Brazil Snagged in 3-Way Trade Dispute

SAO PAULO – Cars and car parts are at the center of trade disputes facing Brazil, which is running a trade deficit with Mexico and has a surplus with its primary partner, Argentina.

Mexico has rejected Brazil’s proposal to amend the automotive accord involving member countries of South America’s Mercosur trade bloc. Negotiations held from Feb. 5-10 in Brazil ended with Mexico expressing no interest in changing the rules of the game.

A communique issued Feb. 9 by the Mexican government affirms that the Agreement for Economic Complementation, signed in 2003, enabled automotive trade to rise from $1.1 billion then to $2.5 billion in 2011. It also fostered development of the regional car-parts industry.

“Due to the bilateral importance of ACE 55, the Mexican government will seek to not negotiate,” the document states.

Subcompact cars imported from Brazil have fared poorly in Mexico, while midsize and compact models built in Mexico for the North American Free Trade Agreement market are highly popular in Brazil.

The models from Mexico are more comfortable, equipped with more modern technology, pay no import duties and are exempt from the surtax on imported vehicles. Taxes on less-attractive Brazilian vehicles sold as ’12 models are much higher.

The National Association of Vehicle Manufacturers has complained for years that the Brazilian system of municipal, state, intrastate, interstate and federal tax structures represent 40% of the sticker price of a car. But the group has failed to persuade lawmakers to reduce taxes.

The manufacturers have lobbied successfully to include imported vehicles among industrialized products subject to a 35% tax. Models imported from Argentina and Mexico, however, are exempt from this tax.

Despite Mexico’s clear opposition to any changes, Brazil “maintains its willingness to renegotiate the automotive agreement,” according to the country’s Ministry of Development, Industry and Foreign Trade. A separate phase of negotiations is expected to end this weekend with no progress in sight.

In order for Brazil to revamp its automotive accord with Mexico, it needs the full approval of all Mercosur member nations, including Argentina, Paraguay and Uruguay.

Argentina, meanwhile, is insisting that Brazil buy more automotive parts from Argentina to reduce the trade deficit with its neighbor.

The Brazilian government has not yet made a decision about a proposal delivered to the Ministry of Development by the Argentine government to form a bilateral commission to monitor and increase state control over the setting of prices in the auto industry.

After Argentina’s Secretary of Foreign Trade Beatriz Paglieri and Minister of Industry Debora Giorgi met with Brazil’s Secretary of Foreign Trade Tatiana Prazeres, the Argentine government announced formation of a commission to demand “uniform criteria” from auto makers in the process of choosing suppliers for car parts and components.

Argentina is complaining about its trade deficit with Brazil that reached $5.8 billion last year, and wants the Brazilian government to take measures to increase purchases of industrialized products from Argentina.

Giorgi cites a study showing Brazil imports, from other sources, $21 billion in goods that Argentina exports to other countries. She believes Brazil could purchase at least 20% of that total in the short term.

However, Brazilian industry experts say many of the Argentinian products have quality and technical specifications below the standards required by Brazilian auto makers. They say changing those technical norms to facilitate purchases from Argentina is out of the question.