Mexico-Brazil FTA: still a dream?

Latin Business Chronicle, 05/01/2012

When Mexican president Felipe Calderon met with Brazilian president Luiz Inacio “Lula” da Silva in Cancun in 2010, the leaders of Latin America’s two largest countries announced plans to begin negotiations on a comprehensive free-trade agreement between Brazil andMexico. A few months later, a delegation of Brazilian officials traveled to Mexico to begin preparatory work for a hypothetic reduction of tariffs on all goods traded between the two countries. “We want to partner with Brazil,” Calderon said. “The strongest economies inLatin America are Brazil and Mexico. Imagine what we can do together; imagine if we complement each other.”

Two years later, that sort of optimism has been drowned out by a dispute over the fate of “ACE 55,” the Economic Complementarity Agreement that established rules for gradually deregulating automotive trade between Brazil and Mexico back in 2003. Succumbing to protectionist pressure by Brazil, Mexico agreed this March to revise the ACE 55 agreement so that it limits surging car exports to Brazil to an annual average value of about US$1.55 billion over the next three years. Mexican automotive exporters will take a major hit: Last year, Mexican auto exports to Brazil reached 134,000 units, worth a total of $2.1 billion, up from a total of only 53,000 units to Brazil in 2009.

Over the first seven years of the agreement (2003-2009), Brazil ran an automotive surplus with Mexico worth a total of about US$10 billion, according to the Mexican government. “Brazil was happy when Brazil had a trade surplus with Mexico, but over the last three years, Mexico has had the surplus” so the Brazilians have pushedMexico to restrict its exports, notes Barbara Kotschwar, research associate at the Peterson Institute for International Economics.

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