Mexico is one of the few countries that has been authorized to adopt retaliatory measures against noncompliance of its trading partners' obligations, and it has made use of this authorization.
After nearly nine years of litigation between Mexico and the United States before the World Trade Organization (WTO)1against the discrimination on Mexican tuna for denying it the dolphin-safe label – while allowing its use on imports from other countries without effectively monitoring whether damage to dolphins is taking place – an arbitral decision was published on April 25, 2017, authorizing Mexico to suspend equivalent commercial benefits to the U.S. in the amount of $163 million.
Under WTO rules, Mexico may suspend benefits (i.e., increase tariffs on products of the same sector, in another sector of the same agreement or under a different agreement), as long as the U.S. does not withdraw or modify its labeling to comply with the WTO rules eliminating any discriminatory aspect. However, there is no public list of products on which Mexico could increase tariffs (the most common way of suspending benefits). On previous occasions, the products subject to retaliation have included high fructose, wines, brandy, whiskey, notebooks and wooden furniture, among others (Broom-Corn Brooms dispute, 1996); wines and dairy products (Byrd Amendment dispute, 2005)2; and several agricultural products, including wine and juices, onions, potatoes and more in 2009; and apples, juices, household appliances, among others in 2010 ("carousel" retaliations in the cross-border trucking dispute).
The adoption or not of any retaliation undoubtedly will be affected by the context of a North American Free Trade Agreement (NAFTA) renegotiation. On the other hand, the duration of the measure could be affected by the results of the arbitration procedure initiated by the U.S., pursuant to Article 21.5 of the Understanding on WTO Dispute Settlement, under which the latest modifications to the dolphin-safe labeling system made by the U.S. in March 2016 are being reviewed to confirm if they comply with the WTO rules. This proceedings could conclude in early 2018, confirming if the U.S. has complied or if the retaliatory measures authorized to Mexico could be maintained.
There is no pre-established criteria for the selection of goods that will be subject to retaliation. However, the Mexican government will be sensitive to increasing tariffs on products that would increase prices in Mexico (e.g., input raw materials), but products that are extremely competitive and have displaced Mexican production (e.g., apples) will be likely candidates. Additionally, there appears to be a pattern that goods selected for retaliation have included products from U.S. states whose congressional delegation supported the dolphin-safe labeling requirements and products from sectors that have sufficient U.S. lobbying power to press for compliance with the WTO ruling in order to have the increased tariffs removed. If goods fall into one of these "likely to be retaliated" categories, it is suggested to take early action before the Mexican government to try and avoid retaliatory duties.
Holland & Knight's International Trade Group will continue to follow possible retaliatory measures that may be taken by the Mexican government, as well as U.S. compliance with WTO rules, in order to provide advice to the productive sectors interested in this issue or in bringing disputes before the WTO.
1 Consultations in this dispute were requested on Oct. 24, 2008, without taking into consideration the tuna dispute held under General Agreement on Tariffs and Trade (GATT) times.
2 Modified in 2006