Mexico and Brazil reach light-vehicle free trade deal

Mexico and Brazil reach light-vehicle free trade agreement (FTA). Mexico’s government said it had reached an agreement with Brazil on the free trade of light vehicles, subject to a 40 per cent regional content requirement, paving the way for more open commerce between Latin America’s two biggest economies.

The agreement took effect on Tuesday and the content requirement would be subject to current formulas for calculation, the economy ministry said in a statement. The statement did not provide details on the formula.

Mexico has been seeking to diversify trading partners since US President Donald Trump warned of the possible death of the North American Free Trade Agreement (NAFTA) that has underpinned Mexico’s foreign trade for a quarter-century.

The economy ministry said Mexico racked up a trade surplus in the auto sector with Brazil worth $868 million last year, three times the total recorded in 2017.

Brazil’s auto industry is protected by subsidies and import taxes. Antonio Megale, president of automotive sector trade group Anfavea, told newspaper O Estado de S Paulo he would have preferred to delay the free trade agreement by three years.

Announcing new investments in Brazil on Tuesday, Carlos Zarlenga, General Motors’ top executive for South America, said the Brazilian industry was competitive and benefited from its scale, but noted that taxes were so high that 50 per cent of the automaker’s revenue in the country was spent on taxes.