Long-time reader Daniel Vazquez offers some insights on the Mexico-Brazil auto trade dispute discussed by the WSJ a little while back:
After reading this article there are several issues that come to mind. First, why did Mexico give up the fight in the first round? It is understood that the auto industry is a powerhouse in Mexico and that exports to the Brazilian market are sizable. Yet, giving in to Brazil’s demands so soon and not trying to enforce those rules through all possible means just opens the door to so many other issues, such as potential new request for fixes from other countries. Argentina, in fact, already asked to revisit its trade agreement with Mexico in autos.
Second, why not include, along with withdrawal clauses, “fixing/rebalancing clauses”? Adding those clauses will at least bring more predictability to the framework, if they are clear and well structured. Opening and closing an agreement because of circumstances similar to those cited above, totally destroys the predictability that trade frameworks are suppose to provide.
Third, perceptions. More analysts will agree with the view that Brazil is a less reliable –more protectionist—trading partner, which does not like to play by the rules. This might create more problems for Brazil as they try to engage in other negotiations.
Mexico, on the other hand, will be seen as weak, budging easily. TPP countries are following this saga from the sidelines. I wonder how they are adjusting now their negotiating playbooks after seeing how Mexico has dealt with this issue.
This arrangement between Brazil and Mexico is just bad policy for both.
Here's a brief excerpt from the article:
Mexico and Brazil reached a deal to limit the number of car exports from Mexico to Brazil for the next three years, ending a brewing trade spat between Latin America's two biggest economies.
Mexico agreed to limit car exports to Brazil to roughly $1.55 billion a year for three years, Mexico's Economy Minister Bruno Ferrari told reporters. After that, both nations would return to free trade in cars.
Mexico's car sales to Brazil last year totaled $2.1 billion. Mexico shipped 134,000 units to Brazil in 2011 compared to 53,000 units a year in 2009, leading to a trade surplus for Mexico of $696 million.
Mexico, long a steady exporter of cars to the giant U.S. market, has been sending an increasing number of cars 5,000 miles south, where a robust local economy and a high-flying currency have made imports attractive.
