U.S. Cheese Won’t be Cut From Market Over Mexico’s Deal With EU

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By Emily Pickrell

North American Free Trade Agreement talks are heading into the summer, with the sides gearing up for tough negotiations on sticking points such as market access—but there’s good news for U.S. specialty products.

Mexico is expected to offer a proposal in the NAFTA talks to protect market access for U.S. products that otherwise could have been limited under Mexico’s recent agreement with the European Union, according to sources close to the talks.

The deal with the EU provides a “grandfathering” clause guaranteeing that Mexican retailers can continue to sell certain imported cheese brands--commonly sold in the Mexican market--under the existing brand name , as long as the packaging clearly indicates that the product does not come from the region implied by the name, such as U.S.-produced Parmesan cheese.

These products will not be subject to a provision in the Mexico-EU deal covering geographic indications--terms for products that correspond with a region, such as champagne sparkling wine or Parmesan cheese.

The grandfathering clause’s inclusion in the Mexico-EU agreement is a finalized issue, while the technical terms of the negotiation are still being worked out, the Economy Ministry told Bloomberg Law.

“In particular, as it concerns geographic indications, we negotiated clauses that guarantee that the cheese brands that are of common use, such as Parmesan, Manchego’, and Gruyere, among others, can continue to use those terms,” the ministry said.

Mexican trade officials are planning NAFTA proposals that include such clauses to protect specialty items being imported into Mexico from the U.S. tariff-free under NAFTA. The clauses would allow some U.S. products now on Mexico’s grocery shelves, such as specialty cheeses, to continue to be sold using generic names.

This protection of U.S. imports is important for cheese producers, given that the EU-Mexico agreement limits the sale of imports similar to more than 300 European products with specific GIs. Mexican negotiators defend the EU agreement, saying it will not close off access for U.S. producers.

“Mexico knows that, despite the current trade environment, it will be negotiating with the U.S. for centuries,” said a source close to the Mexican negotiators in an interview with Bloomberg Law. “They will not back stab them for the EU GI issues.”

The idea of protecting certain U.S. products currently sold in Mexico came from the U.S. cheese industry, which campaigned for its inclusion in Mexico’s deal with the EU, according to a source close to the Mexican government.

“The grandfathering clause is by nature designed to protect a U.S. industry,” the source said. “Our guess it would be well-received by the U.S. negotiators, but we haven’t heard directly.”

Some of these products, however, could be affected by tariffs that Mexico has threatened in response to recently announced U.S. steel and aluminum tariffs. The U.S. justified its tariffs by citing Section 232 of the Trade Expansion Act of 1962, which allows for security-related protections.

“The 232 countermeasures from Mexico do away with some of the benefits industries would receive from the grandfather clause in the EU-Mexico agreement,” the source said.

In addition, progress on this front for NAFTA renegotiation has been illusive, according to USTR Robert Lighthizer. The issue of GIs is among several “gaping differences” in the talks, he said in a statement at the beginning of May.

Grandfathering Clause

Under the proposed approach, Mexico plans to allow U.S. producers to use certain Spanish words to identify products that have already been sold in the Mexican market, while allowing GI protections for specific EU products with names that clearly identify their EU origin.

For example, the Italian identifying name for parmesan cheese, “parmigiano,” will be protected for Italian producers in the Mexican market under the GI rules, but qualifying U.S. producers will still be able to sell parmesan cheese under the generic Spanish “parmesano” description.

Mexico’s strategy for GIs came into question after it agreed in principle to a deal that accepts certain limitations on competition in its market for more than 300 European products in its renegotiation of the EU-Mexico Trade Agreement.

The compromise shows Mexico’s efforts to navigate the disparity between the U.S. and EU approaches, according to Alejandro Luna, a partner with Olivares, a Mexican intellectual property legal firm.

“Mexico’s goal has been to protect GIs from improper use,” said Luna, who also represents the Mexican Association for Pharmaceutical Companies in the private sector.

CPTPP Agreement

In the Comprehensive and Progressive Agreement for Trans-Pacific Partnership—which does not include the U.S.—all 11 participants, including Mexico, agreed to provide some protections for GIs but also left the door open for them to be challenged and potentially invalidated.

During negotiations on the earlier version of the deal—the Trans-Pacific Partnership—the U.S., which uses trademarks as the main means of protections for its specialty products, had pushed for many of these geographic indications to be considered generic or common-use terms. President Donald Trump pulled the U.S. out of the TPP when he took office.

Shortly after signing the CPTPP agreement on March 8, Mexico also passed an amendment to its own laws on GIs, allowing foreign producers to challenge GI protections in Mexico. The law, which went into effect at the end of April, gives these producers a legal means for both initiating new GI applications and for challenging applications.

And while lack of clarity on the rules in the past made it difficult to get Mexican products designated as GIs, the country’s new rules could open a flood gate, Luna said.

“Part of the rationale for this new law is to get more cultural products designated as GIs and to make this designation more popular,” Luna told Bloomberg Law.

They will invariably be joined by the other CPTPP member countries, all of which are looking for ways to carve out their space in the Mexican market, according to Oliver Gallindo, a partner and head of the intellectual property practice at Deloitte Legal in Mexico City.

“We are opening the door to GIs coming from Latin America and from Asia,” Galindo aded. “We fully expect to have the new countries who signed the TPP to be looking for protections in Mexico.”

To contact the reporter on this story: Emily Pickrell in Mexico City at correspondents@bloomberglaw.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bloomberglaw.com

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