Auto parts keep TPP wheels from spinning

It seems something of a wheel clamp has trapped Trans-Pacific Partnership (TPP) negotiations in place.

Three of the countries involved in the discussions, and the three members of the North American Free Trade Agreement (NAFTA) – Canada, Mexico and the U.S. – are caught in a deadlock over auto parts, with manufacturers from the former two placing pressure on negotiators for a better deal. The three NAFTA countries are working to come to an agreement by mid-September as they try to force TPP discussions past yet another roadblock.

According to The Globe and Mail, the question at the center of the stalemate between the three North American countries is this: “What portion of an auto part, or a car, must originate in this proposed trade zone to avoid tariffs?”

What portion of cars and auto parts should be sourced locally?
The NAFTA countries had an agreement on auto parts and cars in place long before TPP negotiations started, but now the Pacific Rim free trade agreements seems to be placing the preferential treatment among the three at risk, with other players such as Japan getting involved. NAFTA requires that 62.5 percent of a car’s auto parts are manufactured locally for the vehicle to be moved tariff-free. However, this longstanding agreement was threatened by a provisional agreement between the U.S. and Japan, which significantly dropped the local manufacturing requirements.

The minimum content rules agreed upon between U.S. and Japanese negotiators were 30 percent for parts and 5 percent for light-duty vehicles, The Globe and Mail reported. This is something that manufacturers from both Mexico and Canada are opposed to. Officials from the Mexican auto-industry demanded that 50 percent of the content of cars is to be manufactured within signatory countries, and that a similar threshold be set up for auto parts. Canadian manufacturers agreed.

“We know that Canada must give a little to get a little and are prepared to support our negotiators in pursuit of a more balanced position. However, our interests are strongly aligned with the Mexicans’ and we continue to have a strong technical working relationship with their advisers as well,” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, explained according to the news outlet.

It seems that, besides dairy, the dispute over auto part and car sourcing is one of the last remaining obstacles to completing a Pacific Rim free trade agreement. Andrew Robb, the Australian trade minister, said as much, in speaking with the The National Press of Australia Club.

“If in the next few weeks they can resolve those two issues, out of thousands of issues by the way, then I think we could complete this in a couple of days sitting,” he explained, according to the Sydney Morning Herald.

U.S.-Japan agreement reached without knowledge of Mexico, Canada
The assertions on auto parts from Mexico and Canada come after representatives from each country found out about the provisional agreement between Japan and the U.S. upon arriving in Hawaii for another round of discussions late in July. Representatives from each country were wholly unaware of the deal between the U.S. and Japan until they arrived in Maui. The U.S. meanwhile, had assured negotiators from Tokyo that its NAFTA partners would agree to lowering the sourcing thresholds for cars and auto parts.

Recently a Canadian representative stated that Ottawa would not sign off on TPP if the NAFTA countries and Japan couldn’t come to an agreement on auto parts, the Waterloo Region Record reported. Ed Fast, the federal minister of international trade, explained that Canada would not sign off on any deal that was not in its best interests.

“I am as minister confident that we will get an outcome that serves that sector well,” he said. “Unless the rules of origin continue to support a strong Canadian auto-parts sector, we can not support that agreement.”

As TPP negotiators reach the final stages of the U.S.-led trade talks, issues such as auto parts stand as one of the last obstacles to overcome. Should the NAFTA countries and Japan come to an agreement that pleases representatives from the countries’ auto manufacturers, TPP discussions are set to take a massive leap forward.