EU-Mexico FTA: Modernization or Avoiding Accountability?

In June, though leaked information, it came to be known that the European Commission sought to propose the split of the “modernized” EU-Mexico Free Trade Agreement into three parts: political and cooperation, investment agreement and trade agreement. The agreement is still pending ratification. The Transnational Institute (TNI) warned Mexico to avoid ratifying it under this format and deny the inclusion of the supranational arbitration mechanisms and indirect expropriation clause.

The commission reasoned that splitting the bill would allow for faster ratification as it will no longer require member states’ approval, a tactic employed already in trade deals with Vietnam and Singapore. The institute, however, pointed out that the Commission’s three-part approach could potentially force Mexico to comply with the free trade chapter—that mainly benefits EU transnational corporations—while the other two that benefit Mexico remain in limbo, thereby undercutting Mexico’s leverage. Mexico was quick to push back on the emerging precedent, telling Politico:

“The Government of Mexico maintains and reiterates the high priority it attaches to proceed without delay towards the signing of the modernized Mexico-EU Global Agreement, without any division, as it was negotiated in accordance with the corresponding bilateral mandates and commitments.”

Furthermore, the institute criticized the agreement saying that it falls short of addressing “serious deficiencies and is nothing but a euphemism for increasing investor rights” pointing to the investor-state dispute settlement (ISDS) mechanism incorporated into the inclusion chapter, which TNI said should be “avoided at all costs.” Previously, disputes could only be filed and settled under bilateral investment treaties, whereas this rewrite would allow them to bypass this limitation, effectively fomenting the imbalance of binding rights for large corporations.

Lastly, the institute calls for the Mexican government to scrap the indirect expropriation clause, which would allow companies to demand “compensation” for the loss of expected profits and even investments that have not been made. To demonstrate its point, the institute alluded to the Abengoa – Zimapan case, in which Mexico had to pay the Spanish company US$40.3 million after the municipality legitimately denied the company a license to build a hazardous waste deposit less than a half kilometer away from an indigenous community.

EU companies already have a long history of infringing on human rights and incurring environmental violations in Mexico, as outlined by TNI. Therefore, letting the EU Commission divide the agreement and leaving these detrimental clauses in the FTA would be willfully irresponsible as it would leave the country exposed to future litigation in a court system created by the EU itself.