Brazil + Mexico Agree to New Automobile Tariff Structure, Argentina Begins Similar Discussions

Kegler Brown Global Business News

U.S. companies manufacturing in Mercosul countries may experience increased tariffs and reduced flexibility related to importing and exporting between member countries due to a recent agreement between Brazil and Mexico and potential similar agreements by other Mercosul countries.

Mexico’s automobile trade surplus of nearly $700 million with Brazil led to recent discussions between the two Latin American giants. The leadership and trade ministers of both countries talked over the options available under the Common Southern Market (Mercosul) agreement. These conversations, although occasionally heated, concluded with an agreed upon three-year revised tariff structure. Each country shall limit auto exports to the other country, to approximately US $1.45B during the first year, US $1.56B the second year and US $1.64B the third. Exports over these thresholds may be subject to additional tariffs.

Shortly after the announcement of the agreement, Argentina began similar discussions with Mexico. Recent reports indicate that Argentina’s automotive sector trade deficit with Mexico reached US $995 million last year, up US $615 million from 2010.

U.S. companies should note that although the recent agreement between Brazil and Mexico primarily applies to light vehicles, the countries may also renegotiate duties and quotas for other imported products. Decision No. 39/11 of the Mercosul Common Market Council permits and outlines procedures for the countries to negotiate these topics. U.S. companies should be familiar with the required process and timeline outlined in the Mercosul agreement.

In addition to the revised import limitations, Brazil and Mexico have agreed to increase the required percentage of regional content in automobiles. Brazil is also internally evaluating the formula the country uses to calculate the percentage of regional content in an automobile. U.S. companies should understand the potential impact these developments may have on their business. As countries raise the level of required regional content, the value, and likely quantity demanded, of locally manufactured component parts may increase; thus, impacting the sales of both foreign and domestic products.