is to be delivered after 10 months, and the final after 13. They will contain
• Stakeholder consultation results
• Overall analyses
• Sector analyses
• Activities performed
• Executive summaries in French, Spanish, Portuguese, and German
Inception Phase (Months 1-3)
Operational
• Kick off meeting with
DG Trade • Proposed
methodological approach
• Draft literature review • Preliminary list of
stakeholders • Meeting with the
commission • CSD meeting • Final Inception report
Task 1
• Preliminary screening of key sustainability issues
Task 2
• Preliminary overview of the overall and sectoral analysis
Task 3
• Draft consultation plan
Interim Phase (Months 2-6)
Task 1
• Quantitative analysis results
• Preliminary findings of sustainability issues
Task 2
• Preliminary findings of sectoral analysis
Operational
• Second commission
meeting
• Second CSD meeting
• Draft interim report (4.5 months)
• Interim report Task 3
• Stakeholder consultation plan
• Workshop and roundtables
Final Phase (Months 6-12)
Task 1
• Suggestions and potential ex-post analysis
Task 2
• Suggestions and potential ex-post analysis
Operational
• Third commission meeting
• Third CSD meeting
• Draft final report (9.5 months)
• Review of draft final by ISG
• Final report
Task 3
• Details of communication activities
Task 4
• Policy recommendations and accompanying measures
Thank you for your attention!
Website: www.siaeumexico.com
Twitter: @SIA_EUMexico
Facebook: SIA EU-Mexico
Email: [email protected]
LSE Consulting Contact: Daniela Baeza Breinbauer
Jean-Baptiste Velut: [email protected]