After five postponements, completely free trade amongst the Mercosur countries has again been delayed and will now not begin until 2013.
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Brazil heard Argentina’s complaints about differences between the two countries and the need for more time to attract investments.
In the latest accord, which maintains tax exemption for trade flow, the so-called ‘flex compensatory mechanism’ was altered. For each $100 of exports Brazil sells to Argentina, its neighbour may ship $250’s worth of vehicles and auto parts back to Brazil. And, for each $100 of Argentine exports, the Brazilian auto industry can ship $195’s worth across the border.
In practice, this is as much a safeguard than anything else as auto industry trade is fairly balanced under the current rules. Brazil has adapted well and production of some Chevrolet, Fiat, Renault and, most recently, Volkswagen models, totalling 100,000 units a year, has already been transferred to Argentina. And Honda will open a Fit (Jazz) plant there in 2009.
All this helps meet current strong demand for new cars here in Brazil by using neighbour Argentina’s excess capacity. To the end of July, Brazilian domestic sales were up about 30% compared to the same period of 2007: 2.86m units were sold in the last 12 months. Annual production has surged 22% to 3.34m.
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By GlobalDataThis Argentina-Brazil trade scenario could get complicated, however. During a recent seminar in São Paulo, Letícia Costa, president of the Brazilian subsidiary of Booz & Company, outlined uncertainties in the Argentine economy in an environment of rising inflation and problems with agricultural exports.
Nonetheless new investments continue to be announced. China’s Chery, through a partnership with Argentine group Socma, has promised $500m for a new plant in 2010 (it already has a low-capacity Uruguayan assembly unit). Chery has confirmed capacity of 150,000 units a year but has not yet announced the location.
With the failure of the recent Doha round of global trade talks, Brazilian automakers group Anfavea and its Argentine equivalent Adefa have teamed up to propose an action plan to the two principal Mercosur governments in the hope of agreeing on a series of automotive bilateral trade accords like those between Mexico and Chile. It is also possible that talks with the European Union will be reopened. Countries in Africa (Nigeria, Egypt), the Middle East (including Israel) and Asia’s Indonesia and Thailand, among others, are also being eyed.
Anfavea president Jackson Schneider told just-auto that an accord with South Africa had been close but had cooled off “for industrial reasons”.
“The impasse will not discourage us in looking for new partners, even in South America, though,” he added.
Fernando Calmon
