Alicia Bárcena, Executive Secretary of the Economic Commission for
Latin America and the Caribbean (ECLAC):

Mexico and Brazil: Towards a Shared Route

Photo: Lorenzo Moscia, ECLAC

Mexico and Brazil, Latin America’s largest economies, have begun bilateral conversations and internal consultations on exploring a Strategic Economic Association Agreement between them. The two countries have a total population of 303 million, contribute 81% of the region’s exports and represent 58% of regional GDP.

The fact that Mexico and Brazil are initiating a formal negotiation process is very positive for the region. In addition to strengthening trade and investment, this process will encourage integration and improve the global insertion of both countries.

An association agreement between Brazil and Mexico will help consolidate the good economic period Latin America is going through, in which it is rapidly recovering from the crisis, with economic growth expected to reach 5.2% in 2010. For Mexico, advancing towards an agreement is an opportunity to diversify its trade and investment partners and access Brazil’s enormous market. For Brazil, it means reaping from Mexico’s strategic position and its close trade relations with the United States.

Working towards this strategic association will consolidate the approximation between the two countries begun time ago with the implementation of three agreements that cover nearly 800 tariff lines and which helped Mexico become Brazil’s seventh trade partner and Brazil into the fifth market for Mexican goods. Despite the crisis, in 2009 bilateral trade reached US$ 5.4 billion, and these levels will rise even higher with the agreement.

Mexican investments in Brazil have reached US$ 17 billion, while Brazilian capital in Mexico is about US$ 1.1 billion. Recent data indicates that these figures will quadruple over the next few years and with the agreement, they could rise even higher. The agreement will strengthen regional capabilities in innovation and technology transfers in strategic areas, such as energy, manufacturing and agro-industry. This injection of resources will create synergies with Mexican capital to broaden and diversify its productive supply.

Mexico and Brazil have the 14th and 10th largest economies in the world, respectively. They have solid macroeconomic foundations, low inflation and moderate fiscal deficits. Their productive structures reveal complementarities in many sectors. They also share common challenges, such as poverty reduction, inequality, lowering external vulnerabilities and growing international competitiveness.

However, there are also productive, fiscal and other asymmetries. There are marked differences between them in the footwear industry and in some agricultural and agroindustrial sectors. Brazil has a tax burden of nearly 37%, while Mexico’s is almost 20 points lower and depends heavily on oil income. Brazil has a dynamic development banking sector and very active production support policies. The external sector in Mexico is equivalent to 56% of its GDP, while in Brazil it is only 22%. In the social sphere, the two countries have internationally-recognized poverty reduction programmes.

There are great expectations that this agreement will also promote regional development. The president of Brazil has said that “we need to bring our companies closer and diversify trade, focusing on new segments and business opportunities. The current negotiations to expand and deepen our bilateral trade agreement is a promising step in this direction.”

The president of Mexico has said that “Mexico is betting on foreign trade as an indispensable tool for growth and we are convinced that it is, moreover, the correct strategy.”

The trans-latins of Brazil and Mexico have embarked on a road to internationalization. The agreement would help small and medium-sized companies participate better in value chains and expand the regional market, improving the capacity and quality of jobs and income distribution. This association would create a critical mass of public and private interests to bring the two economies even closer.

We celebrate the start of the internal consultation processes in both countries with regard to the Strategic Economic Association Agreement. It will undoubtedly contribute to a renovated integration, greater trade and investment and more innovation and technological transfers. Although it is an excellent opportunity to advance towards economic modernization, the expected results in terms of growth, poverty reduction and less inequality are far from automatic. These require public policies that feed on the new boost to development the agreement will offer.