The ACE-74 constitutes an important milestone for the deepening of the integration between Brazil and Paraguay, in subjects of the economic and commercial agenda, such as trade facilitation and customs cooperation, complementing the existing understandings within the Mercosur framework. The conclusion of the ACE with Paraguay will complete the network of bilateral agreements of this type already existing between Brazil and the Mercosur countries within the framework of the Latin American Integration Association (Aladi): ACE-2 with Uruguay and ACE-14 with Argentina.
On the same occasion, it was signed, as the First Additional Protocol to the ACE, the Automotive Agreement between Brazil and Paraguay. The Automotive Agreement signed between the two countries will provide greater stability, legal security and predictability for investments and bilateral trade in products of the sector. The signing of the instrument constitutes an important milestone in the bilateral relationship and will contribute to advance the adaptation of the automotive sector to the Mercosur Customs Union.
The Agreement will be valid for an indefinite period or until the automotive sector is adapted to the general Mercosur regime. Through the instrument, Brazil will grant immediate free trade for Paraguayan automotive products. Paraguay, in turn, will grant immediate free trade for Brazilian automotive products taxed at tariffs between 0% and 2% and will apply increasing tariff preference margins for other automotive products until full liberalization of the sector by the end of 2022.
As regards the rule of origin, the Agreement establishes Specific Origin Requirements for each automotive product, in line with the conditions recently negotiated in the bilateral agreement with Argentina and the agreement between Mercosur and the European Union. The Agreement also provides for preferential access conditions, with reduced Regional Content Index (RCI), for a quota of cars and for another quota of vehicles with alternative engines.
In the case of Paraguayan auto parts produced under the maquila regime, it was established that they will enjoy free access to the Brazilian market until December 31, 2023, as long as they comply with the rules of origin of the Agreement, with a minimum ICR of 50%. From 2024 onwards, access to Brazil for auto parts produced under the maquila regime will occur with quotas provided for in the Agreement. Differentiated conditions of access for auto parts with reduced ICR, including those produced under the maquila regime, were also defined for a period of seven years, in the case of Paraguay, and four years, in the case of Brazil.
As for the collection of consular fees, a matter of great importance to the Brazilian productive sector, Paraguay has undertaken to exempt automotive products originating in Brazil from the eighth year of the Agreement's entry into force.
The Agreement also establishes that each party will continue to apply its current national tariffs on the import of automotive products from third party trading partners until the implementation of the Common External Tariff (TEC) for products in the sector is agreed within Mercosur.
With regard to the import of used vehicles, Paraguay has undertaken to revise its national policy on the import of such products in accordance with what will be agreed under the Mercosur automotive regime, also taking into account environmental, public health and safety standards.
After the signature of the ACE and the Automotive Agreement, the instruments will be sent for deposit with Aladi. After that, the process of internalization of both instruments into the Brazilian legal system will begin.
Trade in automotive products between Brazil and Paraguay has grown considerably in the last decade, mainly due to Brazilian exports of automobiles and Brazilian imports of auto parts (mainly electric harnesses). In 2019, the trade flow totaled US$ 650 million, with exports worth US$ 415 million and imports worth US$ 235 million, resulting in a US$ 180 million surplus for Brazil.