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While Brazil Waffles on FTA Mexican Exports Surge

"See, it's a win-win"

In November 2010 the presidents of Latin America’s two largest economies pledged to hash out a free trade agreement. Per logic, Mexico has a consumer class of 100-plus million, Brazil twice that: each country stands to benefit. Yet free trade by numbers went out of vogue in the 1990s. Still, each country had implicit motives.

Brazil sought regional domination. Since 2002 President Lula da Silva had set about establishing Brazil’s sphere of influence—first over the Southern Cone, then all of South America—but Mexico wasn’t brought to heel. Mexico’s interests appeared more earnest: credit-happy Brazilians ripe for Mexican made cars, dishwashers, and the like. As a secondary boon Mexico’s state-owned oil company, Pemex, could benefit from closer collaboration with Petrobras, Brazil’s cutting-edge energy giant, which is known for its work in offshore exploration and green technology.

But only one country is advancing toward its goals.

Brazil is cooling toward the idea of a bilateral trade agreement. Last week Mexico’s Foreign Minister Patricia Espinosa acknowledged that Brazil was dragging its feet. A Mexican undersecretary told Bloomberg that Brazil’s “tariff barriers” have held up progress.

This shouldn’t come as a surprise. Talk of the bilateral agreement quickly went mum after the meeting between Lula and Calderon in Brazil. And all technocratic hands are on-deck to rein in Brazil’s strong currency, the real, so devoting eyes toward such a far-sighted issue as a trade agreement is a bit of luxury that Brasilia can’t afford. But free trade—that dastardly law of economics that entails systematically cutting tariffs on domestically produced goods for the mutual benefit of all societies involved—simply hasn’t been in the marrow of a Brazilian president since Cardoso. In fact, Brazil’s average tariff rate has marked time in the twenty-first century.

While Brazil dithers, Mexico’s trade surplus is growing: in the first seven months of 2010 Mexico exported $19 million more goods to Brazil than it imported; this year the surplus is $478 million, a 25-fold increase.

Mexico may benefit in the short-term, but it still wants formal trade ties with Brazil. This, too, shouldn’t come as a surprise. Free trade is as central to Mexican democracy as mole is to Mexican cuisine. In fact, Mexico, along with the likes of Chile and Israel, is among the world’s biggest free traders: over 90 percent of the country’s trade comes through formal trade agreements. Free trade, as much as any other factor, has made Mexico a middle-class country. Mexican policy hands know this. They also know that relying on trade with one country, the United States, is no longer enough.

Calderon still wants to sign a trade deal before his term is up next year. That seems unlikely with Brazil. Peru, on the other hand…a trade deal with that country is likely to pass Mexico’s Senate this year.

 

Author

Sean Goforth
Sean Goforth

Sean H. Goforth is a graduate of the University of North Carolina-Chapel Hill and the School of Foreign Service at Georgetown University. His research focuses on Latin American political economy and international trade. Sean is the author of Axis of Unity: Venezuela, Iran & the Threat to America.

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