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Argentina, Brazil Extend Automotive FTA Through June 2015 but Seek Changes

Wednesday, June 25, 2014
Sandler, Travis & Rosenberg Trade Report

The foreign affairs ministers of Argentina and Brazil signed recently the 40th additional protocol to Economic Complementation Agreement #14 (known as ACE 14), which will extend the terms of their bilateral free trade agreement for the automotive sector through June 30, 2015. The two sides also agreed to launch talks on updating this agreement in the near future.

The five members of the Mercosur trade bloc may negotiate bilateral agreements among themselves, and Argentina and Brazil used that authorization many years ago to regulate the automotive sector separately from other Mercosur partners due to the sensitive nature of this industry and the volume of associated trade. The new protocol (which is expected to take effect soon) extends the validity of the 38th additional protocol, which is due to expire June 30. Such an expiration would not only have exposed both countries to the payment of full tariffs on two-way trade in auto products (given that the Mercosur origin regime expressly does not apply to matters regulated by the Argentina-Brazil auto FTA) but also would have created a void in their internal automotive regulations since the 38th protocol also regulates their internal automotive policy.

The protocol also reinstates at 1.5 the “flex,” an exchange coefficient determining the amount of autos Brazil is allowed to export to Argentina duty-free based on the dollar amount of autos exported by Argentina to Brazil. This coefficient had been set at 1.95 prior to its expiration last year, and Argentina had sought to lower it to 1.3.

Despite the agreement’s extension, neither country is entirely satisfied with the way their trade in this industry is regulated and are therefore looking to change and update some regulations. As a result, the new protocol also directs the creation of a negotiating group that will aim to conclude by July 2015 a new five-year agreement that includes a redesign of the “flex,” a modification of the origin rules to increase regional content and guidelines for a joint industrial policy on auto parts.

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