Washington — Long-running talks aimed at reaching a 12-nation Asia Pacific free trade deal have stalled amid a standoff between Japan and Mexico over autos.
The key issue is how countries will classify vehicles as built in one of the 12 nations — and how much content from other countries can be included in what is known as the “rules of origin.” The rules are in place to prevent China or other lower wage countries from being able to produce the majority of content in a vehicle and export it without paying taxes.
Under the North American Free Trade Agreement, at least 62.5 percent of a passenger car or light truck’s net cost must originate in North America to be considered tariff free under the agreement. Mexico wants to increase the percentage to 65 percent in the Trans-Pacific Partnership, while Japan wants it to be about 45 percent — which would allow for a greater number of parts from low-wage countries like China and Thailand to be included.
Mexico’s auto industry is booming as automakers and parts firms around the world build new plants and expand production thanks to low wages. About 70 percent of Mexican-built vehicles are exported
At the same time, crucial negotiations are continuing over other auto issues that could reshape global auto production. They include how long U.S. tariffs on light trucks and cars will be in place before they are phased out; the procedures for extending tariffs if Japan fails to open its market to more U.S. exports; and the number of vehicles that Detroit’s Big Three will be able to ship under a streamlined approval procedure.
For more than seven years, the U.S., Japan, Mexico, Canada and eight other nations have been negotiating the Trans-Pacific Partnership, or TPP, that would create a massive free trade zone. The pact would cover one-third of global trade and nearly 40 percent of the world's economy. The deal could reshape auto production around the world.
After a round of talks in Maui ended on Friday without reaching a final deal, the nations vowed to resume talks — potentially around Aug. 20 in Malaysia.
Rep. Sander Levin, D-Royal Oak, was in Maui for the talks. “We must keep working to get auto trade on the right track in the ongoing TPP negotiations. The danger is that TPP will lock in one-way trade if we don’t get the terms right on tariff phaseouts, currency practices, labor standards and rules of origin. Substantial work remains to fully address these issues,” Levin said.
President Barack Obama wants the free-trade deal as a cornerstone of his administration’s economic legacy, and a way to boost exports of U.S.-made products. His administration also seeks a deal with Japan as crucial, since the world’s third largest economy is a critical ally in a region where China is expanding its influence.
The pact eventually would end America’s 25 percent tariffs on imported light trucks and 2.5 percent tariffs on cars and auto parts. The tariffs have been in place for more than 50 years. Those tariffs, especially the truck tax, have forced foreign automakers to build truck and SUV plants in the United States and helped keep some would-be competitors out of the truck market dominated by Detroit’s Big Three.
American automakers fear that if Japan intervenes to weaken its currency, its automakers eventually will be able to dramatically undercut the U.S., especially when tariffs are phased out. Automakers want the tariffs kept in place for at least 25 years or more.
Japan and the United States have not said how long the U.S. auto tariffs will be in place — except to say that they will remain in force for an extended period — as long as any other tariff that gets phased out, and that’s expected to be around 20 years.
Japan imports very few U.S. cars, even though it has no tariffs on U.S. vehicles. U.S. automakers have complained for years of other barriers to U.S. vehicles, while Japanese automakers argue U.S. companies haven’t made enough of an effort to sell vehicles in Japan. Japanese automakers note they have spent tens of billions of dollars and employ thousands of Americans building cars and trucks in the United States — something U.S. companies don’t do in Japan.