Mexico, Brazil free trade talks under threat-minister

Reuters News

3/16/2012 8:12:06 PM - Reuters News

By Adriana Barrera

MEXICO CITY (Reuters) - Planned free trade negotiations between Latin America's two biggest economies are in jeopardy as a result of a dispute over auto exports, Mexico's economy minister said on Friday.

Mexico on Thursday ceded to Brazilian pressure to slash auto sales to the southern giant for the next three years, responding to Brazil's worries about its manufacturers, who are struggling with a stronger currency.

"Certainly (the dispute) was very difficult, it was an issue that created a lot of uncertainty," Economy Minister Bruno Ferrari told reporters.

"After this, it would seem irresponsible to talk about a (free trade agreement) until confidence has returned to the market and also to manufacturers in both countries, who are very worried because deals need to be honored," he added.

Mexico and Brazil in November 2010 announced the start of talks on economic integration. Both countries planned to discuss free trade in February 2012 but instead, Brazil announced its plans to revise a decade-old auto trade agreement.

Brazil made its demands after the value of Mexican car exports jumped by around 70 percent in 2011, aggravating a glut of cheaper imports that are hurting Brazilian industry.

"When...we've seen that we can meet our commitments and things are going well, we can undoubtedly go back and talk about (free trade)," said Ferrari.

The quota on auto exports from Mexico is the latest in a string of efforts by the Brazilian government to protect its industry. It is reciprocal, and free trade between the two nations will resume after the three years end, according to the agreement thrashed out in Mexico City.

Mexico will limit its auto exports to Brazil to $1.45 billion this year, a figure that rises to $1.56 billion in 2013 and $1.64 billion in 2014.

Brazil had initially asked Mexico to cut its annual exports to $1.4 billion per year for three years and raise the amount of Latin American parts used in Mexican-made cars to 35 percent in 2012 from 30 percent -- increasing gradually to 45 percent.

The deal means Mexico must still reach the 35 percent target in a year but will have four more years to reach 40 percent.

(Writing by Elinor Comlay; editing by Carol Bishopric)