Is free trade between
When Mexican president Felipe Calderon met with Brazilian president Luiz Inacio “Lula” da Silva in
Two years later, that sort of optimism has been drowned out by a dispute over the fate of “
Over the first seven years of the agreement (2003-2009),
According to Brazilian sources, automotive imports from
These kinds of "managed trade" deals “are normal for
In one of the most promising ventures for bilateral cooperation, the Inter-American Development Bank recently approved a US$300 million loan to Braskem-Idesa S.A.P.I., a joint venture between
Monteiro adds that because
When it comes to the automotive sector, emblematic of industrial development, neither
Apart from high-value electronics, most automotive components used in Brazil’s plants are produced very close to the assembly location, where they can be delivered to meet the needs of the “just in time” manufacturing model. NAFTA made it possible for Mexican-based multinationals to build highly efficient plants that were scaled to serve much larger markets than simply Mexico’s domestic market, note Guillén and Monteiro. For Mexico-based vehicle exporters, the new caps imposed by Brazil may be a hard pill to swallow. “No other market in Latin America can compare with Brazil,” says Monteiro. “No other market has the same appetite. But Mexico will try to find a way to work with the restrictions and the [higher] local content requirements” that are part of the revised agreement. “The Mexicans accepted the caps because something is better than nothing.”
BETTING ON THE LONG TERM
According to Christopher Wilson, an associate of the Mexico Institute at the Woodrow Wilson Center, “By agreeing to limit exports of cars to Brazil for a three-year period, Mexico is betting on the long-term competitiveness of its car industry, and is aiming to convince automakers to continue investing in Mexican production.” Last year, Nissan, Mazda, VW, Honda, Chrysler and GM all announced investments aimed at increasing their production capacity in Mexico, with the goal of serving markets in both North and South America. “Mexico is accepting a short-term loss to protect its auto agreement with Brazil, hoping the new investments will ultimately bear fruit while Mexico regains its tariff-free access to the growing Brazilian market,” said Wilson.
Arturo C. Porzecanski, an economist-in-residence at American University, agrees that it makes little sense to anticipate that Mexico and Brazil will negotiate a full-fledged bilateral free-trade agreement. “I am highly suspicious [of an FTA ever taking place] because Mexico is inextricably linked to the U.S.” The fundamental problem for Mexico, he adds, is that the country "is very tied into the North American market, and Brazil has trade issues with the U.S. It is impossible for Mexico to sign an agreement with Brazil without complicating the U.S.-Mexico relationship. In addition, Brazil has taken a hard line on the U.S. dismantling [its] agricultural subsidies. [So] it would be very hard to reconcile Mexico-Brazil commercial interests unless you bring down the rhetoric in the U.S.-Brazil relationship.” Nevertheless, Porzecanski believes that it may be possible for Mexico and Brazil to conclude some small-scale reciprocal agreements, such as in the automotive sector.
Why, then, do the leaders of both Mexico and Brazil keep alive the dream of an eventual free-trade pact between the two countries? Guillén notes that Mexican president Calderon, who will end his six-year term this year, may be motivated by a desire “to do something big” before leaving office, rather than be remembered foremost as the man who raged a long – and possibly unsuccessful – battle against gangs of violent drug dealers in his homeland. “He would go down in history as having engineered a big deal with Brazil,” says Guillén. “On the Mexican side, it’s about Calderon and his legacy.”
Kotschwar argues that with Enrique Peña Nieto, the presidential candidate of Mexico’s PRI party, likely to take office later this year, Mexican trade policy could take a new direction from those pursued by Calderon, leader of the conservative National Action Party (PAN). How much Mexican policy will change under the next president “will depend on which arm of the PRI takes over” after Calderon leaves office -- either the populists or the pragmatists. “I don’t imagine that Mexico will go back to protectionism” after the country is once again ruled by the PRI, which ran Mexico for seven decades until it lost power in 2000, she adds.
When news of the revised agreement was announced, some Mexican trade analysts criticized their own government for being much too quick to cave in to Brazil’s demands for the restrictive new export caps. In the Mexican newspaper El Universal, columnist Alberto Barranco wrote, “At the same time that the United States, in one of its protectionist moves, is about to impose extraordinary [anti-dumping] duties on imports of refrigerators coming from [Mexico] and South Korea, Mexico is surrendering on all points to the demands of Brazil in order to maintain the
Meanwhile, Brazilian president Dilma Rousseff is having her share of political troubles at home. The Brazilian economy has recently slowed down, and eight of Rousseff’s ministers have resigned from office, including the ministers of cities, defense, transportation, agriculture, tourism, sports and labor. If Brazil were to conclude a major trade deal with Mexico, it would not only send a signal that Rousseff, who met with President Obama in the White House in mid-April, is a visionary leader, but that “Brazil is a big player” that can take bold new initiatives, says Guillén.
“Brazil wants to play a stronger role in the G20, the IMF and the World Bank,” adds Monteiro. “The more Mexico becomes a strategic partner for Brazil,” the stronger the image they both might project as leaders of an alignment bloc of emerging markets. If you look simply at the numbers that measure the Mexico-Brazil bilateral trade and investment relationship, “you are not very inspired,” adds Monteiro. “But if you think ahead, and assume that Brazil will continue to be a key player in the region, then Mexico can be a very important partner for Brazil. Most observers agree that Mexico is a very important player because of its size and its proximity to the United States.” In the mass media, Mexico’s importance is often ignored because of negative publicity about its domestic drug wars, as well as the fact that Mexico is not an official member of the so-called "BRIC" group of emerging markets. However, he adds, “There are a lot of fundamentals that will be there,” working in favor of Mexico over the long run.
Republished with permission from http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania