WSJ: Argentina, Brazil Sign Car Deal, Ease Trade Tension

July 2, 2012 8:15 amComments OffViews: 6

By Shane Romig

MENDOZA, Argentina--Brazil and Argentina have agreed to work together to shield their automotive industries from a flood of cheaper imports.

Trade officials from both countries met in the Argentine city of Mendoza on the sidelines of a Mercosur trade bloc meeting and hammered out the deal Friday amid simmering trade tension.

Starting in 2013, Brazil will start requiring a higher percentage of locally made parts in cars that receive a host of incentives. However, some parts made in regional partners like Argentina will not be counted, Brazil’s industry ministry said in a statement Friday.

The deal comes amid growing protectionism in the region as Brazil and Argentina seek to shield their manufacturers due to the global economic slowdown.

Protectionist measures within the Mercosur union are a frequent source of discord. Last year, Argentina and Brazil slapped non-automatic import licenses on a range of goods exchanged between the two nations. Industrialists in both countries frequently complain about the barriers and goods have piled up at the border in recent weeks as Brazil took retaliatory measures to stall imports on a host of goods from Argentina.

However, trade officials from the two countries agreed Friday to lift the barriers at the border and the delays should be cleared up within a week, a official from Brazil’s trade agency told Dow Jones Newswires Friday.

Brazil has agreed to stop holding up imports from Argentina of dairy goods, grapes, olive oil, wheat flour, candies, frozen potatoes, olives, wine and jams, Argentina’s agriculture ministry said in a statement Friday.

In return, Argentina will clear the barriers to imports from Brazil on textiles, shoes, furniture, appliances, auto parts, tires, pork and farm machinery, the ministry said.

Vehicles and automotive parts account for over half of the trade between Mercosur nations, but the sector is struggling, particularly in Argentina.

Argentina’s vehicle exports during the first five months of 2012 were down more than 26% on the year, with shipments to Brazil slumping over 30%, according to auto-maker association Adefa. Brazil traditionally buys about three-quarters of Argentina’s vehicle exports.

While domestic sales have remained firm, the plunge in exports has led car makers to curtail production this year after a record 828,771 vehicles rolled off assembly lines in 2011.

Production fell 10.5% on the year to 278,815 vehicles in the January-May period.

Brazil’s auto makers are also struggling amid fierce competition and rising costs, with production during that five-month period falling 9.5% to 1.28 million vehicles.

In response, Brazil and Argentina have moved to close their markets to foreign car imports and have pulled out of an automobile free trade agreement signed by Mexico and Mercosur in 2002.

On Tuesday, Argentina suspended that agreement with Mexico for three years, citing the need to protect domestic manufacturers.

According to Mexico’s Economy Ministry, Mexico exported almost $1 billion in vehicles and parts to Argentina last year, and imported $305 million from Argentina.

In March, Mexico agreed with Brazil to increase the amount of locally produced components in vehicles shipped from Mexico. Both countries also agreed to temporarily limit bilateral auto trade.

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