Partner Perspectives

Brazil Beats Mexico 2 Goals to 1

4 MINS READMar 28, 2012 | 18:52 GMT

By Luis Miguel González, Editorial Director at El Economista (Mexico)

Some will say that the end result is not important because the most important matter to achieve was that the Mexican national team continued on the field.

The scoreboard reads 2-1 against the Aztecan teams.  Brazil got the two things for which it came to negotiate: Mexico will drastically reduce its auto exports and national content of the parts will increase from 30 to 40 percent.

Mexico was able to score a small goal.  It managed to save the Economic Complementation Agreement (ECA). To do this, Mexico accepts more than a 30 percent reduction in sales to Brazil.  Mexico sold US$ 1.4 bln to Brazil in 2011.  The former will have a limit of US$ 1.45 bln in 2012, US$ 1.56 bln in 2013 and US$ 1.64 bln in 2014.

Some will say that the end result is not important because the most important matter was to achievement that the Mexican national team continued on the field. The risk was real: Brasilia was ready to break the ECA 55 in the event that Mexico did not accept the terms proposed by the South American giant.  That was clear in the diplomatic letter sent March 9.

Mexico is weak and Brazil is strong?  That is the impression we are left with.  Brazil imposed the main terms of the agreement; Mexico could only affirms its position in the details.  Brazil’s initial position was to set limits to Mexican exports based on the average of the last five years (US$ 1.15 bln).  Also on the table was the aspiration of 50 percent Brazilian content.

The Mexican delegation failed to get the category of car parts included.  There is not evidence that it had tried.  Brazil has a surplus there and, probably, does not want to put it up for negotiation but until the Mexican industry gets a balance in its favor. Weakness or strength are relative and depend on the color of the crystal through which one views the situation.  In any case, here we are talking about intra-firm trade: Nissan, Volkswagon, Ford, Honda and General Motors are the protagonists in Brazil and Mexico’s automotive trade. For these international corporations, the important thing is to maintain their world factories operation.  The rupture of bi-national trade was not an option.  By whatever means, it is worth posing the question: Are the subsidiaries of carmakers in Brazil closer to the government than the subsidiaries of said carmakers in Mexico?

Brazil 2, Mexico 1.  The scoreboard generates a lot doubt for the future.  There are no guarantees that the Brazilians will abstain from pressuring on other matters in the event that they feel they can obtain new concessions.  The bilateral trade balance with Brazil annually totals about US$ 9 bln.  The automotive trade represents 45 percent of it.

It is not clear if it is worth trying to forge a Free Trade Agreement with Brazil or, on the contrary, it is a signal that Mexico has to look somewhere else. Mexico would fair well with a diversification of its foreign trade.  With 79% depending on the United States, this is not healthy, as demonstrated by the outbreak of the 2008 subprime crisis. We continue receiving pneumonia when Uncle Sam gets the flue.  Brazil is a tough nut to crack but it is also a partner to consider in the future: it has a grand domestic market and high prospects for growth in the future.  Oil is a natural area for collaboration, as is looking for solutions to a green economy.

Mexico 2, Brazil 1.  This scoreboard is desirable and possible to the extent that Mexico goes one step forward in the next negotiation.  Chess players know, the one who plays with white pieces has a slight advantage.

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