Photo credit: Fiat Made in Brazil ~~~~ DSC04692a_hdr-ort by SantaRosa OLD SKOOL
It was 1921 when Buick established the first car production plant in Mexico. Over 90 years later, Mexico became the fifth export country for vehicles in the world, only behind the US. Now, Mexican automotive industry is playing a key role for OEMs, tiers and aftermarkets.
It appeared that nothing would stop Mexico from reaching the fourth place of exporters, but Mexico became victim of its own success.
During 2011, Brazil had a deficit of $1,170 Millions USD with Mexico and requested to renegotiate the terms of Complementary Economic Agreement No. 55 (ACE55), in particular the Appendix II for the Automotive Industry.
After some negotiations, on March 19, 2012, Mexico and Brazil executed the fourth protocol amending ACE55, and setting up the rules for allocating import/export quotas, as well as certain tariff preferences for HTS that will rule until March 18, 2015. Thereafter, free trade will return to full effect.
In Mexico, quotas were allocated to exporters complying with the following requirements: (i) minimum manufacturing volume of 40k new vehicles, (ii) registration of light vehicle manufacturer according to the Automotive Decree, (iii) investments of capacity for 40k new vehicles, (iv) exports to Brazil during last 2 years. The top quotas were allocated to Nissan ($90M USD) and Chrysler ($83M USD).
Argentina had a $1,000 Million USD deficit with Mexico during 2011, and threatened to negotiate an amendment to ACE55 last March 21. After rejection from Mexico, Argentina imposed restrictions to imports from all countries. In reaction, a group of 40 countries (Mexico included) are now presenting a filing before the World Trade Organization to enforce free trade.
Regardless of the fact that Brazil and Argentina are not big destinations of Mexican exports, in relation to the total exports, the truth is that such restrictions affect the global planning for OEMs, and other companies living around them (Tiers and aftermarket).
All Plants announced by OEMs in Mexico will not be cancelled but adjusted. It is early to know what will be the effect on Brazilian or Argentina automotive capitals at this moment, but restrictions on imports will not protect national investments. After all, capitals are like water, they will find a way to elude artificial barriers.