BUSINESS PERSPECTIVE Belize, Mexico, and Special & Differential Treatment

BUSINESS PERSPECTIVE

Belize, Mexico, and Special & Differential Treatment

For more than a decade, there has been a near-complete acceptance among Belizean stakeholders that there are merits in improving Belize’s trade and investment relationship with our northern neighbor, Mexico. As the Directorate General for Foreign Trade (DGFT)’s website explains, “Consultations since 2010 have shown that there is general support for expanding trade and investment relations with Mexico in a manager that will allow for asymmetries in favour of Belize.”

The DGFT, of course, would go on to explain that Belizean authorities, having received the requisite approval, have “engaged its counterpart Ministry in Mexico…to being negotiation towards a Partial Scope Agreement.”

Optimistically, the trade unit would go on to elucidate that the PSA would allow “domestic producers to trade an agreed set of goods on a less restrictive basis with Mexico.”

A Quick Detour to the West

Belize is no stranger to PSAs, as it forged one such agreement with Guatemala in 2006. The Belize-Guatemala PSA, which came into force in 2010, allows for trade on a select number of goods—150 product lines, to be more precise. Under the PSA, seventy-two goods from Belize receive preferential treatment when sold to Guatemala, and, in turn, Belize has increased access to 78 goods originating from Guatemala.

Contained within the text of the agreement, the Belize-Guatemala PSA speaks to “special and differential treatment,” wherein the contracting parties can consider the differences in the size of both economies, with the smaller economy being the recipient of “asymmetrical treatment.”

To put the size differences into their proper context, in 2010—when the PSA entered into force—the Guatemalan economy recorded a GDP of more than USD $40 billion. At that time, Belize’s economy was measured at a USD $1.5 billion, a figure barely four percent of the Guatemalan’s output. In 2020, Guatemala’s GDP was USD$77.6 billion, with Belize’s coming in at USD $1.8 billion (just about 2.3% of our western neighbor’s size).

In terms of GDP-based rankings, the World Bank’s 2020 estimate placed the Guatemalan economy as the 68^th largest economy in the world. On the same World Bank list, Belize was placed at 180^th out of 206 countries. Among other things, the 112-point gap between Belize’s and Guatemala’s rankings (based on economic size) supports the utilization of special and differential treatment principles between our countries.

Northwards

Returning, therefore, to the Belize-Mexico chapter in Belize’s trade books, it cannot be overlooked that our northern neighbor is—on that same World Bank list—recognized as the 15^th largest economy in the world, with a GDP of US 1.1 billion in 2020. Belize’s GDP for that year would constitute just about 0.2%, a figure notably below where we stood with the Guatemalans.

Logically, even at a cursory glance, we could see, then, why the DGFT’s position for the last decade or more has been in favor of a PSA as opposed to a comprehensive Free Trade Agreement (FTA). More importantly, the differences in our economies’ sizes would demand the presence of asymmetrical treatment, with Mexico giving far more concessions and assistance to “young” Belize than we would be expected to give in return.

Furthermore, beyond the size differences in terms of GDP and the standard tracking of trade flows between partners, trade professionals over the years have developed varying methods to analyze the likely levels of success that trade agreements are likely to have. These indicators include the likes of the Trade Complementarity Index (TCI), World Bank’s SMART Simulation Tool that employs a partial equilibrium analysis methodology, or even more data-heavy methods such as general equilibrium analyses.

The TCI, for instance, is calculated by the World Bank (via its World Integrated Trade Solution portal, WITS). Simply put, the TCI runs from zero to a score of 100. The closer trading partners’ scores are to 100, the more likely it is that the FTA would likely be successful. The reverse, of course, is true: The closer they are to zero, the least likely it would prove beneficial.

Using the WITS’ database, the Belize-to-Mexico TCI scores about 17— a notable 83 points away from 100. Interestingly, the Belize-to-Guatemala TCI is slightly higher at 19—approximately 81 points away from the maximum on the index.

Enter into the equation the partial equilibrium (PE) analysis enshrined in the World Bank’s SMART simulation software, and the results unsurprisingly corroborate what one could already have suspected. The PE analysis illustrates that Belize’s imports from Mexico are likely to expand much faster than Belize’s exports to our northern partner. This type of scenario would suggest an expanding trade deficit for Belize.

Of course, we must hasten to say that there is a reason technique is called “partial.” Among other things, it leaves out salient feedback loops and does not consider the impact of the services trade and the role of investments. We, however, would leave the likes of the General equilibrium analysis to the relevant authorities.

Nevertheless, caveats aside, most indicators seem to “advise” that a reasonably cautious approach should be adopted when discussing the type of trade arrangement to pursue with Mexico. In our view, therefore, as it pertains to protecting Belize’s local industry, the trade technocrats at the DGFT appear to have had it right for the last decade. That is to say, the Partial Scope Agreement (PSA) is ideal at this time.

Of course, if there will be any deviation away from that longstanding position, then the relevant authorities would need to empirically justify such a significant shift in policy.

Fundamentally, the trade rules that afford special and differential treatment to smaller economies like Belize exist for a reason. We would do well to continue in our policy of taking full advantage of these World Trade Organization (WTO)-sanctioned provisions.