Mexico and Brazil renew auto trade agreement
By Adina Moloman
Sources: WSJ; Reuters; Sandler, Travis & Rosenberg Trade Report
Mexico and Brazil signed in 2012 a vehicle trade agreement, which limits the automotive trade between Mexico and Brazil under an annual quota system. The agreement expired on March 18th, 2015. Since Brazil has refused to sign a free-trade agreement because of its current vehicle trade deficit with Mexico, the two countries got to a new understanding of extending the agreement for another four years. The differences between the old and the new agreement are the quotas and the percentage of regional value content requirements for the auto parts trade; the amount included in the new agreement is lower than that of the outgoing one. The new deal is handling an initial amount of $1.56 billion. The agreed scheme for the next four years plans to increase that initial amount by 3% every 12 months, rising to $1.6 billion in the 2016-2017 period; then to $1.65 billion in 2017-2018; and to $1.7 billion in the 2018- 2019 period.
The same agreement referring to the trade in light-duty motor vehicles and auto parts was signed by Mexico also with Argentina.
The auto parts trade, which includes the spare parts, too, was also reviewed. The new requirement concerning the auto parts is stipulating a 35 percent regional value content requirement and the obligation to reach 40 percent by 2019. The previous agreement stipulated a 50 percent regional value content requirement or the auto parts have had to meet the tariff shift requirement. This year, most auto parts are only subject to a regional value content requirement of 18 to 20 percent. Products like steering wheels, seat belts and shock absorbers are subject to a 20 or 30 percent regional value content requirement until 2017. Spare parts will have to meet the 35 percent regional value content requirement.
Brazil registered last year an automotive trade deficit with Mexico of $1.69 billion. The automotive Sector manufacturing in Mexico is in its peek and has flourished in the last ten years.
Brazil is the first auto trade partner of Mexico in Latin America but in volume the units exported to Brazil are less than 5% of the vehicles exported to US and Canada in North America. In fact, Mexico exported around 11,000 vehicles in the first two month of this year, compared with nearly 355,000 vehicles exported to the U.S. and Canada. Mexican vehicle exports to Brazil are loosing 15% this year compared with 2014 and down by almost 60% to Argentina. On the other hand Mexican vehicle exports to the U.S. were up nearly 12% and to Canada by 36%.
