U.S. auto tariffs fall slowly in trade deal
Washington — In the landmark Asia-Pacific free trade deal reached among the United States and 11 other nations, U.S. automakers won a lengthy delay of the phaseout of tariffs that protect domestic truck production.
The agreement makes it easier for Detroit’s Big Three to export vehicles to Japan. But it doesn’t include rules, which the automakers have long sought, against currency manipulation that makes their vehicles too pricey for many foreign buyers.
The Trans-Pacific Partnership was unveiled Monday among the United States, Japan, Canada, Mexico and eight other nations. Eight years of negotiations came to a close after nearly a week of talks resolved final disputes over dairy products, pharmaceutical drugs and automobile export rules. The deal encompasses 40 percent of the world’s economy and a third of all global trade.
The agreement, lauded by President Barack Obama, must be approved by Congress. Most Democrats and labor unions are sharply opposed, arguing it will cost factory jobs by making it easier to shift production abroad. Republicans promise careful scrutiny. A vote isn’t expected until April, during the heart of the presidential campaign.
The pact basically preserves the status quo on trucks in the United States, the most profitable part of the market. A tax on trucks brought into the U.S. has forced foreign carmakers to build truck and SUV plants in the United States, and kept some would-be competitors out of the truck market that is dominated by the Big Three.
A delayed elimination of the truck tax came after negotiators agreed in the final days of the negotiations to a 30-year phaseout on tariffs for some dairy products in all the countries in agreement.
The tariffs on auto parts, ranging from 2.5 percent to 5 percent, have a more complicated phaseout schedule, with those on some “green energy” parts like lithium-ion batteries being phased out over 15 years, people briefed on the talks say. According to documents posted by Canada, it is likely that the U.S. also will have a period of up to 12 years after the tariffs expire in which it could “snap back” the tariffs if Japan or other countries violate terms of the deal.
Prohibitions on currency manipulation are not part of the agreement. Automakers worry that foreign governments like Japan’s will be able to weaken their currency to undercut U.S. vehicle production. Ford Motor Co. in particular had lobbied Congress to require such prohibitions.
“U.S. lawmakers took unprecedented action to set a clear negotiating objective for addressing currency manipulation in all future trade deals,” Ziad Ojakli, group vice president of government and community relations for Ford, said in a statement released before the deal was announced. “The TPP fails to meet that test. To ensure the future competitiveness of American manufacturing, we recommend Congress not approve TPP in its current form, and ask the administration to renegotiate TPP and incorporate strong and enforceable currency rules.”
A strong U.S. dollar against a weaker local currency — especially one that is artificially weak because of government manipulation — means foreign vehicles are cheaper here, and U.S. vehicles cost more in the country in which the currency is manipulated. Negotiators suggested that there may be a separate arrangement to try to address currency manipulation.
Fiat Chrysler Automobiles had no comment on the agreement. General Motors Co. spokesman Pat Morrissey said Monday the automaker was still reviewing it. The United Auto Workers union said Monday that “fair rules are needed for all countries to truly compete.”
“Countries from around the world sell cars in America without unfair trade barriers,” a statement from UAW president Dennis Williams said. “Yet, while domestic auto companies sell less than half of all vehicles in the U.S., the same cannot be said for many countries in the TPP. Some Asian-Pacific countries have closed auto markets importing less than 7 percent while undervaluing their currency, making their exports cheaper.
“Time and time again, companies who game the system shift more and more work to low wage countries. Non-TPP countries like China, Philippines or Thailand must not unjustly receive benefits under this agreement.”
Obama views deal as legacy
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 views 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.
“This partnership levels the playing field for our farmers, ranchers, and manufacturers by eliminating more than 18,000 taxes that various countries put on our products,” Obama said in a statement. “It’s an agreement that puts American workers first and will help middle-class families get ahead.”
Japan has no tariffs on cars and trucks from the United States, but U.S. automakers claim it has effectively kept most American cars out through other non-financial barriers
As part of the agreement, Japan — which imports among the fewest vehicles of any major auto market — agreed to steps that would make it easier for U.S. automakers to export a limited number of vehicles there annually and will have a joint committee with the U.S. to address motor vehicle issues. Japan agreed to more transparency on how it sets rules that often hinder U.S. exports.
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.
2016 candidates weigh in
The agreement on the Trans-Pacific Partnership, designed to encourage trade between the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, already has become a talking point in the U.S. presidential campaign.
Democratic presidential candidate Sen. Bernie Sanders said Monday the agreement means “Wall Street and big corporations” have won.
Republican hopeful Donald Trump also blasted the deal. “The incompetence of our current administration is beyond comprehension. TPP is a terrible deal,” he wrote on Twitter.
Under the fast-track rules passed by Congress this summer, lawmakers can only approve or reject the agreement on an up or down vote: They can’t amend it.
“I cannot support a Trans-Pacific Partnership agreement that does not prevent currency manipulation, fails to include strong enforceable labor protections and undermines the competitiveness of the American auto industry,” said Sen. Gary Peters, D-Bloomfield Township. He said he was concerned foreign rivals will get an unfair advantage over U.S. automakers and other manufacturers.
Rep. Dan Kildee, D-Flint, said, “Under this agreement, a car assembled in Japan could actually have a majority of its parts made in China — a country that is not subject to any of the labor, environmental and human rights standards. This will mean an even greater trade deficit for the U.S. and lead to the loss of even more American jobs overseas.”
One of the key final issues in the agreement was how countries would 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.
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 North American Free Trade Agreement. However, the Trans-Pacific Partnership requires that only 45 percent of the cost to originate in that country in order for it to be considered tariff-free.
That issue held up a final deal for three months as Mexico, Canada, Japan and the United States haggled over the final numbers. The lower figure will eventually allow for a greater number of parts from low-wage countries to be included in tariff-free vehicles.