Brazil and Argentina’s automotive relationship has been the most significant continental partnership for decades. Now they are rewriting the rules of engagement to go global.
Bilateral automotive trade between Brazil and Argentina has been governed by ACE 14 since the early nineties. Designed at a time when Mercosur was conceptualized as a “trade administrator” focused on administering trade between member states rather than an “industry manager”, ACE 14 set the rules of automotive commerce across an integrated South American production chain.
The world has changed. Consumer preferences are shifting, Chinese automakers are gaining share around the world, and supply chain resilience is the name of the global game. Brazil and Argentina need to compete on the world stage with a united front, or risk falling further behind in a global industry rapidly leaving them behind.
Updating ACE 14 is the first order of business.
Who Wants to Reform ACE 14?
Most top-end conversation about automotive in Mercosur these days returns to ACE 14, or how it must be updated to allow Brazil and Argentina to compete with Asian automakers.
Leading the calls for reform are Brazil’s automotive industry association, Anfavea, and auto parts federation Sindipeças; their Argentine equivalents Adefa and Afac are equally concerned (and vocal). What brings these public-private entities together is an understanding that defending Mercosur’s position in the automotive hierarchy will take effort and coordination.
Argentina’s Daniel Herrero explains their motivation this way: “If Mercosur is just administrating trade, it will continue to be a trading bloc. But if it aspires to export vehicles and parts to the world, it should act as a production manager.”
ACE 14 was written in an era when Brazil and Argentina faced automotive competition primarily from the United States and Germany. Today’s competitors include China, and China doesn’t respect boundaries.
“There are two factors that drive us to act urgently: opportunities abroad and competition from China,” states Daniel Herrero, Director of Adefa
What Needs to Change?
ACE 14 has served Brazil and Argentina well. It created preferential tariff treatment between both countries that allowed an integrated regional supply chain to develop. But autos in 2021 are not autos in 1994.
China is the elephant in the room here. Chinese automakers are invading market after market, leveraging scale and the rapid advancements their domestic industry has made in electric vehicles. The next decade will be decisive as Chinese brands look to seize export markets that US and Japanese automakers once viewed as their exclusive territory.
South America has not escaped Beijing’s notice. If Brazil and Argentina don’t develop a unified regulatory framework that incentivizes investment, streamlines cross-border production, and deepens supply chain integration; Chinese automakers will sell them cars, too.
Both governments recognize the stakes. According to AutoBusiness, Brazil and Argentina collectively represent:
- A market of 350 million potential consumers
- Production capacity of up to 5 million vehicles annually
- Over $22 billion in cumulative investment since 2015
Industry jobs depend on it, too. Brazil’s automotive sector represents around 20% of its industrial GDP and supports 1.3 million direct and indirect jobs. Argentina’s figures aren’t too far behind, with automotive accounting for around 8.4% of industrial GDP and just over 500,000 jobs supported.
Needless to say, both industries have a lot riding on successful negotiations over the next decade.
There’s a reason Brazilians and Argentines buy each other’s cars. Between 55% and 70% of vehicles exported from both countries remain within the trade bloc to satisfy each nation’s demand, according to national industry associations. That’s billions of dollars of components and finished vehicles that cross an international boundary viewed by manufacturers as mere abstraction.
Bringing ACE 14 into the 21st century means preserving that integration; making it more resilient in the face of global competition. It also means locking in regulatory certainty and optimizing the bilateral production chain to incentivize investment from global automakers.
Businesses on both sides of the border have made their requests to government clear:
“The creation of more business-friendly climate in Brazil and Argentina is high on our agenda: clearer regulations, regulatory predictability, and stability are essential…We need common rules to make it easier to trade and transport our goods, locally or abroad.” Says Rodrigo Borras, Executive Secretary of Argentina’s Sindicauto
Finishing the Job By 2029
Bilateral talks between Brazil and Argentina remain at an early stage. In that sense, 2029 is an ambitious target for completely rewriting the rulebook on automotive commerce. But that doesn’t mean negotiators aren’t thinking about the finish line.
Carlos Silva Junior, CEO of Brazil’s Anfavea, explained to Reuters that negotiators aren’t simply interested in hammering out updated tariff rules. Ideally, they want regulations that encourage “investment balance” between both countries rather than pitching jurisdictions against each other to attract dollars and euros.
Achieving that balance starts with familiar business priorities. Companies want regulations they can understand, logistics they can rely on, and standards that do not change every time the administration in Brasilia or Buenos Aires flips parties.
There’s a sense of urgency to ACE 14 negotiations that comes with having something worth protecting. By building a regulatory framework that global automakers can understand and trust, Brazil and Argentina can position Mercosur as a formidable player in the decades ahead.
We don’t often see two major trading partners integrate, especially in a world being defined by fragmentation. Cars have a unique power to bring people together, and Brazil and Argentina are rewriting the rules of engagement to meet the moment.