When the leaders of all 33 Latin American and Caribbean nations met in Cancun last month, the focus of media attention was on their plans to launch a new hemispheric organization that would rival and perhaps eventually replace the Organization of American States (OAS) and allow the region to conduct its affairs independently of the U.S. and Canada. This was reported as a signal of Washington’s declining influence in the region, and of Latin America’s growing regional and global assertiveness. The media, however, neglected the far more consequential announcement of presidents Calderon and Lula da Silva that Brazil and Mexico had initiated negotiations toward a “strategic agreement for economic integration” between the two countries. If the negotiations succeed, which is by no means certain, the new accord has the potential to reshape the political and economic landscape of the Americas.
For the first time, a solid basis would be put in place for a serious economic relationship between Latin America’s two largest and most important countries—which together account for nearly two-thirds of the region’s economic activity. Although Brazil-Mexican trade has been growing at nearly 18 percent a year for the past 5 years, the volume is still minimal, representing about 2 percent of the overall trade of both countries. In 2008, U.S. trade with Mexico amounted to some $275 billion a year, and with Brazil about $40 billion; Mexico-Brazil trade is a paltry $9 billion yearly. A steady rapid expansion of commerce and investment would have important political consequences as well.
Ties between Mexico and Brazil have been cool and distant for many years. They have never been close partners on any front. That may not be surprising in view of the physical distances between the two countries and enormous gravitational pull that the U.S. exerts on Mexico. And the relationship took a sharp turn for worse when Mexico decided to join its economic future to the U.S. through NAFTA. Back in 1993 in Washington, Celso Amorim—then Brazil’s second highest international official and today its Foreign Minister—publicly declared that Mexico, which had just signed the trade accord with the U.S., was no longer part of Latin American, that it had tied its future to Washington. Brazil, in contrast, was moving in precisely the opposite direction in the aftermath of the Cold War, asserting its independence of the U.S., and developing a more diverse set of international relations. Amorim’s comment won neither him nor Brazil any friends in Mexico. And Mexico has more recently been irked by Brazil’s initiative to create a a Union of South American nations, which it has viewed as a means of further excluding Mexico from a role in Latin American affairs—and advancing Brasilia’s aspiration to become the uncontested leader of the region. Mexico’s support for the Latin American-wide institution launched in Cancun reflects its interest in forging closer ties to the region.
A Brazil-Mexico economic accord would could set the stage for far more constructive bilateral relations. It would establish a formal bond, with mutual obligations between the two countries. It would also give Mexico secure access to South America’s largest import market—and to those of neighboring economies. For its part, Brazil would enhance its economic access to the giant U.S. market (which explains, in part, the opposition of many Mexican entrepenuers to the accord and the general enthusiasm for it in Brazil’s business community). There is little question that investment flows—as well as trade—should expand rapidly once an agreement is signed.
With a Brazil-Mexico accord in place, nearly every Latin American country would be linked up through the existing network of shared economic and trade agreements. Brazil would tie Mexico to its Mercosur partners Argentina, Paraguay and Uruguay, while Mexico would bring Brazil closer to its NAFTA partners, the U.S. and Canada. NAFTA and Mercosur are two sets of countries that have so far been unable to build productive trade ties. A robust Brazil-Mexican economic relationship could become the cornerstone of a new attempt to forge a hemisphere-wide trade agreement to replace the currently hopeless negotiations for the Free Trade Area of the Americas (FTAA).
The Brazilian and Mexican negotiators still have a long and torturous path to reach agreement. The Calderon/Lula announcement in Cancun, however, suggest the two countries mean business. And it would be a triumph for both presidents, perhaps even more for Lula, since it would be Brazil’s first important trade agreement since signing the Mercosur pact in 1991. While Brazilian business groups appear eager to move forward, a major obstacle will be their Mexican counterparts, which seem to have little confidence in their ability to compete with Brazil.
If the negotiators are successful, they will probably do more for Latin American solidarity and integration than all of the current, highly publicized efforts to build new political arrangements.
