MEXICO CITY, (Reuters) – Mexico has yielded to Brazilian pressure to slash auto sales to the southern giant, fixing an export quota for the next three years to save a decade-old trade agreement between Latin America’s two dominant economies.
Mexico’s Economy Minster Bruno Ferrari said yesterday Mexico had agreed to curb its auto exports to Brazil to an average of about $1.55 billion over the next three years, bowing to Brazilian concerns about its ailing industrial sector.
Brazil made its demands after the value of Mexican car exports jumped by around 70 percent in 2011, aggravating a glut of cheaper imports that are hurting Brazil’s manufacturers.
The quota is the latest in a string of efforts by the Brazilian government to protect its industry. It is reciprocal, and free trade between the two nations will resume after three years, according to the agreement thrashed out in Mexico City.
The accord fell far short of what Mexico said it would fight for, and prompted harsh words from Mexican free trade advocates.
“They (Brazil) are being total bullies and we are just accepting and saying ‘yes.’ I think it is a very bad sign that Mexico just agreed like that,” said Luz Maria de la Mora, a former Mexican official who helped negotiate the original 2002 auto deal.
“What kind of message is Brazil sending to the world?” she told Reuters. “Is this the way emerging economies are going to behave? Are these the economies that will become the engines of global growth with these kinds of policies, that are completely uncertain and unpredictable?”
Ferrari said Mexico and Brazil had also agreed that Mexico would raise the proportion of auto parts it sources from Latin America to 40 percent in five years, up from 30 percent now.
The two concessions were close to what Brazil had asked for, and will drag Mexico’s exports down to a level way below the $2.4 billion worth that Mexican trade figures showed it had exported to its southern trading partner last year.
Mexico had earlier said the 2011 figure should serve as the starting point for any quota between the two governments.
Mexico faces the prospect of hitting the quota long before the year ends, as exports to Brazil more than doubled in the first two months of this year from 2011.
Analysts believe Brazil’s victory will do little to stem a steep slowdown in Latin America’s largest economy.
MEXICO’S DEFICIT
The dispute has undermined relations between free-trade disciple Mexico and Brazil, which is increasingly resorting to protectionist measures. Data show that Brazil has had much the better of recent trade between the two nations.
