Changes To Regional Agreement
Colombia has announced that it is to 'open up' its Andean Automotive Agreement (AAA) trade policy with Ecuador and Venezuela. BMI believes that this will serve to boost investment in Colombia from international auto manufacturers as it seeks to further liberalise the sector. We believe that auto trade volumes between Colombia and Ecuador may decline on the back of this change, however.
Under the agreement, which started in 1999, the participating nations increased local content in their assembly plants to 34.5% and kept a 'no tariffs' policy for trade between the countries. Venezuela de facto pulled out of the agreement in 2007 due to 'political differences' with Colombia, but the AAA currently remains in place. Indeed, trade between Colombia and Ecuador is relatively strong with the exchange of completed vehicles (from General Motors Company (GM), Renault, Mazda, and Kia) assembled in both countries' factories.
Due to the recent signing of several Free Trade Agreements (FTAs) with Europe, the US, and South Korea ( see our online service, June 15, 'New FTA To Increase South Korean Investment'), Colombia has decided to address some of the terms of the agreement. Initial reports suggest that the key changes will be that assemblers will not be obligated to fulfil the OEM local content - meaning that they can buy OEM parts overseas - and, second, assemblers will have to pay tariffs on CKD kits. These changes are expected to be implemented in 2013. BMI believes that this policy may serve to boost investment in Colombia, as it seeks to increase trade levels through these new FTAs, and manufacturers operating in the country will be able to purchase auto parts from overseas. However, we believe that Colombian trade with Ecuador may decline on the back of this change.
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