Automotive manufacturing has become one of the key elements of economic development in the Latin-American region, especially for Mexico and Brazil, which are considered the largest economies in terms of population and Gross Domestic Product. The Economic Complementation Agreement No. 55 has been instrumental in developing the automotive manufacturing in these countries.
A brief history of the Economic Complementation Agreement No. 55
The Latin American Integration Association (ALADI) was established as a result of the 1980 Montevideo Treaty. The official languages of ALADI are Spanish and Portuguese.
In December 1980, the Montevideo Treaty was approved by the Senate of Mexico with the decree of enactment being published in March of 1981. Under the 1980 Montevideo Treaty, the governments of Mexico, Argentina, Brazil, Paraguay and Uruguay signed the Economic Complementation Agreement No. 55 (ECA55) on September 27th, 2002.
One of the main objectives of ECA55 was to lay the groundwork for free trade in the automotive sector. It also promotes the development and integration of trade relations, preserving and expanding existing trade flows between Mexico and MERCOSUR. ECA55 also supports regulating trade, in terms of market access, tariff preferences and technical regulations.
In order to receive the preferential conditions, goods must meet the rules of origin set out in Article 6 and Annex II of ECA55. Furthermore, exported goods must be accompanied by a valid Certificate of Origin when imported into the territory of Signatory Parties.
ECA55, which came into effect in 2003, has enabled the Mexican and Brazilian automotive industries to harmonize trade initiatives and further integrate their production processes, through the free trade of autos and their parts, thereby generating economic growth in both nations.
However, due to Mexico’s trade surplus of US$330 million in 2011, Brazil threatened to denounce the ECA55 agreement if Mexico didn’t further the import and export quotas (restrictions). Finally, after intense negotiations in support of the automotive industry in Mexico, the Secretary of Economy, Ildefonso Guajardo Villarreal, signed an agreement with the Brazilian government to modify the ECA55 agreement.
The modification of ECA55 established the following commitments:
- Increase and tariff-free export quotas for the trade of light vehicles;
- Maintain the 35 % rule of origin for auto parts, and light vehicles to increase to 40% by 2019;
- Valid for four years (March 2015 – March 2019);
- The postponement to 31 December 2018 to agree on the modalities, quotas and deadlines for free trade in heavy vehicles;
- The return to free trade starting 19 March 2019.
Mexico will maintain privileged access to the Brazilian automotive market, being the only agreement of this nature in Brazil with a country not belonging to MERCOSUR. This Agreement will ensure tariff-free access for exports of light vehicles from Mexico to Brazil, as follows:
- March 19, 2015 to March 18, 2016: US $ 1.560 million
- March 19, 2016 to March 18, 2017: US $ 1,606,000 million
- March 19, 2017 to March 18, 2018: US $ 1,655,000 million
- March 19, 2018 to March 18, 2019: US $ 1,705,000 million
- As of March 19, 2019: free trade
Brazil is Mexico’s largest trading partner Latin America, making up 23% of Mexico’s trade. In this bilateral relationship, the exchange of vehicles and parts is essential, as the automotive trade represents almost half (46%) of the bilateral trade flows (2014).
- Trade of vehicles Mexico-Brazil US $ 1,965,000 million
- Exports from Mexico to Brazil: US $ 1,608,000 million
- Imports of Mexico originating from Brazil: US $ 356 million
- Trade of autoparts Mexico-Brazil US $ 2,011,000 million
- Exports from Mexico to Brazil: US $ 977 million
- Imports of Mexico originating from Brazil: US $ 1,034,000 million