The fight emerged in mid July over which cars should beÂ eligible for ‘duty free trade’.Â Japanese carÂ makers rely on components produced in other countries, such as China and Thailand, both outside of the proposed TPP deal. Japan does notÂ want anÂ agreement which disrupts theirÂ 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 movingÂ 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 butÂ theÂ stakes are highest for Mexico, which uses existing free-trade agreements to attract investment and boost production.
â€śWeâ€™re going to lose what we have gained under Nafta,â€ť said Oscar Albin, executive director of the National Auto Parts Industry, Mexicoâ€™s industry association. â€śWeâ€™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.â€ť
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 billionâ€”mostly to the U.S. and Canadaâ€”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 donâ€™t translate easily into the so-called rules of origin under negotiation in the TPP.
â€śIt will cost jobs,â€ť AFL-CIO President Richard Trumka said. Trumka said official consideration of reportedly lax rules of origin is â€śludicrous,â€ť 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.Â â€śWe 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 administrationâ€™s argument that the TPP would establish rules of the road that put pressure on Chinaâ€™s dominance of the region. â€śIf 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?â€ť Mr. McAlinden said.