The keys of the new car deal with Brazil: what will be the road of ten years towards free trade

The governments of Argentina and Brazil today signed a new automobile agreement postpones the entry into force of free trade and it sets up different phases to reach this methodology gradually in 2029 alone, being the longest period reached between the two countries.

Argentine Minister of Production and Labor, Dante Sica, and Brazilian Minister of the Economy, Paulo Guedes, have narrowed the signing of the Rio de Janeiro an agreement clbadified "historic" by the president of the nation, Mauricio Macri.

The new agreement replaces protocol 42 of ACE 14, which has introduced bilateral free trade since July 2020. The bilateral trading system will be maintained with a quota for the next ten years, even if conditions change.

Why the agreement is "fundamental"

"This agreement is fundamental because gives predictability to terminals and to all those who make up the industry so that they can develop and create quality jobs for the Argentines, "said Macri on the social network Twitter.

The direction of the government was motivated by the demand of the local terminals. A free trade system with Brazil, a more competitive country on the industrial front, this could mean a serious problem for some manufacturers and auto parts. The same goes for Mexico.

Today, different manufacturers have millionaires investment plans underway which involve new models made in the country. Some correspond to General Motors (General Alvear, Santa Fe, for 500 million dollars), PSA Peugeot-Citroen (El Palomar, Buenos Aires, for 350 million dollars) and Volkswagen (Pacheco, Buenos Aires, for 600 million dollars) .

Between January and August, 65.7% of national cars exported they were destined for Brazil, according to the Association of Automobile Factories (Adefa). In turn six of the ten best-selling models in the country in August they arrive from Brazil.

According to the Ministry of Production and Labor, this sector accounts for more than 40% of Argentine exports of manufactured products of industrial origin. It is the second largest export complex in the country, generating 78,000 direct jobs and about 160,000 indirect jobs.

How the Flex will evolve until 2029

Until yesterday, in order to regulate the import and export of cars between the two countries, the coefficient of exchange or Flex was set at 1.5 dollar. In practical terms, for every dollar exported, Argentina could import without customs duty US $ 1.5.

As of now, the Flex has climbed to $ 1.7. That is, for every dollar exported to the sector, Argentina can import without tax 1.7 USD. From July 1, 2020 to June 30, 2023, it will move to 1.8. From 01/07/2023 to 30/06/2025, at 1.9. From 01/07/2025 to 30/06/2027, at 2.0. From 01/07/2027 to 30/06/2028, at 2.5. From 01/07/2028 to 30/06/2029, at 3.0.

The date agreed between Argentina and Brazil to start to market vehicles freely, it is July 1, 2029. Then the graph with the gradual increase of Flex for the next ten years.