Following a second, five-year postponement agreed in 2008, free trade within the MERCOSUR region for vehicles and parts will be postponed yet again beyond previously planned full liberation in July 2013.
Current practice is a regime called ‘flex’ to level off uneven factors between the two main countries of the regional block, but occasional crises have arisen.
Six months ago, new vehicles queued up at both sides of the Brazilian border. The impasse was solved after hard negotiations in view of foreign exchange troubles faced by Argentina.
In coming months tough negotiations will take place. Argentina has made proposals that don’t please the Brazilian government. One is creating a minimum, compulsory content of Argentine parts in cars produced in both countries which would be out of the spirit of a regional accord.
This would keep even more distant the third phase called common market, as previewed in a Mercosur time chart established in 1994. Free trade and customs union (the two first phases) has been working quite poorly so far.
The other requirement is monitoring, on a company by company basis, the regional trade balance, which is unlikley to be accepted. Accords of that kind always involve each country’s industry as a whole.
The current trade balance leans slightly to Argentina’s advantage due to cars’ values because Brazil exports lower-priced compact models and imports somewhat more expensive mid-sizers.
Total vehicles and parts, however, and Brazil comes out the winner.
Moreover, investing today in an economically and politically troubled Argentina is far from the priorities of many suppliers.