MEXICO CITY — Mexico enhanced its status this week as a global platform for automobile production--and as the hemisphere's most adventuresome free trader--by signing a trade accord with Brazil that will give its industry greater access to showrooms in Latin America's largest economy.
Although the deal initially calls for only 40,000 cars to be shipped each way, Mexican industry and government officials clearly hope it will lead to much higher volumes of vehicles and auto parts once a broader Mexico-Brazil trade pact is signed, perhaps later this year.
The deal is part of the ongoing globalization of auto production, a trend in which Mexico--which has no home-grown auto producers of its own--is playing a central role.
It reflects this country's aggressive efforts to attract foreign investment and open up a once-closed economy. In addition to the North American Free Trade Agreement it signed with the United States and Canada in 1993, Mexico will soon launch a free trade pact with the European Union. Mexico has bilateral free trade deals with six other Latin countries.
This week's pact also represents a major rapprochement. Bilateral trade between the two largest South American countries has withered since Brazil let a previous agreement lapse at the end of 1997 as it was entering severe economic difficulties. Trade between the two countries sank to only $400 million last year, down from $1.56 billion in 1996.
"Mexico is trying to diversify beyond its dependence with the United States. Trade has tripled with the United States since NAFTA but it has [vulnerability] if the U.S. economy decelerates," said Alfredo Coutinho, an economist at CIEMEX-WEFA, a Philadelphia econometrics firm.
Among the biggest potential winners from Monday's deal are DaimlerChrysler and Volkswagen, which operate major factories in both Mexico and Brazil. They said they plan to boost shipments to Brazil from current negligible levels. DaimlerChrysler will ship its successful new PT Cruiser model, made only in Mexico, while Volkswagen sees a fertile new market for its New Beetle.
The accord lowers tariffs to 8% on auto imports in both countries on a maximum quota of 40,000 vehicles shipped each way the first year, rising to 50,000 the second year. Currently, Mexico charges a 20% tariff on Brazilian cars, while Brazil levies a 35% tariff on those from Mexico. The high Brazilian tariff effectively had shut the door.
