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Potential and challenges of trade relationship between Brazil and Mexico

Over the last years, Brazil has made efforts to boost trades with Mexico through agreements to reduce or even eliminate import fees between the two countries. Moreover, Mexico has also shown interest to deepen commercial relationships with Mercosur, especially with Brazil. These efforts resulted in the Economic Complementation Agreement (ACE 53), established between Brazil and Mexico in August 2002, that eliminated or reduced tariffs between both countries for approximately 800 products. In 2002, two other agreements were stablished, ACE 54 and ACE 55, both in the Mercosur sphere.

 

More recently, Brazil and Mexico have promoted negotiation rounds to widen and deepen the ACE 53. The need to further commercial partnerships became more urgent for the Mexican government due to the revocation of the Transpacific Partnership by the North-American government and threats of changes in Nafta (North-American Free Trade Agreement). As a result, Brazil and Mexico have reinforced the importance to improve the commercial relationship and investments between two major economies in Latin America. There are discussions regarding access to markets and rules of origin, as well as negotiation of trade facilitation, services and investments, health and phytosanitary measures, governmental purchases, technical barriers to trade, intellectual property, regulatory consistency, competition policy and trade defense.

 

Trades between the countries have increased over the last years; nevertheless, the share of Brazilian sales in total Mexican importations was only 1% in 2015. Likewise, Brazilian purchases accounted for roughly 1% of total Mexican exportations and amounted 4.4 billion dollars in that year, which shows that there is room to strengthen the commercial partnership between the two countries.

 

Data of the Ministry of Development, Industry and Foreign Trades indicate that, between 2000 and 2016, Brazilian shipments to Mexico increased 128%, while Brazilian importations of Mexican products rose 368%. The value of products that Brazil imported from Mexico jumped from only 754 million dollars in 2000 to 3.5 billion dollars in 2016. The trade balance, which was favorable to Brazil from 2000 to 2008, presented deficit between 2008 and 2015, indicating that Brazil is an important commercial partner for Mexico. Mexico is the seventh main destination for Brazilian products and industrial products account for 80%, approximately, of the Brazilian sales to that country – the main item are automotive vehicles.

 

However, many products should have their taxes reduced and agricultural products are important candidates in trades that are not yet in the agenda of purchases of Brazilian products by Mexico.

 

Regarding shipments of Brazilian agribusiness, in 2016, of 86 billion dollars of revenue generated, only 97 million dollars corresponded to sales to Mexico. The main Brazilian products sold to Mexico were cellulose, fruits and products classified as plant production, namely pepper and juice, among others. The preference to trade soybean, corn, sugar and meat (broiler, pork and beef) is from the United States. In 2015, Mexico spent more than 9 billion dollars purchasing soybean, corn, soybean oil, wood products, coffee, sugar and meat. More than 95% of Mexican importations of soybean, soybean oil and corn, besides 80% of sugar purchases and more than 80% of Mexican meat importations had the United States as origin.

 

Therefore, the possible deterioration of relationships between the two other countries that comprise Nafta will benefit the Brazilian agribusiness, one of the major suppliers of products that Mexico currently purchases from the United States. Besides, Mexico is an important purchaser of high-added value, namely wood, cellulose, fruits and meat. The volume of trades that Mexico might offer to the Brazilian agribusiness will depend on its commercial relationships with the United States, since there is a strong commercial dependency between the two North-American countries. Data on trades between Mexico and the United States show that, in 2015, the United States was the main origin of Mexican importations, at 188 billion dollars. Likewise, the United States was also the main destination of Mexican products and sales reached 291 billion dollars in that year.

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