Why Does USTR Want to Want Non-TPP Auto Parts to Benefit?

August 24, 2015


If the US and Japan have their way in TPP negotiations, non-TPP countries' auto parts makers can access the US and other TPP countries' markets with favorable tariff treatment. But those countries will not have to live up to TPP standards or concede anything in negotiations.  They will be "free riders".

Canadian, Mexican auto parts makers warn of fallout from TPP trade pact

[Steven Chase | August 23, 2015 | The Globe and Mail]

Canadian and Mexican auto parts makers that collectively employ nearly one million workers are warning of dire consequences for manufacturing jobs if the Trans-Pacific Partnership trade pact is concluded without better terms for their sector.

They’re worried about a concession sought by Tokyo in talks to create a Pacific Rim trade pact that would let Japanese auto makers ship cars and auto parts into North America duty free but with substantial content from non-TPP countries.

In an August 20 letter to Canadian Trade Minister Ed Fast and his Mexican counterpart, Ildefonso Guajardo Villarreal, the auto parts makers say they fear their sector would suffer serious damage if Ottawa and Mexico City fail to obtain a better deal.

“If this provision were to come into force, our companies and workers would be placed in a competitively disadvantaged [position] in the North American market. [It] would seriously compromise our operations in the North American region, and we may be forced to significantly reduce our operations,” write Flavio Volpe, president of the Automotive Parts Manufacturers’ Association (APMA) in Canada, and Oscar Aldin, executive vice-president of Mexico’s Industria Nacional de Autopartes.

The United States, which is leading the Trans-Pacific negotiations among 12 countries stretching from Chile to Japan, provisionally agreed to Japan’s request before Washington’s NAFTA partners, Canada and Mexico, were consulted on it.

Ottawa and Mexico City learned of this during the Maui round of TPP negotiations last month in Hawaii and this proved a major obstacle to clinching a deal as Washington had hoped.

Negotiators for Canada, Mexico and the U.S. have been meeting as recently as last week to resolve the deadlock. The U.S. has reportedly negotiated a fail-safe for itself so that if domestic auto sales slow in the United States because of a TPP violation then Washington can resurrect tariffs against Japanese autos.

Canadian officials say one of the biggest problems for them in the TPP auto-trade negotiations is that the provisional agreement on the matter between Washington and Tokyo stipulated a series of exemptions that allow even lower TPP content in imported parts and vehicles.

Right now, NAFTA rules stipulate that a car can be shipped without duties into Canada, the U.S. or Mexico if 62.5 per cent of it originates in these countries.

The minimum TPP content rules Canadian and Mexican auto-sector officials seek are higher than the 30 per cent for parts and 45 per cent for light-duty vehicles that sources say Japan and the U.S. had provisionally agreed to before talks stalled. Japanese auto makers want to be able to draw raw material and components from their supply chains in countries such as Thailand, not part of TPP negotiations.

Mr. Volpe and Mr. Aldin say their industries have made significant investments in Canada and Mexico over the past two decades. This has created “a dynamic automotive supply chain that benefits the Canadian, U.S. and Mexican economies through employment, economic output and an industry that today accounts for 20 per cent of all trade across the three NAFTA markets.”

They are asking for Canada and Mexico not to settle for content rules for auto parts imports that allow tariff-free entry for goods that have less than 50 per cent of their content from TPP countries.

“We believe in the free market, but we strongly request a fair and competitive environment,” the association heads write.

“As the TPP negotiations advance toward their final stage, we look forward to working with you in the weeks ahead to achieve this goal for a vital manufacturing industry across the three North American markets.”

A spokesman for Mr. Fast declined to comment on the concerns raised by Canadian auto parts makers, a valuable sector in this country’s economy.

Rick Roth would only say Ottawa is listening to stakeholders.

“As we’ve said time and time again, we’re not going to negotiate this agreement through the media,” Mr. Roth said.

“Our goal has always been to secure an ambitious outcome that would benefit all sectors of our economy, across all regions of our country. We look forward to continuing to pursue that objective,” the Fast spokesman said.

“The Prime Minister will only sign an agreement that is in the best interest of Canadians.”

Negotiations to create the Trans-Pacific Partnership, which would include countries with a total of 40 per cent of the world’s economic output, failed to reach a deal in Hawaii in late July.

Earlier this month, Australian Trade Minister Andrew Robb said the two biggest remaining obstacles were the lack of agreement on autos and dairy imports between Canada, the U.S., Japan and Mexico, saying if those four countries could settle their differences, then “I think we could complete this in a couple of days of sitting.”

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