Why a trade agreement between these two rivals? To start, the possibility of completing the Doha round of the WTO is increasingly distant. It's necessary, then, to look for regional or bilateral agreements. Brazil has discovered that [economic] opening increases exports and that Mercosur has too many limitations to grow. Mexico, meanwhile, needs to diversify its markets, particularly after the crisis demonstrated the fragility of depending only the US, and Brazil is the largest economy in Latin America.I'd be interested to see a deeper economic analysis of this, but politically speaking, the broader macroeconomic benefits of Mexico diversifying its export markets make for a stronger argument than the benefits for the poorer Mexicans. The latter sounds strikingly like the promises from Nafta, which, to put it mildly, brought unfavorable results for the rural poor.
Brazil is an enormous country with 192 million inhabitants and a GDP of $1.6 billion (IMF, 2008), bigger even than that of Canada. It has had an average growth of 5 percent in recent years. Although it continues with a very closed economy (its foreign trade accouts for 24 percent of the GDP compared to 56 in Mexico), in recent years it has begun to open up. Brazil now imports $170 billion a year, but Mexico only has 2 percent of that market.
Despite what could be believed, Mexico is very competitive in industrial goods. Brazil, which doesn't suffer from the fragmentation of its land nor the judicial uncertainty of Mexico's rural areas, has its greatest advantage in its agricultural sector. An opening with Brazil would permit the price of food in Mexico to be lowered and thus benefit the poorest Mexicans.
Lula's enthusiasm is an unexpected opportunity that we must take advantage of, above all if Mexicans really want to diversify our foreign trade. We cannot just keep offering pronouncements on the issue. The best tactic to achieve it at this time is a free trade agreement with Brazil.
Tuesday, January 19, 2010
Trade with Brazil
Sergio Sarmiento makes the case for a Brazil-Mexico free trade agreement: