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Brazil-Argentina agreement should increase car trade by BRL 66.8 billion by 2040, government estimates

Car trade between Brazil and Argentina is expected to grow by R$66.8 billion by 2040, as a result of an agreement whereby technical certificates for vehicle safety items issued by the two countries will be mutually recognized. The estimate is from the Foreign Trade Secretariat (Secex) of the Ministry of Economy.

The reduction of bureaucracy and costs should make trade more dynamic and stimulate the expansion of the capacity of automakers. Thus, R$ 29.1 billion more is expected in investments in the same period, calculates the government.

“It’s as if we were making a [commercial] agreement”, compared the Secretary of Foreign Trade, Lucas Ferraz, in an interview with Valor. Technical certifications are barriers to trade and their elimination increases the volume of exports and imports. It is an effect similar to that seen after trade agreements.

Until now, car manufacturers in Brazil needed to get the green light from the National Traffic Department (Senatran) on items such as brakes and seat belts, in order to sell cars. To sell in Argentina, they needed to obtain similar certificates from the local government.

The process took about three months and was expensive. It was necessary, for example, to repeat the “crash tests”, those of collision with a dummy inside the vehicle.

“We turned what took three months into something instantaneous,” said the secretary. For 80% of the security items, a certificate from one of the countries will suffice.

At this first moment, the Mutual Recognition Agreement (ARM) between Brazil and Argentina will cover light automobiles, with up to eight passengers, and pickup trucks. The plan is to extend it in the future to buses and trucks, as well as auto parts.

Safety standards are different in Brazil and Argentina, but both countries follow international standards. Therefore, it was possible to negotiate the ARM.

In the first year of the agreement, mutual recognition will apply only to models made in Brazil or Argentina. In the second year, imported vehicles will be admitted, provided they are brought by automakers installed in one of the two countries. Only in the third year will all cars be admitted.

Trade between Brazil and Argentina totaled US$ 23.8 billion in 2021. The portion covered by the ARM, in its current version, represents 20% of this total. When other segments are added, the agreement will cover 40% of bilateral trade.

Negotiations on the deal began in 2018 and concluded last July. “It is an important agreement”, evaluated Welber Barral, a partner at BMJ Consultores. It is the first of mutual recognition in the automotive field, he added.

“The mutual recognition of standards is already a big step towards cutting homologation costs, reducing unpredictability and legal uncertainty in investments and facilitating the exchange of vehicles and components between the two countries, and also between other markets and commercial blocks” , commented, in a note, the National Association of Automotive Vehicle Manufacturers (Anfavea).

The entity added that it supports the reduction of bureaucracy and harmonization of vehicle approval standards “not only between Brazil and Argentina, but among all South American countries, since our associates see the continent as a large trading bloc.”

The support of the private sector of the two countries was fundamental for the conclusion of the negotiations, commented Ferraz. Another factor that helped to overcome the difference in political orientation in the two countries was the good dialogue between technicians from the two governments, he added.

With the ARM, a structural problem of bilateral trade was attacked, said the secretary. At the moment, however, there are difficulties of a conjunctural nature.

Due to the scarcity of dollars, the Argentine side has been applying non-automatic licenses, which make it difficult for imported products to enter its market. In addition, Brazilian exports have been paid 180 days late, said Ferraz.

 

Source: Valor

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08.29.2022

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