The Brazilian automotive parts industry is worried by two recent developments affecting trade with its neighbours Argentina and Mexico.

In the first, the government of Argentina is to revise the automotive agreement it has with Brazil to favour the local production of components. Secondly, imported parts from Mexico are on the increase. Valued at just $287m in 2010, they rose to $381m in 2011 and $537m last year. This latter figure is just half that of imported Argentinian parts, equivalent to 3.3% of total foreign auto parts used by the Brazilian automotive sector.

Increased trade in finished vehicles between Mexico and Brazil has already resulted in revised quotas being negotiated, something which Paul Butori, president of the National Association of the Automotive Component Industry, wants extended to parts and components.

He believes that Brazilian suppliers are faced with two distinct disadvantages. First of all, the current exchange rate favours imports. Furthermore, unlike 10-15 years ago, Mexican producers are benefiting from investment made in their industry by automotive companies in the US.

Traceability also needs improving, he said. In respect of Argentina, this remains a concern, since many components supplied from there could have come from producers in Asia. Similarly, Mexico has 62 free trade agreements with countries outside of NAFTA, which means it can also bring in pieces from other sources.

Within Brazil, the Inovar-Auto programme seeks to boost the traceability of parts used in local production and thereby reduce the number of imported goods, whilst at the same time stimulating local production. However, ways of undertaking the tracing have yet to be defined adequately.

Although the increased competition from Mexico is giving cause for concern, Brazil has much larger auto parts imbalances with the US, Japan, Germany and China, with the US Japan and Germany being the biggest automotive investors in Brazil in terms of both finished vehicles and parts.