Anfavea sees threat of more EU car imports in Brazil and calls ' race against time ' for competitiveness

Despite celebrating the MERCOSUR-European Union agreement, the Assemblers Association (ANFAVEA) understands that the end of the import tax for cars made in the European bloc can be a threat to the Brazilian automotive industry, and called a "race against time" competitiveness. The pact still has no date to begin to enforce--for Anfavea, this should take two years. When it enters into force, European vehicles will have reduced fare gradually, until it is eliminated, within 15 years (see more at the end of the report). The new president of Anfavea, Luiz Carlos Moraes, said on Thursday (4) that the national industry now has a deadline to seek more competitiveness, referring to the time until the tax for the EU is zeroed out. "The (eventual) increase in importation is a threat, but we have to attack this," Moraes replied when asking if the EU car entries in the country could increase with the tax benefit. Competitiveness means the cost of producing a car in the country. The executive did not know how much more expensive it is to make a car in Brazil, but the association of automakers disclosed, at the beginning of the year, a study comparing the local industry with Mexican, one of the most export. According to the survey, producing a car in Mexico costs 18% less than in Brazil, being the main differences in (expenses with) materials and logistics. "The Gap" (difference) in relation to the European Union is certainly much greater, "Moraes said. More deals in the crosshairs According to the executive, Brazil needs to be more competitive not only because of the agreement with the EU, but because other pacts will be settled. "It comes (accord) with Japan, Canada and South Korea", it advanced. Even this Wednesday, Argentine president Mauricio Macri said he discusses with Brazil a free trade agreement with the United States. Considering the chance to export more, the President of Anfavea understands that it is not the case that the local industry equating to Europeans in all products, but "focus on what we can be better". As an example, Moraes cited the possibility of producing and selling overseas hybrid cars that accept gasoline and ethanol, a novelty already announced by Toyota for the domestic market. Even having recognized challenges for automakers, the executive celebrated the agreement as a whole: "We are now in the Champions League (Champions League, the biggest tournament in European football)." He stressed that the automotive industry could also benefit from measures linked to other sectors, such as agribusiness. Does Brazil export to the EU? The president of Anfavea reported that the new agreement also provides for a reduction of tariffs by the European bloc for cars manufactured in Mercosur, which is not clear in the preliminary texts that have been released so far by the Government and the European Union. These principles will still be revised and the final text of the pact will have to be approved by the European Parliament and the congresses of all the countries of the South American bloc. But the export to Europe is still low. According to the association, Brazil sold about 2000 vehicles to the block last year, mostly cars. The amount is barely close to the 630,000 exported over 2018, the vast majority for Argentina. According to data from the former Ministry of Development, Industry and Trade (MDIC), in terms of values, altogether, were sold US $5.1 billion in cars abroad last year. Of this amount, just over US $13 million were in exports to the European Union, which represents less than 0.3% of the total. Among the countries of the European bloc, Germany was the most bought Brazilian cars, still ranking in values. It was US $4.8 million, in 2018. Then there were Belgium (US $4.5 million), France (US $1.1 million) and Italy (US $686,000). 15% of cars come from the EU The trade balance between the European Union and Brazil, considering the sale of cars, is still well unbalanced. Having sold about US $13 million to the European bloc, Brazil bought US $661 million in EU automobiles last year, still according to data from the federal government. The value amounts to 15.6% of total car imports, which was US $4.19 billion. Most of the models brought from outside Brazil come from Argentina, where most major brands have factory, taking advantage of the exemption from the import tariff and the industrial product tax (IPI), advantages that exist for trade between countries of South American bloc. Among the Europeans, Germany was also the one who most exported vehicles to Brazil last year, still in terms of values: US $253 million, or just over 5% of the total commercialized. Then appear United Kingdom (US $131 million), France (US $86.4 million) and Sweden (US $48.9 million). Gradual reduction of tax The reduction of import tax of MERCOSUR for cars of the European Union will happen in two ways, according to Anfavea: -First, an annual quota of 50000 vehicles (32000 only for Brazil) will pay half the rate, which today is 35%. That goes for the first 7 years of the Agreement; -From the 8th grade, the tax begins to fall to all EU cars, gradually. The aliquots should look like this: Year 8:28.4% Year 9:21.7% Year 10:15% Year 11:12.5% Year 12:10% Year 13:7.5% Year 14:5% Year 15%: 2.5% Year 16: Zero There will also be a "linear" reduction of the tax for auto parts, says the association, between 10:15 years.