BRAZIL REACHES AGREEMENT ON AUTO INDUSTRY REFORM

BRAZIL REACHES AGREEMENT ON AUTO INDUSTRY REFORM

The Brazilian government reached an agreement with automakers and labor unions in talks designed to revitalize the nation's industries.

The agreement, which caused auto sticker prices to dip 22 percent at the beginning of the weekend, marked the first fruits of sector-by-sector negotiations initiated by the government.Under the auto pact, federal and state governments took a cut in sales taxes, which represent about 43 percent of the cost of automobiles sold to Brazilian consumers and generate $5 billion worth of revenues annually.

Automakers agreed to pare profit margins. Manufacturers - including Volkswagen, Ford, General Motors, Fiat and Mercedes-Benz - also agreed to invest $5 billion in plant and technology upgrading during the next four years.

Labor agreed to postpone forthcoming annual wage adjustments in exchange for a 90-day job stability period, during which pay will be adjusted for the previous month 's inflation.

Auto buying consortiums will be allowed to recruit new members. An important purchasing aid for Brazilians, who have virtually no access to long- term consumer credit, the consortium were barred since 1990 from expanding under anti-inflation measures intended to cut demand.

The auto pact will be effective during the next 90 days, during which time other innovations will be introduced.

Those involved in the discussions said the pact probably will allow automakers to import $1 worth of inputs duty-free for each $1.75 exported. Easier finance conditions for purchasing trucks and other heavy vehicles should be introduced in April.

Following announcement of the pact, consumers saw the price of a Fiat Uno Mille, the cheapest Brazilian manufactured car, drop overnight from US$9,995 (19.3 million cruzeiros) to 15.8 million cruzeiros. Similar price cuts will be applied to passenger cars and light utility vehicles.

May should see signing of the first collective labor contract between metal workers and auto and auto parts manufacturers.

By April 30, industry and government spokesmen must hammer out a trade incentives bill to be presented to congress. Negotiations within the textile sector should be concluded shortly.