Mexico will face more automotive competition in Brazil after the agreement between Mercosur and the EU

Mexico will face greater automotive competition in the Brazilian market once a free trade agreement (FTA) between the European Union and Brazil enters into force.

Mexico will face greater automotive industry competition in the Brazilian market. Image: Pixabay
Mexico will face greater automotive industry competition in the Brazilian market. Image: Pixabay

In 2018, the largest exporters of automobiles to Latin America's largest economy were: Argentina (US$1,857 million), Mexico (US$1,070 million) and the European Union (US$661 million).

While customs in Brazil do not charge tariffs on cars originating in Argentina and Mexico, they impose a tariff of 35% on those coming from the community block.

Nor do Brazilian customs impose tariffs on auto parts from Argentina and Mexico, while those from the European Union charge rates of between 14% and 18%.

Mercosur tariffs on European cars, car parts, chemicals, clothing, footwear and pharmaceuticals will be phased out over periods of five to 10 years, according to an agreement in principle on an FTA reached on Friday between the European Union and Brazil.

Brazil exported cars worth US$5.141 billion in 2018 and its main destinations were Argentina (74.4%), Chile (7.2%), Colombia (5%), Uruguay (3.4%) and Mexico (2.6%).

On the contrary, its automobile imports totaled US$4.191 million and among its major European suppliers were Germany (US$254 million), United Kingdom (US$131 million) and France (US$86 million).

Bilateral trade

Mexico and Brazil agreed to return to free trade in cars, without restrictions through quotas, from March 19, with a Regional Content Index of 40%.

In early 2012, Brazilian automotive unions asked Brazilian authorities to denounce ACE No. 55 between Mercosur and Mexico. The above, in response to the growth recorded in previous months in Brazilian imports of vehicles from Mexico.

As a result, the Brazilian government asked the Mexican government to modify the terms of the agreement signed in 2002, threatening to denounce the agreement if the Mexican authorities did not agree to the Brazilian request. After several weeks of negotiations, on March 15 of that year, the governments of both nations reached an agreement to regulate trade.

Consequently, ACE 55, which entered into force in 2003 and eliminated car trade tariffs between the two countries in 2007, was renegotiated in March 2012 with the establishment of duty-free quotas and a commitment to return to free trade in three years, then postponed for another four years. The last year of the bilateral quota ran from 19 March 2018 to 18 March 2019.

Source: americaeconomia.com

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