Argentine and Brazilian trade officials will start talks next week to resolve a dispute triggered by Brazil’s move to delay import licences for foreign made cars, both governments said.
The Brazilian measure, part of new steps to protect local industries from a strong exchange rate, has alarmed Argentine car manufacturers, which send about 80% of their exports across the border to their larger neighbour, Reuters reported.
Go deeper with GlobalData
By WTO rules, Brazil can not cancel automatic import licenses for products only from Argentina. Thus, licences are valid for all countries wishing to export to Brazil. There have been suggestions, however, that the maximum period of 60 days would only be applied to Argentina and licences for other countries would be little affected or unaffected.
Brazil’s move means import licences for vehicles that were previously granted automatically may now take up to two months and Argentine media said about 3,000 vehicles had been stranded at border crossings.
Argentina’s industry minister met Brazil’s ambassador to Buenos Aires on Tuesday and arranged for talks next week between senior commerce officials “to resolve issues related to bilateral trade,” a government statement said.
After the meeting, a source in the Argentine industry inistry told Reuters officials from the two governments would meet on Monday and Tuesday in Buenos Aires.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThe Brazilian ambassador, Enio Cordeiro, told the news agency in Buenos Aires that “there is good will on both sides to come up with a solution.”
Argentine president Cristina Fernandez often points to the country’s fast-growing auto industry to highlight the brisk factory output that has helped fuel growth in Latin America’s third largest economy in recent years.
Local units of automakers including Fiat and Renault have boosted production over the last year in response to strong Brazilian demand. Car and parts exports to Brazil reached US$7bn last year.
“Brazil has struck where it hurts the most … the automobile sector is Argentina’s most dynamic industry and explains 70% of last year’s industrial growth,” Buenos Aires-based consultancy Analytica wrote in a briefing note cited by Reuters.
A healthy trade surplus is a pillar of Fernandez’s economic policy, but surging inflation and strong domestic demand have driven imports higher over the last year.
That prompted the government in March to increase by 50% the number of goods that require import licences, although officials sought to play down the impact on Brazil.
Argentina had a $3.1bn trade deficit with Brazil last year.
Brazil’s step last week fanned long-standing rivalries between the two biggest economies in South America, which dominate the Mercosur trade bloc that also includes Uruguay and Paraguay, Reuters noted.
just-auto Brazil correspondent Fernando Calmon writes: Complementary operation of the Brazilian and Argentine auto industries has worked fairly well so far with Brazil specialising in compact cars while Argentina makes mid-size cars and pick-up trucks, giving automakers better economies of scale.
But this has resulted in Brazilian-made vehicles taking some 50% of the Argentine market while their products barely cover 10% of car and light commercial sales here in Brazil.
The Argentines claim Brazilian automakers get financial help from BNDES (a Brazilian state bank) and preference for taxi fleet renewal programmes in this country. And the cost of Brazilian and Argentine-made auto parts is high.
Argentina last week dropped an import tax exemption for the Sentra and Tiida claiming that Nissan Mexico was not reaching the required level of local content in the cars.
Nonetheless, the Mercosur trade agreement would be infeasible without the auto industry as no other industrial sector has reached this level of integration. Reciprocal retaliation measures make durable goods trade difficult and are ill-timed when investors are eyeing the fast growing Mercosur region for expansion as established markets stagnate.
It is likely the situation will be resolved soon but Argentina’s move has fuelled the case here for those who feel Brazil would do better without Mercosur. Many feel it would be easier to reach trade accords with other regions of the world.
