U.S. to Cut Automotive Tariffs as Japan Enters TPP Talks

06 May 2013 Dashboard Insights Blog

On April 24, 2013, Acting U.S. Trade Representative (“USTR”) Demetrios Marantis formally notified Congress that the United States plans to include Japan in Trans-Pacific Partnership (“TTP”) negotiations. Coming just three days after the TTP parties accepted Japan’s entry bid, and less than a month since Japanese Prime Minister Shinzo Abe’s announcement that Japan would apply to join the talks, the move clears the way for new trade proposals that carry significant consequences for the U.S. automotive sector.

Chief among these changes is a plan to scrap U.S. tariffs on imported Japanese automobiles. Conceived during more than a year of negotiations and memorialized in an April 12, 2013 agreement between Washington and Tokyo, the measure would gradually reduce existing import duties of 2.5 percent on cars and 25 percent on truck over several years before eliminating them entirely. The result would be a loss of longstanding trade protections for U.S. automakers and corresponding benefits for Japanese competitors selling cars and trucks within the domestic automobile market.

Although the joint U.S.-Japan agreement emphasizes that these changes will occur “over the longest possible period of time,” the proposal continues to draw fire from U.S. automakers. Led by the American Automotive Policy Council, domestic producers warn that Japan’s reluctance to eliminate various Non-Tariff Barriers (“NTBs”) to trade will result in an inequitable, ineffective trade pact. The United Auto Workers (“UAW”) expresses similar concerns, describing the proposal as “one sided” and warning that Detroit’s post-recession recovery is too fragile to subject to the rigors of free trade.

Similar themes are playing out in Congress. In March a group of Democratic lawmakers led by Senator Carl Levin (D-MI) sent a letter to President Obama arguing that TTP automotive negotiations would benefit Japanese automakers at the expense of the U.S. domestic industry. House Ways & Means Committee Chairman Dave Camp (R-Michigan) also expressed reservations, warning that the failure to obtain meaningful concessions from the Japanese on NTBs in the automotive sector could significantly undermine the TTP’s scope and substance. As we noted in our previous post on Japan’s TPP accession, these and other domestic political dynamics could weaken support for the TTP within Congress despite the underlying economic and strategic rationale.

Recent changes in Japanese policy may help ameliorate industry concerns. On April 12, 2013, for example, Japan announced that it would double the number of U.S. vehicles eligible for import under its Preferential Handling Procedure (“PHP”). Under the previous PHP rules, U.S. auto manufacturers could only use the PHP’s streamlined export certification process for up to 2,000 vehicles in each of the eligible categories. The new rules increase this ceiling to 5,000 vehicles—a modest yet nonetheless positive improvement in terms of market access. With U.S. automakers and labor groups pushing turning up the pressure domestically, the next round of TPP negotiations in Peru could see U.S. negotiators press for further Japanese concessions.

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