Brazil, Argentina Reach Deal On Auto Trade Pact

Autoparts Report,  Dec 15, 2000  

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After months of wrangling, South America's top two auto-producing nations agreed to local-content quotas that will come into effect Jan. 1, 2001, according to Brazilian and Argentine officials. The accord ends the most divisive among a series of trade troubles in Mercosur, the world's third-largest trade block, which includes Paraguay and Uruguay, with Chile and Bolivia as associate members.

The pact was supposed to go into effect Aug. 1, 2000, but it was thrown into limbo when Argentina decreed that raw materials would be included when determining whether a car could qualify for preferential tax treatment under the deal.

The agreement states that Brazilian cars imported by Argentina need only have 30 percent of parts produced in Argentina to qualify for "local content" tax treatment or 44 percent of its content made in both countries. Local content requirements for cars as of Jan. 1, 2001, will be 44 percent Brazilian and Argentine parts or 30 percent of components produced in Argentina for vehicles imported by Argentina while truck and commercial vehicle content quotas will be 37 percent from both nations or 25 percent from Argentina.

Brazil's Mercosur Ambassador Jose Botafogo Goncalves and Development Secretary Reginaldo Arcuri met with Argentine Industry Secretary Javier Tizado to hammer out the deal.

Initial reception within Argentina appeared to be cool, however, as the Argentine auto lobby, the Automotive Producers Association or Adefa, rejected the deal, saying it "seriously discriminated against the majority of producers located in Argentina." Tizado and Botafogo said car makers whose local content currently falls below the preferential tax treatment threshold would have a two-year grace period to adjust their procurement and assemblers of trucks and commercial vehicles would have a three-year grace period.

The drawn-out negotiations stemmed in large part from Argentina's bid to protect local industry, which was pummeled following Brazil's currency devaluation in January 1999. Six years ago, Argentina had 460 parts makers that employed 47,000 workers, but now counts 400 such companies where 34,000 people work, after many companies pulled up stakes and moved to Brazil.

COPYRIGHT 2000 Ron DeMarines
COPYRIGHT 2008 Gale, Cengage Learning