UPDATE 3-Mexico to drop WTO suit after auto pact with Argentina

Fri Dec 14, 2012 4:55pm EST

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* Argentina to buy up to $600 mln in Mexican cars per year

* Argentina had $1 bln car trade deficit with Mexico in '11

MEXICO CITY, Dec 14 (Reuters) - Mexico said it would drop a complaint over import curbs against Argentina before the World Trade Organization after the two countries signed a more limited automobile trade pact.

Mexican economy minister Ildefonso Guajardo said the country would withdraw its complaint over Argentina's trade restrictions, which also have drawn challenges from the European Union, the United States and Japan.

"We have instructed our ambassador before the WTO to withdraw the request from a dispute panel," Guajardo said in Mexico City. "We also communicated this to the countries that had accompanied us in the process."

The WTO dispute centers on import licensing rules, which critics say amount to a blanket restriction on imports, and is a separate issue from the countries' recent spat over automobiles.

The auto trade deal announced on Friday cuts the number of cars that Mexico can ship duty-free to Argentina. Under the new three-year accord, Argentina will buy up to $600 million in Mexican cars tariff-free per year.

The new deal "reduces the amount of cars imported from Mexico by about 33 percent, and should restart the flow of trade between the two countries," Argentina Industry Minister Debora Giorgi said, speaking to Argentina's Radio Continental.

Argentina pulled out of a previous auto trade pact with Mexico in June after Brazil, the region's biggest economy, negotiated a cut the number of vehicles it was importing from Mexico. Global automakers have ramped up operations in Mexico in recent years, lured by lower costs.

Argentina had served notice in March that it planned to seek more favorable terms in the pact with Mexico, known as ACE-55, aiming to follow in the footsteps of Brazil.

Mexico refused to renegotiate with Argentina, however, leading to the South American country pulling out of the auto pact in June and a general deterioration in trade relations between the two countries. In August, Mexico complained to the WTO over trade restrictions in Argentina.

Argentina had a $1 billion deficit in vehicles trade with Mexico in 2011. Volkswagen, Renault, Nissan, Honda and Chrysler had all increased shipments to Argentina from plants in Mexico.

The South American grains exporting country has been tightening controls on imports and foreign-exchange purchases to improve its balance of trade, which is crucial to boosting the international reserves it uses to pay government debt.

Last week, the European Union and the United States formally requested a WTO dispute panel rule that the South American country's import restrictions are illegal.

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