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Mexico-Brazil FTA Eyes Zero Tariffs for Heavy Vehicles by 2023

By Alessa Flores | Mon, 06/29/2020 - 13:11

The commercial relationship between Mexico, the US and Canada is not the only one under the spotlight. The federal government is also seeking to connect Mexico with Brazil to boost the automotive sector. "Among the objectives that the federal government has is to sign an FTA with Brazil, a desire that would complement the two largest economies in Latin America," explained an article from El Economista.

Miguel Elizalde, President of the National Association of Bus, Truck and Tractor Trailer Manufacturers (ANPACT), proposed the Ministry of Economy to allow the exchange of trucks and buses between Mexico and Brazil under ACE 55 for three years. Prior to this proposal, both countries trade interactions were driven by a treaty signed in 2002, which according to El Economista, complicated the commercial flow between both countries considering it did not eliminate all trade barriers. Minister of Economy Graciela Márquez accepted the proposal with the intention of "maximizing the opportunities that open up with the USMCA."

According to data from the CIA World Factbook, Brazil is a country with an estimated population of more than 211 million people. Approximately 43.83 percent of its population is around 25 to 54 years old. The country has an estimated GDP of US$3.248 trillion, according to the World Bank, and is among the Top 10 global economies. Mexico is not far behind. The country has a population of more than 128 million people and 41.06 percent of its population is between 25 to 54 years old. Likewise, GDP is estimated to be around US$2.463 trillion and is among the 15 largest economies in the world. 

The lowering of tariffs is expected to help both countries increase their commercial activity. The Ministry of Economy and ANPACT will seek to reduce tariffs gradually. "The idea is that by 2021, tariffs will drop to 16 percent, then to 12 percent, 6 percent and finally to 0 percent in July 2023,” explains the article from El Economista. In addition, special conditions regarding regional content were already implemented for the models launched between April 2018 and December of 2019. 

The automotive industry, according to an investigation conducted by the Electronic Journal of International Business, explained that both Mexico and Brazil have an automotive industry that directly impacts economic growth. The difference is that in recent years, Brazil has focused its attention on strengthening the domestic market, while Mexico has given priority to the export market.

The regional conditions of both countries will play an important role in the road to recovery after COVID-19. Guillermo Prieto, President of the Latin American Association of Automotive Distributors (ALADDA) explained in an article for MBN that "the unprecedented global pandemic caused by the COVID-19 virus has led to a deterioration of the global car market. Latin America is no exception. The specific economic factors of the region, such as a lower GDP per capita, higher rates of informal economy, corruption and a fragile rule of law, will certainly represent a greater challenge for the region's auto industry."

Prieto believes auto production has been through a hard time. “In pre-pandemic times, the combined production between Mexico and Brazil, Latin America’s top producers, was above a million cars per month. That fell more than 90 percent in May,” says Prieto. In the case of Brazil, April was the hardest for the automotive sector, but the future looks promising as the country sails out of the pandemic. According to Trading Economics, car production in Brazil jumped 2,234.4 percent from April to May from an all-time low of 1,800 units, as some factories restarted operations after shutdowns.

In the case of Mexico, car production fell 93.68 percent annually, while exports decreased 95 percent compared to last year, revealed a note from Milenio with figures from INEGI. In addition, INEGI recorded that the automakers went from producing 3,722 units in April to 22,119 in May. In comparison, even during the pandemic, Brazil was still producing more cars than Mexico throughout May for a total of 43,100 units.

The data used in this article was sourced from:  
CIA World Factbook, ALADDA, El Economista, Milenio, INEGI, Trading Economics
Photo by:   Freepik
Alessa Flores Alessa Flores Senior Journalist and Industry Analyst