Talks between the two main MERCOSUR partners, Brazil and Argentina, are due to start in the second half of this year and should, at last, result in a vehicle free trade agreement from July 2008, after two postponements in 2003 and 2006.

Until now, Argentina has restricted imports, citing a trade imbalance with Brazil and low automaker investment in their own motor industry.

There was no alternative for Brazil but to accept the compensation accord that currently imposes the remitance of $1.00 for each $1.90 actually exported, although with no import tariffs on either side of the border.

But this scenario is changing following announcements that several new models will be made in Argentina, making best use of the peso devaluation versus the Brazilian real.

In addition to what is already planned, two Renault-Nissan products, one from GM (also not revealed) and a medium-size Fiat-Tata model are now confirmed for Argentine production. It is also certain a Volkswagen medium-size pickup will be built there and Ford is soon to decide when it will build the next Ranger (pickup truck) and Focus car lines in Argentina for the region.

Another reason production is moving to Argentina is that capacity in Brazil is nearing its limit. For example, VW has stopped axing jobs – after tough negotiations last year amidst strike action and angry worker protests – as it now needs to increase production.

Renault is shifting the entire Clio line from its Brazilian plant in SJ dos Pinhais to Cordoba, in Argentina.

Fiat has now completed the last hiring wave before starting a full third shift in Betim. Immediately afterwards, it announced that all Siena production is to be transferred to Cordoba in Argentina, resurrecting the only plant in the neighbouring country that has not produced any vehicles in the last five years. The automaker had been under Argentine government pressure to do this.

With this accelerated production outlook on both sides of the border, it is apparently easy to reach a long-lasting accord without the safeguards that have distorted the mutually agreeable goals of this ‘common market’ since 1991.

Fernando Calmon