Brazil and Argentina have announced the inking of a new auto pact aimed at gradually opening the bilateral market with an eye to complete liberalisation in 2029.
The unusually rapid conclusion of this agreement prompted speculation that it had been hastened by the results of last month’s PASO primary and the likely demise of President Mauricio Macri’s re-election chances, thus creating an urgency to clinch a deal while pro-market presidents are in power in both South America giants. The negotiations had been going on for the last two years.
The treaty proposes to prepare the market between Mercosur’s two major players up to the moment of the free-trade agreement reached between the regional bloc and the European Union two months ago.
The new pact “consolidates Mercosur, consolidates its process of opening up and integration,” said Production and Labour Minister Dante Sica, who signed the document in Rio de Janeiro alongside Brazilian Economy Minister Paulo Guedes.
“More predictable horizons will permit the consolidation and specialisation of investments, assuring more profitable scales of production,” added Sica, speaking at a press conference.
The agreement comes less than two months before the election on October 27, in which Peronist candidate Alberto Fernández is favoured to defeat President Mauricio Macri. Yet the two ministers insisted that yesterday’s date had been set before Fernández’s resounding victory in August’s primary vote.
Until now, the Argentine-Brazilian auto pact was based on the so-called “flex index,” meaning that for every dollar exported by Argentina, Brazil can sell up to US$1.50 without tariffs.
Under the new agreement, in 2020 the exchange will be US$1.70 and will continue increasing until reaching US$3 in 2029.
“Starting July 1, 2029, the vehicle trade between both countries will be completely liberalised,” Brazil’s Guedes stated.
“Our strategic decision is for a gradual opening, but secure [for the Brazilian economy],” he explained. “We are celebrating together with our neighbour, the important Argentine economy… leaving conventional models, of closed economies, protected and less efficient, in the direction of more dynamic, competitive and integrated economies.”
“Historic agreement with Brazil,” Macri tweeted last night. “The auto industry has 10 years to advance.”
“We have solved the main problem with our great commercial partner. In 2020, free auto trade should begin. It is better for our industry to agree to 10 years of adaptation and establish integration deadlines until 2029. No more patchy partial agreements,” he added.
“With this agreement we will create quality jobs for Argentines,” continued Macri. “This is fundamental because it will make things more predictable for our assembly plants and all those forming part of this industry will be able to develop. Today’s agreement is crucial for the industry. It extends free auto trade by 10 years, a pending task since the creation of Mercosur.”
Argentina’s auto industry could certainly do with a shot in the arm - on Wednesday the ADEFA car manufacturers grouping reported production down 37.5 percent last month as compared with the previous August.