Brazil wants to reduce the dollar amount of vehicles that Mexico sells it duty-free, two sources told the Reuters news agency, a move that will raise tensions in upcoming trade negotiations between Latin America’s largest economies.
Mexican and Brazilian officials started talks on Friday (20 February) over an automotive treaty due to expire on 19 March. Mexico is pushing to increase trade as its auto industry booms, while Brazil wants to renew a quota on light vehicles that protects its struggling factories.
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The agreement, signed in 2012, calls for the free trade of vehicles after quotas expire.
“Brazil wants to lower the quotas as a way to reduce the deficit with Mexico,” said a Reuters source.
The source said Brazil wants to extend the quotas while it negotiates a broader free trade agreement including heavy machinery and food.
Another source said Brazil may seek a “marginal” reduction in the quota.
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By GlobalDataThe treaty allows Mexico and Brazil to sell each other up to US$1.64bn worth of vehicles a year. Exports above that amount are subject to tariffs of up to 35%.
Reuters said the long running dispute threatens to hurt the countries’ ties and shows the growing differences between efforts by Mexico to open up its market and actions by Brazil to protect its industry.
“For us, it is fundamental to return to free trade in March as agreed,” Mexico’s undersecretary of foreign trade, Francisco de Rosenzweig, told Reuters.
In an interview with Reuters last week, Brazilian trade minister Armando Monteiro said the country wants to renew the deal, leaving open the possibility of lower quotas.
A renewal of the quotas could threaten any efforts to open up trade.
“The renewal of the system goes against free trade and may hurt any ambitions to lock in a wider agreement,” Thiago Soares, a trade expert with Brasilia-based consultancy Barral M Jorge Associates, told the news agency.
Although Brazil remains one of the world’s five biggest auto markets, its industry has struggled with high taxes, infrastructure bottlenecks and rigid labour laws.
Output at Brazilian factories, most of them run by Fiat Chrysler, Volkswagen, General Motors and Ford, dropped 15% to 3.15m vehicles in 2014.
Meanwhile, Mexico’s auto industry is booming as demand grows in the United States. Output rose nearly 10% to a record 3.22m vehicles in 2014.
