The following article examines the current dispute between Mexico and Brazil over trade in cars. It explains how the Brazilian government gives priority to supplying the country’s domestic market, whereas Mexico sees its car industry as a component of the global supply chain. Due to its high local content, Brazil’s carmaking industry is considered to be more integrated and thus complains that Mexico does not respect the current requirement for 30% local content. But Brazil’s protectionist measures come at high costs for the country. For instance, Brazil’s manufacturing share of GDP fell from 17.2% in 2000 to 14.6% in 2011, and its locked in a series of protectionist trade agreements with Argentina through Mercosur.
The Economist, 3/10/2012
Officials from Brazil and Mexico are arguing over the future of a 2002 agreement that allows free trade in cars between them. For a decade it worked as it was meant to, and to Brazil’s advantage, by encouraging carmakers in Mexico to specialise in larger models and those in Brazil to make smaller ones. But last year Mexican exports under the accord grew by 40% to $2 billion, while Brazil exported cars worth just $372m. Brazil has cried foul. This apparently petty dispute says much about how Latin America’s two biggest economies think about trade and industry.
By throwing open its market under the North American Free-Trade Agreement (NAFTA) with the United States and Canada and a host of other bilateral trade accords, Mexico has become a base from which carmakers export to both halves of the Americas, and worldwide. Volkswagen, for example, makes all its Beetles and Jettas there. Although Nissan produces some vehicles at a Renault plant in Brazil, most of those it sells in Latin America come from two plants in Mexico. In all, 2.1m of the 2.6m vehicles produced in Mexico last year were exported.