June 10 Tue Jun 10, 2014 11:16am EDT

(Reuters) – Brazil and Argentina are expected to sign a new car trade pact on Wednesday that will remain in effect for 12 months as of July, a spokesman for the Brazilian trade ministry said on Tuesday.

Cars make up half the trade between the two neighboring countries, which have had numerous commercial disputes in recent years.

The revival of the auto agreement is crucial to restore trade volumes and help close widening gaps in their external accounts. The pact had expired last year in a dispute over its terms.


Brazilian Trade Minister Mauro Borges is expected to travel to Argentina Wednesday to focus on the trade pact, the ministry spokesman said.

“If both countries remain in agreement, the deal should be signed then,” the spokesman said, without providing details about the pact’s terms.

Citing sources with knowledge of the negotiation, newspaper Valor Economico reported on Tuesday that the pact will allow Brazil to export $150 worth of cars for each $100 in autos it imports from Argentina, without paying tariffs.

The previous deal favored Brazil at a ratio of 1.95 to 1, but both countries failed to reach an agreement when it expired last year. Argentina had initially proposed to lower the ratio to 1.3 to 1.

Both countries agreed to “freeze” their current market share, Valor said. That means Brazilian cars cannot account for more than 50 percent of sales in Argentina while Argentine cars cannot respond for more than 10 percent of sales in Brazil.

Argentina has also promised to provide enough dollars to pay Brazilian car makers, eliminating the need for alternative financing mechanisms. A scarcity of dollars in Argentina has curbed Brazilian exports, helping reduce Brazil’s trade surplus last year to its lowest in over a decade.

Brazil is a key market for automakers such as Italy’s Fiat SpA, Germany’s Volkswagen AG and U.S.-based General Motors Co and Ford Motor Co. (Reporting by Walter Brandimarte Editing by W Simon)