Brazil (Mercosur) and Mexico have just signed their first free-trade accord for the automobile and light commercial sector, without any quotas or values and zero duty.
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It is an important landmark, though there is no absolute freedom at the Argentine borders, with that postponed three times already.
The deal assures that Brazil may sell cars freely to Mexicans, and vice-versa. The Mexican automakers currently lack a range of compact models to attract Brazilians yet the possibility exists.
The Mexican Ford Fusion (different from the Brazilian EcoSport model loosely based in the European Fusion) is competitively priced and selling very well in the US and Volkswagen Mexico also builds the Bora, Jetta and New Beetle; DC has the Dodge Ram and Chrysler PT Cruiser, and the medium-sized Sentra and Tiida have been confirmed for 2007 export by Nissan.
GM is thinking about shipping the nostalgic Chevrolet HHR estate and Avalanche pickup truck from Mexico, although both have a limited market in Brazil.
Brazil has the apparent advantage to begin with but Mexico has signed more than twenty trade accords with several countries, Japan included. The Japanese brands are investing heavily there, with a firm eye on the American market, and the new FTA means that they can export here as well. That should keep the Brazilian automakers alert for product updates and cost reductions, and keeping competitive export-wise.
Negotiations with South Africa are somewhat stalled but, if they move ahead eventually, other duty-free models may dock in Brazil. BMW, Mercedes and Volvo are all made in that country and their products come to Brazil from Europe and are taxed at 35%. The necessary changed from RHD to LHD to would barely increase prices.
As for European Union free trade, an accord likely will take longer, as the agricultural issue is a hindrance.
Fernando Calmon
