May 4, 2020

Government procurement processes in Mexico must comply with the EU Trade Treaty

Holland & Knight Alert
Alejandro Landa Thierry | Carlos Vejar | Alberto Esenaro

On April 28, 2020, Mexico's Ministry of Economy and the European Union (EU) Trade Commissioner, confirmed that the negotiations on the modernization of the EU-Mexico Global Agreement have concluded, in force since 2001, after reaching an agreement on the scope of the obligations set forth in the government procurement chapter of the free trade agreement between Mexico and the European Union (FTA EU-MX).

This would be the first time Mexico opens government procurement processes under local legislation in 16 states to a trade agreement. This implies that purchases made by local entities, will require in some cases bidding processes in which European companies are allowed to participate.1

This commitment on behalf of Mexico was the only one pending to conclude negotiations.

The latest text of the Government Procurement Chapter lists 14 states (it is probable that two more states will be included in the final text of the Agreement before its signature).2 The annex of the public procurement chapter even indicates the state-level agencies that will be subject to the Agreement.

As Mexico is the EU's number one trading partner in Latin America, this modernization is intended to increase the bilateral market. During 2019, Mexico-EU trade amounted to $75.5 billion, where Mexican exports reached almost $25 billion. Meanwhile, investments from the 27 EU countries amounted to nearly $180 billion in Mexico. Since the execution of the FTA EU-MX, bilateral trade has tripled.

On the other hand, Mexico is the first country in Latin America with which the EU agrees on investment protection provisions, which combined with a customs simplification, is expected to increase trade.

How to Prepare for Modernization

Although the legal revision of the text, its translation and approvals by the Senate, the Council and the European Parliament are still pending, prior to its execution, the Mexican government will have to ensure that the national legal framework has been modified in sectors that require it to comply with the new commitments, and for the first time the state governments that will be covered by the treaty will have to make necessary adjustments to comply with new requirements in the Public Procurement sector, which in many cases implies modifying local laws on the subject, or else they could probably be subject to the corresponding federal laws.

The FTA EU-MX will require states and municipalities (covered by the Agreement), as well as their Congresses or Councils, in the negotiations with the Federation and the compliance with the public sector procurement regulations set forth in the modernization of the FTA EU-MX, and for which these states will have to adjust their procedures, tender documents, contracts and other regulations to comply with the FTA EU-MX.

Likewise, companies participating or interested in participating in public procurement processes, whether Mexican companies, subsidiaries of EU-based companies or foreign companies carrying out business or investing in Mexico, should begin to analyze the needs and opportunities of the state and municipal markets, once the scope of the states covered by the Agreement is defined.

Similarly, financial entities will have to adjust their financing and credit contracting policies to government entities and participants in the public procurement sector in order to properly take advantage of the opportunities that will be created by this modification.

Notes

1 See article "La UE fija objetivo de compras públicas con México" published in the newspaper El Financiero, February 14, 2019.

2 See Exhibit X-2 in the procurement chapter. The list of states will be likely disclosed soon, and should probably include the states that most contribute to Mexico's GDP.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


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