The Mercosur countries’ Common Automotive Policy (PAC in Portuguese) will maintain free trade status at least until the end of the year.
The current PAC envisaged that, between June 2013 and June 2014, the four members of the common market of the south (Brazil, Argentina, Paraguay and Uruguay) would discuss whether the basis of a definite, free trade for vehicles produced regionally would be implemented or a new accord would be drafted.
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Under this procedure, trade free from duty or administrative barriers would be effective among the four countries until a final decision expected to come into force in 2014.
It is acknowledged, however, that fully open borders are quite unlikely to become reality. The quotas administration regime, due to lack of agreement between Argentina and Brazil, will prevail until beyond 2014; this is the fourth successive postponement.
Current trade keeps going according to a so-called ‘flex’ regime in that Brazil is the the loser in vehicle trade balance and the winner in the auto parts trade. Argentina is pleading for more investment by the auto parts sector. Yet there is diminishing willingness by the companies, almost all multinationals to answerthis plea.
Difficulties do exist, first of all the difference in production scale between the two countries – nearly five-fold in Brazil. In addition, Argentina has only a quarter of the vehicles on the road of Brazil.
Finally, there is uncertainty related to past investments not achieving expected returns. And the troubled economic environment in Argentina – inflation, price control and government intervention – does not help.
