Reed Smith Client Alerts

As the transition period following the United Kingdom’s (the UK’s) withdrawal from the European Union (the EU) comes to an end, so too will the preferential trade terms of various EU free trade agreements (FTAs) from which the UK has historically benefitted as a result of its membership of the EU. While the UK and its non-EU trade partners have voluntarily continued to comply with the preferential treatment afforded under the EU during the transition period, such treatment expired as of 11 pm UK time, on December 31, 2020. Poised to chart a new course for its trade future, the UK has negotiated and/or entered into various trade agreements with non-EU counterparties with the purpose of replicating, to the extent possible, the preferential treatment afforded to the UK (and reciprocated by it) under the EU FTAs.1 In the latest exercise in this initiative on December 15, 2020 the UK and Mexico signed the Mexico-UK Trade Continuity Agreement (the Agreement).2

Authors: Nicolas Borda Peter Ferrigno Ramy A. Morad Francisco Rivero William W. Russell Prajakt Samant

In a joint statement issued by the UK and Mexico, the two countries affirmed that the Agreement is intended to “maintain preferential access for trade between Mexico and the UK following the end of the UK’s Transition Period with the EU on 31 December 2020, when the EU-Mexico Global Agreement will no longer apply to the UK. Both sides will strive to bring the agreement into force on 1 January 2021, subject to parliamentary procedures and legislative approvals.”3 Indeed, the Agreement instills certainty in the countries’ ongoing trade relationship, which accounts for over $5 billion per year and covers the automotive, pharmaceutical, textile, agriculture, food and drink, and other important manufacturing industries.

Importantly, the Agreement seeks to “prevent the additional duty burden that would be levied under [the World Trade Organization's (WTO) most favored nation] terms,”4 and officials estimate such an agreement could save an estimated £59 million worth of duties that would otherwise have been levied on UK exports to Mexico alone.5 This includes almost £30 million in levies on UK-exported vehicles, for which tariffs will also remain at zero percent, as opposed to the 20 percent rate that would otherwise apply under WTO terms.6 In addition to the Agreement, both signatories have also entered into a separate accord concerning the mutual recognition and protection of designations for spirit drinks, to enhance further trade in one of the most important sectors for bilateral trade, and simultaneously attempt to protect the geographical designations of products such as Scotch Whiskey, Irish Whiskey, Tequila, and Mezcal.7