Description of Episode: This week’s episode looks at the U.S.-Mexico-Canada Agreement, and trade relations between the United States, Mexico, and China. Emilio Arteaga, a partner at Mexican trade law firm Vazquez Tercero & Zepeda based out of Mexico City joins host Olga Torres to provide his unique perspective on current trade and policy issues affecting both sides of the border as well as both sides of the Pacific Ocean.

Olga Torres: Thank you for joining us. My name is Olga Torres and I'm the founder and managing member of Torres Trade Law, an international trade and national security law firm. Today we're discussing trade with Mexico. One of our top trading partners of, here in the United States. Specifically, we will look at USMCA, free trade agreement, and recent trends, recent enforcement trends as well as politics having an impact on trade. We're happy to have Emilio Arteaga as our guest today. Emilio is a partner at a highly re recognized Mexican trade law firm, Vazquez Tercero & Zepeda “VTZ”. VTZ has offices in Mexico's top cities, including Mexico City, Guadalajara, and Monterrey. Their international trade practice is Chambers and Partners ranked, and they have received additional awards by Legal 500 and other prestigious attorney ranking organizations. We're also very proud to have a strategic Alliance with VTZ through our trade advisory group to facilitate our clients operations and trade needs in Mexico as, as well as the United States. Welcome Emilio, thank you for being here.

Emilio Arteaga: Thank you, Olga. I'm honored to be here in, in your new podcast.

Olga Torres: We, we are very excited. We we're finding it, you know, it's a, it's a good way to bring people that may not necessarily think trade is the most exciting topic we're bringing them on board and, and having them more engaged. So, so we're excited. It's a, it's a pilot, you know, series of podcasts, but, we're getting there.

So, so really quickly, I'd like to start it by, just give us more information about your background, your work and, and the type of work that you've you have been doing recently.

Emilio Arteaga: Well, Olga, well, as, as you said, we are a, a Mexican law firm, so I'm a lawyer. I also have, just for a quick academic background, a master’s in international economic law. I studied in, in, in the Netherlands, in Maastricht and, and ever since I graduated and, I've been working in VTZ as a trade lawyer. So my experience within the firm, which is perhaps already 10 years, or almost 10 years, has been focused on trade remedies.

Olga Torres: So a lot of litigation basically?

Emilio Arteaga: Well, it's a, a sort of litigation with, with, with the, with, before the ministry of economy and I have also been involved in, in NAFTA panels or chapter 19 NAFTA panels, regarding the trade remedies or anti-dumping duties on posts on, on U.S. product. And, and, of course I have been involved in domestic litigation of trade remedies as well in, in the Mexican courts and well advising on tariff and non-tariff barriers in Mexico. Licenses to import. I have also been involved in, in, in, in litigation of, of trade measures, non-tariff trade measures. So, so it's quite a broad scope, sometimes trade and of course, free trade agreement advisory like USMCA or NAFTA.

Olga Torres: Got it. Yeah. very interesting. So we hear a lot in the U.S., and I'm sure you're hearing the same, you know, talks in Mexico about the U.S., you know, changing a little bit of geopolitics geopolitics deglobalization perhaps, you know, we're decoupling from, for example, China, we are dealing with the Russia Ukraine situation or, or crisis. What are you hearing from Mexico? You know, boots on the ground in, in Mexico in terms of where Mexico is heading? I know, I, I, I remember hearing, at a conference, I believe, Mexico having, at least it was one of the, the countries with the most free trade agreements. I wasn't sure if it was like the one with the most, but you were pretty high up there. So where is Mexico nowadays in terms of trade?

Emilio Arteaga: So I think if, if some, if a country puts a free trade agreement in, in Mexico's desk, Mexico will sign. So I think our reach is about 50 countries, of course, this, this is maybe explained in part some mega deals such as with the European Union. Well, automatically you have access to, to the European Union, and CPTPP. so, so of course those type of agreements help reach, a lot of countries. Now, Mexico is is open to free trade, there has not been any, any, any measures like, those of the United States like sort of trade remedies, which are these sections 301 or section 232. We don't have that type of, of instruments in Mexico. We could argue that maybe Mexico is a bit harsh on China with, with, with trade remedies of the traditional trade remedies, such as anti-dumping duties. And right now I would say that Mexico is, is, is discussing. formally negotiations with the UK as a result of Brexit, bilaterally and, multilaterally or regionally with, with CPTPP and in, and with Korea, South Korea as well. There has been talks, or there's gonna, they're gonna start negotiations.

So Mexico continues to be open. The question with China is gonna be interesting in CPTPP because China has formally asked for accession. So, we still haven't heard news about what's gonna happen in CPTPP. So, I think that's basically what's happening in Mexico and no sanctions against Russia, so, and Belarus, no sanctions at all.

Olga Torres: Okay. And I have a lot of questions, so I'm writing them down so that I don't forget. with respect to China, you mentioned I mentioned in, in the U.S. we're, we're decoupling from China, and also the U.S. and I'm sure you're following, especially coming election time I'm sure we're gonna start hearing it again. Trade became a little bit of a polarizing situation where, you know, we started seeing some of these populous trends and, and, and, in a way I feel like Mexico may be more open to trade than even in the U.S. or at least domestic domestic politics, anyway. Trade is not this word that can get parties, too excited, either way, you know?

So in terms of China and, and some of the, the, the most recent posture by the U.S., and you mentioned section 301, is do you think Mexico can seize an opportunity if the U.S. is sort of turning away from China in a way, right? I mean, China is still our largest trading partner, Mexico right after and I think it depends also on what figures imports versus exports, but they're, they're both pretty high up. is that, does that present an opportunity for Mexico and, and what do you think Mexico is or should be doing to, to seize that opportunity?

Emilio Arteaga: I, I think it definitely is an opportunity for Mexico to attract, more business with China, for instance, what you say, China's U.S. majors, trading partner, and I think China's majors trading partner with every country in the world including Mexico.

Olga Torres: That's fair.

Emilio Arteaga: Yeah. So. China is also, one of Mexico's major trading partners right now. I believe the U.S. is Mexico's top trading partner due to exports and imports but we have a huge deficit with, with, with China and another import.

Olga Torres: Like everybody else yes.

Emilio Arteaga: Yeah, probably. And another, and another point to consider here is that unlike the relationship with the United States, where there is a lot of foreign investment from the United States, we have very few foreign investment from China. So this situation has been discussed, as an opportunity to have more investment, more manufacturing plants coming from China to Mexico and.

Olga Torres: Okay. Your, your answer is actually really, really interesting to me because where I was going with my question, that this is actually quite interesting. My question was asking, how does Mexico position itself so that if, if we are decoupling from China, Mexico is in a way doing more business with the US, but your answer and correct me if I'm wrong. Your answer is we are seeing that as an opportunity to potentially do more business with China or potentially receive more foreign investment from China rather than per se the U.S, right?

Emilio Arteaga: Yes. It's. It's it's it's I, I think that's the answer and it has to do with, with the, regionalization or the nearshoring of, of, of business. Now, not all business in China is Chinese. There is foreign investment in China. So maybe European firms, Japanese firms, Koreans that are in China, see this issue of this trade war, this conflict between the U.S as an opportunity to change where they have their manufacturing plants or, or their supply chain. And, and, and this is one of the things that has been discussed in international forums about nearshoring, the, the, the value chains, or the regionalization of the value chains, which is something that the president Biden wants to do as well in certain strategic, supply chains. And this is an opportunity, but the question is here, Olga is Mexico taking advantage of this opportunity. It's hard to say right now and, and because COVID came in during the, the, the, the trade war and, and it's difficult to say if there has been a substantial amount of investment of China, I don't think Mexico with the foreign investment statistics has been receiving investment or a substantial amount of investment from China.

But I have seen in, in, in media about new projects entailing China, or Chinese investment. There has been sometimes some interest of Chinese firms of, of establishing in Mexico. And, and this is, has to do of course with the trade measures adopted by, by the U.S.

Olga Torres: Yeah. And, and, and that is interesting that you, you say that here in the U.S., for example, investment from China is highly regulated. Meaning any kind of any foreign investment, any, any investors of Chinese nationality even if they're in a different country, those are more, you know, they're scrutinized by, by the U.S. government, to the extent that we've heard on officially, for example, where, other countries where Chinese investment is very high, let's say Canada, in a way we also review those very carefully because we understand that there could be Chinese money coming in, through those routes.

So that would be interesting if Mexico, cuz I did notice, you know, over the years when we're, we're following this Chinese investment in Latin America has been very high. I mean, I'm thinking Brazil and Argentina and, and some of the south American countries. And, and I wonder why actually, I wonder why there has been more Chinese investment in, in that region versus for example, Mexico, any ideas there?

 

Emilio Arteaga: Yes, I think, in great in great deal, for instance, Brazil is part of BRICS or this group of countries, so that, that may help politically. But I think Chinese investment has to do in, in these countries with natural resources,

Olga Torres: Resources.

Emilio Arteaga: So we are talking about, minerals. We are talking about perhaps, some forestry products, we're talking about maybe even agricultural supplies. Because Brazil supplies, some agricultural products to, to, to China, so, and infrastructure, maybe energy. So these are the why. these are the main sectors that China, I believe has targeted Latin American countries. Now, Mexico has not been quite friendly with Chinese investment.

Olga Torres: That's what I remembered in the past.

Emilio Arteaga: Yes.

Olga Torres: Just trade with China, generally, it was not trade friendly.

Emilio Arteaga: Trade but non-investment there was, and, and, and Chinese investors are quite careful about the politics and, and there was a decision in the last, in the last administration that canceled immediately a train project. With for, without a lot of notice and there was Chinese investments. So, and there was another Chinese project that was also canceled, through the ministry of environment. So that has also created a wrong or a perception or a, or better said a perception of that Mexico's hostile against Chinese investment, but now the, the discourse of, of, of the government is how open, having investment from Asia. So that has, I think it, the, the, the, the rhetoric, the discussion is opening Mexico to China and to Asian and Asian economies.

Olga Torres: Do you think that the, it could change based on, on political parties? So I know when does Mexico have elections, next? I know here, you know, between parties, we go one way and we go to the other, you know, opposites. Do you think that would change with a new president for example, or is that it's not, it is not as subject or as, subject to change with, with different administrations?

Emilio Arteaga: Well, it's, it's a great question. And. It's a great question, Olga. I really don't.

Olga Torres: And it's okay if you don't know. We can, we, we

Emilio Arteaga: I mean, the, the government in party is a left wing, government. So sometimes, or, or there could be like a common ground with China because they're socialist or, or socially minded. And, but I do think that in the end that what may cause issue or conflict is the, is the industrial companies or, or the companies within the industrial sector. Those are who may trigger, whether Chinese investment or may create this conflict with Chinese investment up to, to this date. There has not been any major criticism against Chinese investment because we barely have Chinese investment.

Olga Torres: Right.

Emilio Arteaga: What will happen in the future? Well, well, I think first we have to know if we're gonna have Chinese investment or not to know if there's gonna be any sort of reaction. So, I think that's.

Olga Torres: But it does have an impact. I mean, if the government is actively hurting, you know, going after the, the investors, right. I mean, versus we're not too interested.

Emilio Arteaga: Well, this, this is a major issue in our point of view because Mexico has decoupled one of the foreign investment and trade promotion agency that no longer exists. So

Olga Torres: I heard that yes, from Mexico.

Emilio Arteaga: So pro Mexico was this agency that made this and it no longer is exist and it's the embassies now in charge of the promotion. So these sort of actions may have created hurdles for foreign companies, not only in China, in all the world to seek counsel of how the first steps to getting into Mexico and, and this might have had an effect in, in the foreign investment policy attraction.

Olga Torres: Interesting. okay. So you know, Mexico, what I'm hearing is wide open for foreign investment, free trade, you, you mentioned like over 50 countries, we look at all the foreign trade agreements that the Mexico has. Not as, politically polarizing to, to say we're gonna open do another free trade agreement as much as it is here anyway. And when I asked the question, are, are you seeking investment or how, how are you positioning the country to lure more Americans? The answer I got was basically we're interested in Chinese investment in a, in a nutshell that's kind of what I heard, which is really interesting. So, so, so where do we go?

USMCA was implemented two years ago and we have seen, you know, NAFTA 2.0, there were various changes, some of them very technical, a lot of what we have been seeing lately, or the questions that we're getting, or some of the concerns that we're getting are related to and this is just in general in the U.S., I mean, USMCA has strong labor provisions. They have the rapid response mechanism. And we will have in our screen, we he USMCA coordination center. So you can go visit for very detailed information on USMCA what changed, and guidance that was issued by the U.S. government. But just higher level, what, what are the concerns that you're seeing in Mexico at at least from Mexico companies or companies in Mexico that are owned by U.S. companies or Canadian companies, regarding USMCA rapid response mechanism?

Emilio Arteaga: Well, I think first of all, the, the issue of the rapid response mechanism has to do with the compliance of the new labor system that was implemented as a result of, of, of USMCA. We are seeing now, four rapid response request of the U.S, U.S. USA, as of, as of today

Olga Torres: And you know, and two years, right. So it, it's not a, it's not a very high number. I mean, we, I, I, you start seeing some trends in terms of okay, that they are coming in, but it's not a very high number I want, I mean, obviously COVID must have had an impact. But anyway, I interrupted, continue.

Emilio Arteaga: Yes, no, but, but it, it makes sense and the rapid response mechanism, we have to remember Olga, that only applies to certain industries. So we are talking, I think we are talking about six or eight, something like that. And we,

Olga Torres: But they were not exclusive. I, I think they said that these are just examples and we can include more as needed, right. I mean, but that's what I remember.

Emilio Arteaga: I, I think it, it was like that but the point here in the end is that it's the manufacturing industry that was greatly like pulled into the, into this pool of, of facilities that could be subject to, to the, to the, rapid response mechanism. All companies have to comply with the labor chapter, but we are talking about exclusively the, the rapid response mechanism and what we are seeing right now, is that the USTR or the, or the international labor commission that was created of USMCA is, is the they're focusing or they're receiving better said they're receiving complaints of automotive facilities. I think all of the four companies are automotive or am, or part of the, of the, of the supply chain. So we are, and, and I believe three are in the north and one is in the Bajío, which is like in the center of, of the country. So, but what catches my attention is that they're automotive industry and, and we could say that there's been four requests, but really there has been three in which Mexico has agreed to, to be subject or to review because one of them de dealt with matters before USMCA entered into force. So Mexico did not agree to review because they said, well, this is before.

Olga Torres: That that was more like technical.

Emilio Arteaga: Very technical and the company did, did the

Olga Torres: And that company was like *sigh*

Emilio Arteaga: The company did engage with the USTR and did like kind of, this is a state to state mechanism. So it kind of shifted because of this technical issue between a, the company and the U.S. government and Mexico did, was not involved. So tech or was not directly involved. So, I, I do think that that automotive industry have to be very careful or the supply of, or those that are in the supply chain of automotive.

Olga Torres: Automotive suppliers.

Emilio Arteaga: Have to be very careful.

Olga Torres: Are you and, and this is very interesting because again, we're trade lawyers and I remember we, we actually did a lot of webinars back in the day, like right before implementation. And a lot of them were focused on this very same mechanism because it was so unique and novel. it, it, but I mean, at the end of the day, we're not labor labor lawyers, right. And definitely not labor lawyer in Mexico. So, so what, what are the, some of the high level recommendations that, that you are giving, companies in terms of looking at their labor laws from a Mexico point of view?

Emilio Arteaga: Well, be in touch with a labor lawyer who, who the, the, the, the, the compliance of, of the new reality of, of the, of the collective or the union, the collective bargain agreements and unions not interfering in the life of, of, of the, of the unions. And then we have to be very careful, companies have to be very careful of not, not intervening but also taking maybe measures to safeguard these rights, because for instance, the case of, of General Motors in Silao, the, the case arises because the elections of the, I believe maybe of the union or of, or the collective bargaining agreement were, interrupted. There was a conflict between the workers and the union. So the vote had to be suspended. So technically speaking, the company did not do nothing or it appears that the company did not do nothing directly, but could the company have done more? Could the company put security in place to avoid any possible, violence that could arise? I think that because the, the rapid response mechanism does not entail necessarily the, the, the responsibility or direct actions of the company, it could be the government as well.

But if the company does not take into place actions that could safeguard the rights of the workers, if there is a panel in, within the rapid response mechanism, maybe the panel would say, well, the company could have done more. And I think that could be important of not only trying to meet the, the, the minimum standard, but take additional steps. And I think this is something where labor lawyers and maybe trade lawyers could shoot out ideas, because we have to think that this is not only labor, but it's labor and trade.

Olga Torres: Yeah, agreed. And in terms of just general enforcement of by the Mexican authorities, are you seeing more, more, I I'm thinking, verification of origin type cases?

Emilio Arteaga: That's a great question. It is difficult to say today because I have, by the way, Olga, I have requested an information access request to keep me updated about how many origin verifications have been launched by, by the, the customs authorities.

Olga Torres: Very interesting.

Emilio Arteaga: I, I have, I have done that in the past and it's not a huge number, the origin verifications, but, but what, what I would like to highlight here is that companies that do not have good lawyers so to speak, or do not comply with, with the, with the, with the verification, it's very difficult to reverse the decision.

Olga Torres: Right.

Emilio Arteaga: It's it's, if you do not have a successful origin verification, challenge challenging this is a very complicated and lengthy tasks because now the courts are asking for, for, for instance, if you have to go to court, you have to present an official translation of all your documents that you supported for, for your, for your for your, as, as evidence. So, right. It's a lot of money because maybe you're even presenting accounting records, invoices, which shouldn't be translated.

Olga Torres: The whole trial, the whole. So, I remember in the past when we were doing some, I wanna say it was NAFTA verifications and, I remember Mexican customs had, at that time they were sending, you know, basically like the letters and they, they would send them in Spanish.

I don't, I don't remember seeing a translation and they would send them sometimes to American companies and sometimes they would get lost. Like it would go to the wrong department like these are really large companies and they had really strict deadlines. I wanna say, you know, 30 days to respond and people are like receiving this document in Spanish and they're like, ah, I don't know what this is, right. And eventually somebody would see it and translate it and they were like, we have two days to reply to Mexican customs. Is that, are you seeing some of that? I know that you said, you know, based on the response that you got, there's not a ton of enforcement. I also wanna say same here and I think part of it is also probably COVID. But are, are you seeing some of those, cases, you know, where Mexican customs is contacting the, the U.S. companies, directly in the U.S.?

Emilio Arteaga: Yes. Yes. we, we are, well, this, this thing of the courts that's because we are, we have been involved in several one, one that we have just filed like, a constitutional remedy, but right now, unfortunately at least they send the translation. So there is, there is, there is how would you say a courtesy translation for the company.

Olga Torres: That's very good.

Emilio Arteaga: COVID for instance, in a CPTPP verification did create some problems because the, the company did not have personnel

Olga Torres: Like receiving mail

Emilio Arteaga: And, and there's short deadlines as well. So, that, that was a problem.

Olga Torres: Actually, let me ask you, this was, was Mexican customs working from home because here in the U.S., so many government agencies, and even today, I think slowly but surely they're going back, but there were so many different types of submissions that we would send in and for a while we were like, did they get it?

Emilio Arteaga: So, well, there was, there was a decree in, in, in Mexico regarding this COVID. And, and tax matters were considered as a national security or a essential activity. So I don't think that customs, officials were working on home. Maybe some of them did that, there were shifts and so to speak, but officially legally, or they, customs was an essential activity and maybe they couldn't go to their homes.

So, that's one, one, aspect and, USMCA I, I have not yet been involved in an origin verification under USMCA, but maybe there's not a tons of origin verification, but I do think, and I'm, I'm convinced that that customs know where to ask. So they have intelligence, so they know where sometimes companies may not meet because of the supplies in the region and so to speak, or because sometimes there's industries that go with custom agents and say, this is happening we don't think it's, it could be possible. And, and, this is why it's very selective because it's, it's, it it's, it's something that. It's complex and, and, and customs, Mexican customs is very intrusive.

Olga Torres: Yeah. Well, yeah. I, well, I think all of the authorities in every country, I would think, are very intrusive, but, one time I heard and correct, correct me if I'm wrong. At some point, I heard that Mexico had the largest, audit team in terms of FDA verifications in the world. Is that, have you ever heard that?

Emilio Arteaga: I I not aware, I was not aware about that. I, I

Olga Torres: I, I think it was by headcount. I, I need to, I, I don't remember where I got that information from, but that I, that stuck with me for years. So I wanted to verify with you

Emilio Arteaga: It is, I mean, we have, I mean, there has been by the way recent change in customs in Mexico. So now we have a new customs agency and it's called the National Agency, Customs Agency of Mexico. If in case, in case you were doubting, what nationals mean.

Olga Torres: In case you were wondering what country, that's.

Emilio Arteaga: And, so now we have another customs authority who is in charge of the custom stations and some, and overseeing, customs compliance and some, and some other like custom decisions, perhaps tariff classification and, and something like that. And we still have the tax authority, which is the famous SAT or sat and SAT has this department of audit, which is the, the it's the audit of international trade. And it's AGACE like that's the small name or the acronym of this authority. This authority still exists and Mexico, I don't know, maybe we are no longer the biggest audit team because Mexico has adopted some austerity measures. Whatever that means and, and, and this could have an impact on the personnel of the authorities. And there have been changes in salaries because of the new government. So this could have had an impact on the, on the number of personnel.

Olga Torres: Mm, interesting. And I know I got our flag of, you know, you have five minutes or, really quickly just to close it out in terms of conducting business in Mexico. I know we have, you know, you mentioned right now, Mexico has a government that it's more leaning towards the left.

Emilio Arteaga: In theory,

Olga Torres: Yes, for people that are not following Mexican politics very closely, when is the, when is the next election cycle? and I know you're not, I mean, we understand that you're a trade lawyer, but are there any who's do you have any idea who's running and where things could go and whether that would have an impact on trade and specifically relationship, the relationship that Mexico has with the U.S. and I mentioned very specifically, and I don't wanna get to political, but I did notice last week, I'm Amlo (Andrés Manuel López Obrador) and I'm a little Andres Manuel Lopez, the Mexican president, did declined the invitation to participate in the summit of the Americas and that, that made it some noise. And, and, and you know what that means and where could Mexico go after a new election cause the, the next election is what, two years from?

Emilio Arteaga: Yes, it's it would be in June 2024. So who, who are, who are the dolphins, as we would say in, in, in, in Mexico. It's really right now, too early to tell, but there are several, individuals from the, from the party that's in, in power of AMLO, we have the foreign affair minister, we have the, the governor of the Mexico city and other people, but I think those two are the, the strongest, perhaps. And, and from the other side from the the, the other political parties, the, there is a strong, it's difficult to tell who could be.

Olga Torres: Yeah, it's too early. Like if you ask me here I will be, I, I have no clue. You know, what's gonna happen in two years.

Emilio Arteaga: For some elections, there were some state elections and of of six states and four were won by the, this party Morena of, of, of AMLO and the other two were, were, were retained by these political forces that joined forces.

So it, it really seems that the left this Morena left wing party in theory left because they adopt any type of, of policies, may, may win again the election

Olga Torres: Really.

Emilio Arteaga: So, so, but I may maybe, maybe this is too early to tell maybe maybe the, the economic, not for di claiming

Olga Torres: And we’re disclaiming, we we're just trade lawyers, but we're trying to make, you know, what are people saying and, and hearing, and how can that impact trade.

Emilio Arteaga: And, and I don't think it would be wise for, for the Mexico, for Mexico, economically to have a hostile approach on trade against any country and especially with the U.S. As I said, U.S. is Mexico's major trading partner right now. And Mexico has a, the U.S. is top FDI foreign indirect investment inflow. So, so it's it's, it would be shooting ourselves in our own foot if we want to want to have some conflict with, with the U.S. But we are having some conflicts, Olga energy. So, so this, for instance, we, we, I, I mentioned that that, Mexico has, is open to foreign investment, but perhaps not on energy. So these sort of matters, these sort of matters, can bring a wave of consequences against in the Mexican and the U.S. policy and we are seeing it, not only in the regional context, because this is the, Summit of the Americas, but we are gonna maybe see it in, in the near future bilateral in a bilateral context context, because this energy issue is a serious issue taken by the USTR.

Olga Torres: Right. Mm-hmm and we're following it as well. And that may be a good podcast, actually, if we wanna get into details.

Well, thank you so much Emilio for joining today. Thank you to our listeners for tuning in, we'll bring you more of Torres Talks Trade in the next episode. Thank you.