After intense negotiations in support of the automotive industry in Mexico, Economy Minister Ildefonso Guajardo Villarreal recently signed an agreement in Rio de Janeiro with the Brazilian government to amend the Economic Supplement Agreement 55 (ACE 55, by its initials in Spanish). Arturo C. Porzecanski, an economist at the American University, agrees that it does not make much sense to think that Mexico and Brazil will negotiate a full-fledged bilateral free trade agreement. “I`m very wary [of a free trade agreement that never happened] because Mexico is inextricably linked to the United States. The fundamental problem for Mexico, he adds, is that the country is “very connected to the North American market and that Brazil has trade problems with the United States. It is impossible for Mexico to sign an agreement with Brazil without complicating relations between the United States and Mexico. In addition, Brazil has taken a hard line to target its agricultural subsidies in the United States. It would be very difficult to reconcile the commercial interests of Mexico and Brazil if the rhetoric between the United States and Brazil were not dropped. Nevertheless, Porzecanski believes that Mexico and Brazil may be able to conclude some small reciprocal agreements, for example in the automotive sector. Mexico has been trying to diversify its trading partners since U.S. President Donald Trump warned of the possible death of the North American Free Trade Agreement (NAFTA), which has supported Mexico`s foreign trade for a quarter of a century.
Since 2012, Mexico`s fast-growing automotive sector has faced trade restrictions with Brazil and Argentina, whose governments have tried to protect local production. The amendment agreement to ACE 55 will enter into force on 19 March 2015 and Mexico, the only such agreement in Brazil with a country that is not a member of MerCOSUR, will retain privileged access to the Brazilian automotive market. The agreement will guarantee duty-free access for the export of light vehicles from Mexico to Brazil as follows: Marcos Troyjo, Brazil`s deputy economy minister, said Brazil had formally begun free trade negotiations with Mexico, which was able to ratify a trade pact with the United States and Canada in June to replace the North American Free Trade Agreement (NAFTA). Mexico`s proximity to the United States and Canada has created a vast North American logistics centre that provides easy access and access to goods for all three countries. The North American Free Trade Agreement (NAFTA) stimulates trade between the three countries by removing tariffs on products with a 60% rule of origin in North America. Mexico`s main exports to the United States and Canada are automotive, auto parts and electronics. These exports are due to two- and three-way trade, in which more than half of the materials used in the products came from a NAFTA country. This form of trade has increased the GDP rates of the three countries over the past 23 years.
As agreed, the ACE 55 amendment will set the following obligations: I) duty-free export quotas and quotas for light vehicle trade; II) Maintaining the 35% of the rules of origin for auto parts and light vehicles at 40% by 2019, which will promote greater productive integration; III) for a four-year term (March 2015-March 2019); (IV) the postponement to 31 December 2018 to agree on the terms, quotas and deadlines for the free movement of heavy vehicles; and V) the return to free trade from 19 March 2019. SAO PAULO (Reuters) – Brazil and Mexico have begun talks on a free trade agreement, officials said on Monday, aiming to deepen trade relations between Latin America`s two largest economies as trade tensions threaten to undermine global growth.