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Brazil-Mexico : Free trade to reduce dependence

IPS | 17 August 2009

BRAZIL-MEXICO : Free Trade to Reduce Dependence

By Fabiana Frayssinet

RIO DE JANEIRO, Aug 17 (IPS) — Presidents Luiz Inacio Lula da Silva of Brazil and Felipe Calderón of Mexico agreed Monday to explore the possibility of a free trade agreement as part of a strategy to reduce their dependence on the industrialised world.

"A market of 300 million people is better than one of 110 million, in the case of Mexico," Calderón said at the end of his meeting with Lula in Brasilia, the capital.

He also underlined that the two nations together represent half of the territory of Latin America and 70 percent of the region’s GDP. Mexico has a population of 107 million while Brazilians number nearly 190 million.

"Our heavy dependence on the American economy explains why Mexico was hit so hard by this global crisis, whose epicentre is in the United States," said Calderón, explaining his aim of diversifying trade and intensifying his country’s relations with Brazil.

According to the Mexican leader, the crisis makes it more than ever necessary to strengthen and expand trade agreements among developing countries. "It is foreseeable that growth will not come from the developed economies. It will come from emerging economies like China, Brazil, India and Mexico," he said.

At the press conference offered after the meeting between Lula and Calderón, the Mexican president reiterated his interest in signing a free trade deal with Brazil in the future – a possibility to which he also made reference Saturday while addressing a meeting of members of FIESP, the industrial federation of Sao Paulo, the country’s industrial heartland.

When the proposal was originally set forth by FIESP, Calderón responded "with great interest."

"We have to overcome our fears and prejudices, which is why I am proposing this bilateral accord to the business community and economic, political and social sectors in my country," he said.

According to Brazil’s Foreign Ministry, bilateral trade stood at 7.4 billion dollars in 2008, with a 1.16 billion dollar trade surplus in favour of Brazil.

By contrast, trade between Brazil and Mexico amounted to just 2.5 billion dollars in 2000.

The presidents stressed that Mexico’s investments in Brazil – its largest in Latin America – reached 16 billion dollars, while Brazil’s investments in Mexico totaled 2.0 billion dollars.

Pointing out that trade with South America’s giant represents a mere one percent of Mexico’s total trade with the world, Calderón said this was "inconceivable" for "such large economies, with similar per capita incomes and somewhat similarly sized economies."

"Although Brazil is our main trading partner in the Latin American region, it is only the seventh in relation to the rest of the world," said Calderón.

He said the expansion of trade brought benefits to all concerned : "It is better for consumers, who can choose better products and lower prices. It is better for businesses, which can choose better inputs and gain access to other markets."

But he added that there are many hurdles standing in the way of a free trade agreement with Brazil - "some ideological ; others caused by a lack of information on Brazil and its potential" – that must be overcome.

To start moving in that direction, the two leaders committed to "deepening trade relations and investment" between Brazil and Mexico, Latin America’s first and third largest countries in territory and first and second largest in population.

Emphasising that "Brazil and Mexico are Latin America’s two biggest economies," the presidents instructed the relevant authorities to meet shortly to draw up a timeline and terms for negotiations.

The objective, as Lula and Calderón stated in their final communiqué, is "for bilateral economic relations to be in line with the potential of our markets."

Their teams have been instructed to "explore all options for expanding trade and investment, including the possible negotiation of a free trade accord," the final statement says.

Lula also noted that Brazil’s imports from and exports to Mexico still represent only a tiny share of this country’s foreign trade, and that the preferential trade agreements signed by the two countries so far have been "restricted and limited."

The Brazilian leader said as well that he was interested in expanding trade with Mexico – an aim that he said would be reinforced by an extension of the association agreement between Mexico and the Mercosur (Southern Common Market) trade bloc made up of Argentina, Brazil, Paraguay and Uruguay, with Venezuela in the process of becoming the fifth full member.

"This crisis has demonstrated that the more we diversify our trade balance and interact with other countries, the less dependent we will be on one single economy. Brazil no longer depends solely on the United States or the European Union," said Lula.

He said his dream is a "Mexico with a greater focus on Latin America and a Brazil more focused on Central America, the Caribbean and Mexico."

In an interview with IPS, José Augusto de Castro, president of Brazil’s foreign trade association, discussed the importance of an eventual free trade treaty between Latin America’s two largest economies.

"This is of interest to both countries," said Castro. "On one hand, 80 percent of Mexico’s exports go to the United States, and an agreement like this would reduce its dependence on that country."

On the other hand, "Brazil would gain access to a market with a high level of purchasing power and consumption like Mexico’s, which is today basically supplied by the United States," he added.

"Mexico could sell Brazil products like those of its powerful petrochemical industry," he said.

But he clarified that a free trade agreement would only be possible with the go-ahead from Mercosur, according to agreements signed within South America’s main trade bloc, "which prohibit isolated bilateral accords."

Mexico already has a free trade deal with Uruguay, which the rest of the Mercosur members allowed the small South American country to negotiate.

"A broader agreement would have to be ok’d by Mercosur," said Castro.

Over the last few days, Brazil and Mexico signed agreements for cooperation in biotechnology and nanotechnology.

But they have so far failed to fulfill the aim of expanding accords for cooperation between their state oil giants, Petrobras and Pemex.

On a visit to a Petrobras R&D centre in Rio de Janeiro Sunday, Calderón said he hoped Pemex could make use of the Brazilian oil giant’s experience in biofuels through an expansion of technology-sharing agreements.

The Mexican leader noted that while Pemex’s production is dropping, Petrobras hopes to become one of the world’s largest oil companies in the next decade.

According to figures provided by the Mexican delegation, Pemex’s output of crude has fallen from 3.3 million barrels a day in 2004 to 2.5 million this year. Petrobras, on the other hand, plans to increase production from 2.7 million barrels a day this year to 5.7 million in 2020.

On the political front, the two presidents reiterated their condemnation of the Jun. 28 coup that overthrew President Manuel Zelaya in Honduras and said they would continue to work together at the international level to bring about the ousted leader’s reinstatement.

They also said they would not accept the results of any elections overseen by the de facto government in Honduras. "We will not accept attacks on the constitutional order," Lula stated.

Calderón’s visit to Brazil is part of a regional tour that also included Colombia and Uruguay.

 source: IPS