Bloomberg News

Mexico to Limit Brazil Vehicle Exports Under Three-Year Pact

March 15, 2012

Mexico agreed to quotas on its vehicle sales to Brazil over the next three years, a move that will reverse a surge in Mexican auto exports to Latin America’s largest economy.

Mexican car exports will be capped at $1.45 billion over the year starting March 19 and will be allowed to rise to $1.64 billion by the third year of the agreement, Mexican Economy Minister Bruno Ferrari said yesterday during an event in Mexico City. All limits will be removed after the third year, he said.

“We achieved an agreement that is incremental, and an agreement that is temporary,” Ferrari said. “In other words, I think it’s something very beneficial for the industry.”

Brazil in February sought to revise a deal on car and truck shipments after the nation’s deficit with Mexico in auto exports tripled last year to $1.55 billion, according to Brazilian government data. The South American nation is working to strengthen an industrial sector hurt by a stronger real, which has climbed 29 percent against the dollar since the start of 2009, while the Mexican peso has appreciated 8 percent against the dollar during the same period.

Mexican cars would have faced tariffs of as much as 65 percent to enter Brazil if no agreement was reached, Ferrari said. Without the agreement “there would be no exports of Mexican vehicles to Brazil,” he said.

Brazil’s market has grown in importance for auto exporters, with 5.6 percent of Mexico’s vehicles sold abroad going to the South American nation in 2011, compared with 1.5 percent in 2007, according to information on the Economy Ministry website. The percentage of total vehicles going to the U.S. declined to 64.4 percent from 74.3 percent over the same period.

Mexican car exports to Brazil almost doubled in 2011 to 147,000 units compared to 78,000 in 2010, said Eduardo Solis, president of the Mexican Automotive Industry Association, or AMIA, at the same event yesterday.

Rising Imbalance

Mexico, Latin America’s second-largest economy, exported “about $2 billion” of vehicles to Brazil last year, Deputy Economy Minister Francisco de Rosenzweig said on the sidelines of the same event yesterday. That’s 27.5 percent higher than the quota established during the first year of the agreement.

The deal will also mandate that cars produced in both countries use a certain percentage of “regional” parts. This will be 35 percent in the first year and 40 percent by the fifth year.

Mexico registered a trade surplus with Brazil last year for the first time since a prior auto trade agreement known as ACE 55 went into effect in 2003, Mexico’s Economy Ministry said in a Feb. 28 statement.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net Adriana Lopez Caraveo in Mexico City at adrianalopez@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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