TPP In Trouble Over Auto Parts

la-tradeagreement-wre0030265451-20150729A fight over between the U.S.A. and Japanese auto sectors agreement has emerged threatening the U.S. – Pacific Rim Free Trade Agreement known as TPP.

The fight emerged in mid July over which cars should be eligible for ‘duty free trade’. Japanese car makers rely on components produced in other countries, such as China and Thailand, both outside of the proposed TPP deal. Japan does not want an agreement which disrupts their supply chain.

The Mexican auto industry is leading a campaign to ensure cars freely traded within the TPP have at least half their components originating in the 12 country bloc. U.S. unions backed by some suppliers are worried about more jobs moving overseas, also favour tighter rules in the TPP.

U.S. officials, who have been negotiating with Japan for more than a year on autos and other issues but the stakes are highest for Mexico, which uses existing free-trade agreements to attract investment and boost production.

“We’re going to lose what we have gained under Nafta,” said Oscar Albin, executive director of the National Auto Parts Industry, Mexico’s industry association. “We’re going to lose production of auto parts and the United States is going to lose the prime materials markets. This is a grave danger.”

Mr. Albin and other industry officials are pushing for at least a 50% content rule for auto parts under the TPP. With some 700,000 employees and export sales of $60 billion—mostly to the U.S. and Canada—the auto-parts industry serves as a linchpin of Mexican manufacturing.

U.S. and Japanese officials say the rules are complicated and that percentages in Nafta don’t translate easily into the so-called rules of origin under negotiation in the TPP.

“It will cost jobs,” AFL-CIO President Richard Trumka said. Trumka said official consideration of reportedly lax rules of origin is “ludicrous,” and he sent a letter last month to the U.S. trade representative, Michael Froman, to push for stricter rules.

For Mexico, loose rules of origin in the TPP could undermine its efforts to push into the luxury car market. “We could see very cheap Toyotas or Lexuses arriving in the U.S. with lots of Chinese parts”, said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Michigan.

Lax rules of origin would also undermine the Obama administration’s argument that the TPP would establish rules of the road that put pressure on China’s dominance of the region. “If the aim is to build a trade bloc to counter the Chinese, how do you open up this trade bloc to massive imports from the Chinese?” Mr. McAlinden said.

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