Ward's Automotive International / December 1, 1997
By Larry Luxner
Argentine Economics Minister Domingo Cavallo and Brazil's minister of industry, Dorothea Wernick, have signed a long-awaited bilateral agreement that revises the Ouro Preto auto accord of December 1994 and governs the two countries' auto trade until Dec. 31, 1999, after which a common Mercosur auto regime takes effect.
The pact, finalized Jan. 22 in Buenos Aires, says finished vehicles and parts originating in either Argentina or Brazil will have free access to the other's market, as long as imports are compensated for by exports to any market within or out of Mercosur (a four-nation customs union consisting of Argentina, Brazil, Paraguay and Uruguay). In addition, new vehicles must have at least 50% local content in order to qualify for duty-free trade.
Under the rules, both countries will allow a maximum 40% of imported material per vehicle; in Argentina, this percentage will be calculated per vehicle manufactured, while in Brazil it will be calculated per factory.
Predictably, both governments praised the pact. Horacio Losoviz, president of Argentina's Association of Auto Manufacturers (known in Spanish as Adefa), said the deal was "very positive" and that the expanded market will help boost local output. Given that nearly all of Argentina's auto assemblers also have factories in Brazil, he said, the agreement will lead to greater specialization and competitiveness.
Losoviz added that the accord will allow Argentine plants to eliminate $850 million in debt accumulated with Brazil over the past few years, since Argentine assemblers had failed to keep up with compensatory auto exports, in exchange for imports from Brazil.
Another benefit, for consumers, could be a gradual lowering of Argentine sticker prices. This year, Argentina is expected to produce more than 400,000 automobiles and utility vehicles. Of that, 380,000 units will be sold on the domestic market and the remaining 20,000 will be exported. This easily exceeds 1995's production of 320,000 cars.
According to Carlos Magarinos, Argentina's secretary of industry and mining, the bilateral agreement ensures that "units produced after 1999 will have the same technology as vehicles produced by the company's head office, and there will be a delay of only six months from the time new models are launched." Currently, Argentine factories produce models launched up to three years earlier.
Added Magarinos' Brazilian counterpart, Dorothea Wernick: "All countries dream of having an important and influential automotive industry, not only on account of output figures, but also because this industry constitutes an important source for creating new jobs and is the driving force behind the expansion of other industries. For Mercosur partners, this dream is increasingly near to coming true."
She added that "besides being instrumental in increasing investments in car manu-facturing companies, the agreement signed by both countries now opens the possibility of developing the automobile accessories and parts manufacturing industry."
Mercedes-Benz, Renault, Hundyai, Asia Motors, Honda and Chrysler have all announced plans to begin operating in Brazil this year, while Fiat, Volkswagen and General Motors will launch production of new models in Brazil.
In Argentina, according to Magarinos, automakers have already invested $1 billion of the $4.5 billion they promised to invest by 2000. These investments together will create 8,000 jobs, he said, of which 3,000 will be created by the end of this month (March).
Not everybody is happy, however. Francisco Macri, president of Sevel Argentina -- the local Peugeot licensee -- labeled the pact a "grave error" for Argentina, claiming that new auto investment will now flow largely to Brazil.
Criticism also came from Josť Astigarraga, president of the Uruguayan Chamber of Automotive Industries, who said that "the two countries acted as if they were the owners of Mercosur." Uruguay, a nation of only three million people, nevertheless has its own small auto industry, and in recent months, several automakers including Lada, CitroŽn, GM and Volvo have indicated they were interested in establishing factories there.
Indeed, whether Astigarraga's criticism is justified is highly questionable; Argentine and Brazilian officials consulted their Uruguayan and Paraguayan counterparts about the bilateral agreement during a lengthy meeting at the Uruguayan resort of Punta del Este, where the final document was drafted. No reaction came from Paraguay, which has no auto manufacturing industry of its own.
Comments the U.S. Embassy in Buenos Aires: "The accord should, for the time being at least, put to rest bilateral squabbles such as last summer's row over potential Brazilian quotas on Argentine vehicles. However, a potential wild card in all this is Brazil's imminent request for a WTO waiver of its auto regime -- a regime now recognized by Argentina. If a waiver eventually is denied and the Brazilian regime altered, the just-signed bilateral pact conceivably would have to be revisited."