UK to tap Mexico after US in ongoing post-Brexit trade pursuit

Key Points
  • Britain's International Trade Secretary Liam Fox travels to Mexico Wednesday for trade talks.
  • This follows two-day discussions in Washington with Commerce Secretary Wilbur Ross.
  • Boris Johnson is also in Australia for talks.
Liam Fox, U.K. international trade secretary, speaks at the American Enterprise Institute in Washington, D.C., U.S., on Monday, July 24, 2017.
Eric Thayer | Bloomberg | Getty Images

The U.K.'s International Trade Secretary Liam Fox is to visit Mexico Wednesday to launch discussions for a post-Brexit deal as part of the Britain's ongoing efforts to secure its trading future outside of the EU.

Fox is to meet with Mexico's Minister of the Economy Ildefonso Guajardo Villarreal to discuss continuing trade cooperation between the two countries once Britain leaves the EU, and discuss the potential for a future trade deal.

Britain's Foreign Secretary Boris Johnson is also in Sydney Wednesday to discuss tightening ties with Australia and neighboring commonwealth countries.

The meetings follow largely positive two-day talks in Washington between U.S. Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer, in which representatives set about laying the "ground work" for a post-Brexit deal.

EU rules stipulate that member states cannot negotiate independent trade deals while part of the union. However, the U.K. is allowed to hold preliminary discussions ahead of its departure in March 2019.

Why does Mexico matter?

Mexico is an emerging economy but also the 15th largest in the world. It shares £3.6 billion ($4.6 billion) worth of trade with the U.K. every year, most notably in the food, chemicals, financial services and construction industries.

"Some of the UK's main exports to Mexico include industrial products, including engine parts. And whisky accounts for almost 8 percent of the U.K.'s exports to Mexico," Paul Hollingsworth, U.K. Economist at Capital Economics, told CNBC via email Wednesday.

"I imagine it's going to be more on the services side of things where the U.K. sees bigger opportunities for trade though, for example in insurance activities."

Minister of Economy of Federal Government Ildefonso Guajardo Villarreal attends the inauguration of the second stage of the Center for Advanced Engineering on July 11, 2014 in Queretaro, Mexico.
Carlos Tischler | Getty Images

Mexico is also currently investing heavily in its infrastructure, including building a new airport in Mexico City to boost international traffic to the capital.

The development is the biggest infrastructure project to emerge from Latin America and will initially accommodate 68 million passengers per year, later rising to 125 million.

Several British businesses already hold construction contracts in the project worth a total of £40 million ($52 million), and their number can be expected to rise as "further significant opportunities" arise, a spokesperson for Britain's Department for International Trade told CNBC.

However, a deal with Mexico could also threaten to undercut U.K. businesses, including the agriculture industry. This was an issue of huge contention during President Donald Trump's 2016 election campaign, in which he accused U.S. businesses of outsourcing manufacturing jobs to Mexico to reduce costs, thereby damaging U.S. industry.

What does this mean for international relations?

The clashes between the U.S. and Mexico rumble on following Trump's continued talk last week of a building a wall to divide the two nations. But the president also tweeted Tuesday, ahead of Fox's visit to Mexico, of his excitement over a "very big and exciting" deal with the U.K.

Meanwhile, the EU is currently pursuing a new free trade deal with Mexico to update its existing agreement, signed two decades ago. The EU Commissioner for Trade Cecilia Malmstrom said in May that the union hopes to secure a deal "by the end of the year".

Donald Trump
Olivier Douliery | AFP | Getty Images

Britain will not be privy to this deal post-Brexit and will need to secure a separate agreement. But analysts have criticized Fox's early globetrotting, saying that it will damage the U.K.'s fragile negotiating position.

"Fox turning up in a whole host of markets is unlikely to play well with the EU," Mujtaba Rahman, managing director of Eurasia Group in Europe, told CNBC over the phone. "We need good will from Europe."

It is not clear yet, after U.K. Prime Minister Theresa May lost her parliamentary majority, whether Britain will pursue a hard or soft Brexit. The latter would see the U.K. remain in the EU customs union and thereby negate Fox's mandate to pursue any third party deals.

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