By Anthony Boadle
BRASILIA (Reuters) - Latin America's two largest economies should be expanding rather than curbing trade flows, Mexico's President-elect Enrique Pena Nieto said on Thursday in veiled criticism of a Brazilian restriction on Mexican car imports.
Brazil modified an auto pact with Mexico in March to slap a quota on surging imports of Mexican-made cars, a move that many saw as a return to protectionist policies of the past.
Mexico agreed to cut its auto sales to Brazil to about $1.55 billion a year between 2012 and 2014. Vehicles within quota can enter Brazil tax free; those above quota are subject to a 35 percent tax.
Brazil ran up a trade deficit with Mexico largely due to the imports of Mexican cars, causing tensions in their trade ties.
The solution to the commercial dispute, Pena Nieto said after a meeting with Brazil's President Dilma Rousseff, is to increase commerce, create new incentives and achieve a more balanced trade by increasing Brazilian exports to Mexico.
"That's the way to go: instead of limiting trade we should widen it," Pena Nieto told reporters.
Reuters reported on Wednesday that Brazil is considering raising the quota, potentially allowing Mexican exporters to sell around $350 million worth of additional vehicles to the Brazilian market annually.
A spokesman for Brazil's Trade Ministry did not confirm or deny the report, but said no negotiations were under way with Mexico on the issue and, in any case, such talks would not happen until Pena Nieto takes office on December 1.
Latin America's two largest nations are trying to beef up their two-way trade, which amounts to just 2 percent of their total foreign trade.
Brazilians have been buying up more expensive cars manufactured in Mexico, where the auto industry produces top of the line models aimed at the U.S. market, while Brazil's industry has focused on the expansion of the popular consumer market with cheaper models.
Even Rousseff and two members of her cabinet, Finance Minister Guido Mantega and Trade Minister Fernando Pimentel, ride in Mexican-made Ford Fusions, government officials said.
Brazil resorted to the quota after the value of Mexican car exports jumped 70 percent in 2011 to $2.4 billion, aggravating a glut of cheaper imports that hurt Brazilian manufacturers.
The auto quota killed the latest efforts by the two countries to negotiate a free-trade accord joining the most powerful economies in Latin America.
Business lobbies are hopeful the two countries, after some 15 years of trying, could take steps toward agreeing a joint free-trade deal under Pena Nieto.
(Additional reporting by Ana Isabel Martinez in Mexico City; editing by Mohammad Zargham)