The Mexican auto exports to Brazil, the biggest economy in Latin America, will be limited within the next three years. Mexico has agreed to reduce the exports to Brazil over the next three years in hopes of reversing the influx of models. For the year starting March 19, there will be a cap applied to Mexican car exports at $1.45 billion.
At an event in Mexico City, Mexican Economy Minister Bruno Ferrari said it will be permitted to increase to $1.64 billion by the third year of the agreement. And on the third year, all the limits will be removed. Ferrari said that the agreement reached is “incremental” and “temporary.” He said that this move would benefit the industry. Last February, Brazil aimed to revise a deal on car and truck shipments after a tripling of the nation’s deficit with Mexico in auto exports to $1.55 billion, according to Brazilian government data.
Brazil aims to strengthen a sector affected by a stronger real, which has gone up by 29% against the dollar since the start of 2009. On the other hand, the Mexican peso has risen by 8% against the dollar for the same period. Ferrari said that if no deal was entered, Mexican cars need to have tariffs of as much as 65% to enter Brazil if no agreement was reached. He said that without this deal, there won’t be any exports of Mexican vehicles to Brazil. Auto exporters have a growing appreciation for Brazil’s market with a 5.6% of Mexico’s vehicles sold abroad going to the South American nation in 2011, compared with 1.5% in 2007.
These data were taken from information on the Economy Ministry's Web site. For the same period, the percentage of total vehicles going to the U.S. declined to 64.4% from 74.3% over the same period. Eduardo Solis, president of the Mexican Automotive Industry Association (AMIA), was present during the event.
He said that in 2011, Mexican car exports to Brazil nearly doubled in 2011 to 147,000 unit. Meanwhile, this figure was down to 78,000 in 2010. Mexico, the second-largest economy in Latin America, exported about $2 billion of vehicles to Brazil in 2011, according to Deputy Economy Minister Francisco de Rosenzweig. This is 27.5% higher compared to the quota set during the first year of the agreement. Under the deal, cars produced in both countries have to use a certain percentage of “regional” parts. In the first year, the percentage is up to 35% while this has increased to 40% by the fifth year.