Magazine article SourceMex Economic News & Analysis on Mexico

Mexico Agrees to Limit Motor-Vehicle Exports to Brazil for Three Years

Magazine article SourceMex Economic News & Analysis on Mexico

Mexico Agrees to Limit Motor-Vehicle Exports to Brazil for Three Years

Article excerpt

Rather than risk the loss of a major market for its motor-vehicle exports, the Mexican government reached an agreement with Brazil to limit the number of Mexican cars and light trucks sold to the South American country during the next three years. But Mexico made it known that it was not happy that it was forced to make this move. On the day that the agreement was announced, Foreign Relations Secretary Patricia Espinosa went out of her way to criticize Brazil and Argentina for their protectionist policies.

Brazil and Mexico reached the agreement after weeks of difficult negotiations (SourceMex, Feb. 15, 2012) to modify the Acuerdo de Complementacion Economica en el sector Automotriz (ACE 55). Mexico accepted ceilings on vehicle exports that would reduce the value of total sales of cars and light trucks by about 30%. While Mexico exported about US$2.4 billion in motor vehicles in 2011, a ceiling has been set for the three subsequent years: US$1.45 billion in 2012, US$1.56 billion in 2013, and US$1.64 billion in 2014.

"We achieved an agreement that is incremental and an agreement that is temporary," said Economy Secretary Bruno Ferrari. "In other words, I think it's something very beneficial for the industry."

The Asociacion Mexicana de la Industria Automotriz (AMIA) said the quotas would be divided in negotiations among the Mexican automobile companies, all subsidiaries of multinational corporations. As it stands now, the restrictions would have the greatest impact on Nissan Mexico, which accounts for almost one-third of the motor vehicles shipped to the Brazilian market, followed by Ford Mexico, which exports about one-fifth of the vehicles shipped to the South American country. The Mexican affiliates of Volkswagen, Honda, Chrysler, and General Motors account for the rest of the vehicles shipped to Brazil.

In addition to forcing Mexico to reduce the total value of cars and light trucks shipped to Brazil, the agreement mandates that vehicles produced in both countries use a certain percentage of "regional" parts. The ratio was set at 35% in the first year and 40% by the fifth year.

Limits preferable to tariffs

Without the agreement, Brazil could have imposed tariffs as high as 65% on imports of Mexican motor vehicles, which could have essentially shut off exports to the South American country. "There would have been no exports of Mexican vehicles to Brazil," said Ferrari.

"The risk was very real," wrote columnist Luis Miguel Gonzalez in the Mexico City business daily El Financiero. "Brasilia was ready to break ACE 55 in case Mexico did not accept the terms proposed by the South American giant. …

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