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Brazil and Mexico could be on the verge of creating a bilateral trade agreement, if President Felipe Calderon of Mexico gets his way. He recently urged lawmakers and companies to pursue a free trade agreement with the largest country in South America and the world’s 8th largest economy.

Mexico currently relies on the US as its largest trading partner, with 80% of its exports headed northward. Calderon hopes to diversify its trading by adding Brazil as a free trade partner.

Mexico, Latin America’s second-largest economy, has been especially hurt by the global economic crisis because of its heavy dependence on trade with its northern neighbor, Calderon said. Gross domestic product will probably contract 6.9 percent this year, the most since 1932, a central bank survey of 32 economists in July showed.

“Depending economically on only one region is inadequate for any country,” Calderon said after meeting with Brazilian President Luiz Inacio Lula da Silva. “Such dependency explains why Mexico was so affected in this crisis.”

Mexico’s state-run oil monopoly Petroleos Mexicanos, known as Pemex, will also form a partnership with Brazil’s Petroleo Brasileiro SA, Calderon said yesterday. Collaboration between the two countries’ oil companies, including more scientific and technological cooperation, could turn around falling oil production at Pemex, Calderon said.

Read the complete article at Bloomberg News.