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Argentina, Brazil sign new car trade pact

BUENOS AIRES, June 11 (Reuters) - Argentina and Brazil signed a new 12-month bilateral car trade pact on Wednesday giving Buenos Aires more favourable terms in view of its shrinking trade surplus that is draining limited foreign reserves.

Cars make up half of the $36 billion trade between the neighbours, 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 expired last year during a dispute over its terms.

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 before it expired last year. Argentina had initially proposed to lower the ratio to 1.3 to 1.

Brazil said the accord was also beneficial because it should increase the volume of bilateral trade.

"The key issue is the volume of trade, and the ratio agreed favours the free flow of commerce between both countries," Brazilian Trade Minister Mauro Borges told a news conference in Buenos Aires.

Both countries agreed to freeze their current market share. That means Brazilian cars cannot account for more than 44 percent of sales in Argentina, while Argentine cars cannot be more than 11 percent of sales in Brazil.

Brazil and Argentina are important markets 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 Eliana Raszewski; Writing by Sarah Marsh. Editing by Andre Grenon)