Brazil may increase auto trade quota for Mexico

After booming sales of Mexican cars in Brazil, the Brazilian government is considering raising the auto trade pact quota it agreed to with Mexico.

Brazil is considering raising a three-year bilateral auto trade pact quota it agreed to with Mexico in March, potentially allowing Mexican exporters to sell around $350 million worth of additional vehicles to the Brazilian market annually.

A Mexican government source familiar with the matter and a Brazilian official said the two sides had raised the possibility of increasing the quota after booming sales of Mexican cars to Brazil this year.

Companies in Brazil that import and sell cars are pressuring the Brazilian government over the trade quota, which was used up in the first six months of the modified pact, which took effect in March.

After breaching the limit, Mexican exporters must pay tariffs that significantly increase the cost of sales.

"We understand that they're interested in raising the quota, even though there still hasn't been any official contact," said the Mexican government official. "Our understanding is that they want to raise it to the tune of around $350 million."

The Brazilian official told Reuters that Brasilia was eyeing lifting the quota by between $300 million and $500 million.

Brazil drew an angry response from some in Mexico when it decided to change the terms of an existing auto pact to protect itself from surging vehicle imports from Mexico.

In the end, Mexico agreed to cut auto sales to Brazil to an average of about $1.55 billion a year between 2012 and 2014.

Brazil made the move after the value of Mexican car exports jumped around 70 percent in 2011 to $2.4 billion, aggravating a glut of cheaper imports that hurt Brazilian manufacturers.

Argentina afterwards tried to follow suit, though Mexico rejected the efforts by Brazil's smaller neighbor.

Asked on Wednesday if Brazil planned to raise the quota, a separate Brazilian governmentofficial said no talks were underway. Any possible talks would take place after incoming president Enrique Pena Nieto takes office in December, the official added.

Pena Nieto is currently visiting Brazil and is due to meet President Dilma Rousseff on Thursday.

Mexican exports to Brazil rose by 135 percent to some 109,000 units in the first six months of 2012. In dollar terms, this was a rise of around 112 percent to nearly $1.6 billion.

Additional reporting by Esteban Israel; Editing by Dave Graham, Simon Gardner and Lisa Shumaker.