Commercial Agreement with Brazil

The Additional Protocol to ACE 14 “Competitive Adaptation, Productive Integration and Balanced and Dynamic Expansion on Commerce”, also known as Mechanism for Competitive Adaptation “MCA” (hereinafter the “Agreement”), ended a long series of bilateral negotiations between both countries.

It is basically an Agreement executed to regulate bilateral commerce by means of a safeguard measure (a different tool from the Mercosur regulation) that allows for the avoidance of the invasion of products imported from a country.

Article 1 of the Agreement establishes that its object is to “…establish measures that contribute to the competitive adaptation, the productive integration and the balanced and dynamic expansion of the commerce when the imports of a determined product coming from a Member State register a substantial increase, over a significant period of time, causing an important damage or an important threat of damage to a sector of the national production of a similar product or direct competitor to the other Member State”.

Also, the Agreement establishes a Competitive Adaptation Program (CAP), which will be instrumented jointly with MCA, for the sector of national production affected by the increase in imports. The measures foreseen in the Agreement grant the sector of the national production a reasonable time during which it would have to adjust and improve its productivity (paragraphs 1 and 3, article 1).

The Agreement will not be applied to products imported from free zones and special customs areas (paragraph 4, article 1).

By means of the Agreement two stages are opened:

(i) Consultation between private sectors, which implies a binding negotiation between companies of both countries to agree on: a) productive integration agreements; b) contingent import tax fees with total preference; and c) other actions and measures to eliminate or reduce the negative effects of the import increase; and, if the companies do not enter into an agreement,

(ii) application of the MCA; the National Authority of the importing State by means of beginning an investigation can adopt a MCA consisting on: a) an annual contingency tax fee with a clear preference for the exports of the product considered from the other State; b) a fee for the exports of the product considered from the other State that surpasses the annual contingency fee, equal to the Common External Tariff with a 10% preference.

This Agreement will be terminated if and when a similar document in the MERCOSUR comes into force.

The Agreement received praise from the Argentine side and criticism from the Brazilian side (especially from the powerful FIESP (Industries’ Federation of the State of Sao Paulo).