U.S., Japan ‘Really Making Efforts' To Strike Deal in Auto Talks, Mori Says

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By Len Bracken

Sept. 5 — The U.S. and Japan are “really making efforts to strike a deal” as soon as possible in bilateral auto negotiations related to the Trans-Pacific Partnership (TPP), Japanese TPP Ambassador Takeo Mori said Sept. 5.

In remarks to reporters following three days of negotiations with acting Deputy U.S. Trade Representative Wendy Cutler in Washington, Mori said that the talks are at the “endgame” stage, but he declined to estimate when they would be concluded.

“We are making progress,” Mori said. He said that the question of how far the two sides are from reaching an agreement “is a difficult one to answer,” but added, “I think we are in the last phase, in the endgame, so I think we are really making efforts to strike a deal as soon as possible.”

All of the items on the Terms of Reference (TOR) text were discussed, including emission standards and the dispute settlement mechanism. Negotiations based on the TOR, which was agreed to in April 2013, were a prerequisite for U.S. support for Japan joining the TPP talks among what are now 12 Pacific Rim countries.

Cutler will meet Sept. 9-10 in Tokyo with Japanese TPP Ambassador Hiroshi Oe to negotiate agricultural market access. Although it will not involve another round of auto negotiations, Mori said that he expected to meet with Cutler while she is in Japan to discuss scheduling and substance.

Dispute Settlement Mechanism

In response to a question on a united U.S. industry proposal regarding the dispute settlement mechanism whereby the phase-out of U.S. tariffs could be paused or suspended in the event that a new barrier to U.S. auto exports to Japan is found, Mori said that he could not confirm or deny that this was a subject of the negotiations.

Under the U.S.-Korea Free Trade Agreement (KORUS), a tariff-increasing remedy to a new trade barrier is only available once the tariffs have been phased out; should a barrier be found, the previous tariff would “snap back” into place. The U.S. industry proposal for the TPP seeks to have a remedy available in the event that a barrier arises during the phase-out of tariffs.

The industry proposal was made in response to a request for public comment from the Office of the U.S. Trade Representative on the “Objectives with Respect to Japan's Participation in the Proposed Trans-Pacific Partnership Trade Agreement” by the American Automotive Policy Council (AAPC), which represents the “Big Three” automakers—Ford, General Motors and Chrysler.

“If the tariff reinstatement cannot be implemented because the U.S. tariff has not yet been eliminated, the period of time before the tariff is eliminated would be extended for a period equivalent to the duration of non-compliance, nullification or impairment,” the AAPC submission said. “Furthermore, if a proposed measure is implemented and, although not inconsistent with the agreement, results in the nullification or impairment of the benefits of the agreement, the United States would be authorized to suspend its concessions in an amount equivalent to the level of nullification or impairment, or to utilize the tariff reinstatement provision (or, if that provision cannot be implemented because the U.S. tariff has not been eliminated, to extend the period of time before the tariff is eliminated).”

No Japanese Tariffs on Autos

While Japan does not impose tariffs on auto imports, U.S. industry sources have told Bloomberg BNA that Japanese standards, taxes and other factors are designed so that U.S. vehicles fall below the requirements and face barriers to trade or fail to receive the same advantages as domestic manufacturers.

The U.S. imposes a 2.5 percent tariff on Japanese auto imports and a 25 percent tariff on light trucks. Sources have said that the chief concern for the Big Three U.S. automakers is the planned phase-out under the TPP of the tariff on autos, as Japanese manufacturers have worked around the tariff on trucks by locating operations in the U.S.

Ford has concerns about implementation of the TPP, as the snap-back provision in the KORUS is not living up to expectations, Ford spokeswoman Christin Baker told Bloomberg BNA Sept. 5. Concerns about “having lost time in the four years of a phased-in tariff reduction” are being raised with the Office of the U.S. Trade Representative (USTR) as the TPP negotiations continue, Baker said. A mechanism that would “stop the clock” on tariff reductions—“a modified version of snapback”—is part of that conversation, she said.

AAPC President Matt Blunt told Bloomberg BNA Sept. 5 that U.S. automakers find it “very frustrating” that USTR negotiators have not made currency manipulation part of the TPP talks. Blunt said that currency manipulation is the biggest barrier to trade, and he noted that U.S. lawmakers from both parties and both chambers have sent letters to the USTR seeking inclusion of currency provisions in the TPP.

Baker noted that Stephen E. Biegun, Ford's vice president of international governmental affairs, told a Senate panel in July that trade agreements, including the TPP, should have strong provisions to guard against currency manipulation.

Chief Negotiators in Hanoi

Chief negotiators from the 12 Pacific Rim countries pursuing the TPP agreement are meeting Sept. 1-10 in Hanoi, Vietnam, on numerous issue areas, including rules of origin, intellectual property rights, state-owned enterprises, financial services and cutting tariffs.

As he left Tokyo for the confidential meetings in the Vietnamese capital, Koji Tsuruoka, Japan's chief TPP negotiator, said Sept. 1 that the negotiators would be “preparing for political decisions” in unresolved areas.

“This meeting is important in guiding the direction of future [TPP] negotiations,” Tsuruoka said, adding that he did not see this as the final meeting of the chief negotiators, given the number of outstanding issues.

The chief negotiators are preparing a range of options concerning trade-offs that can be negotiated at the political level by trade ministers and heads of state, an industry source told Bloomberg BNA.

Jeffrey Schott, a senior fellow with the Peterson Institute for International Economics, told Bloomberg BNA Sept. 4 that the TPP could be signed in the first half of 2015 in what he described as a feasible but optimistic scenario.

Schott said that chief negotiators and trade ministers would have to make enough progress on the remaining open issues so that the TPP leaders could say there is substantial agreement on the overall pact and that they are confident that the final parts of the deal can be concluded.

Under such a scenario, the TPP could be signed in the first half of 2015, according to Schott, who is the author of the book Understanding the Trans-Pacific Partnership.

The 12 TPP partners are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam.

To contact the reporter on this story: Len Bracken in Washington at mailto:lbracken@bna.com

To contact the editor responsible for this story: Jerome Ashton at mailto:jashton@bna.com

The Terms of Reference document can be found at http://www.ustr.gov/sites/default/files/Motor%20Vehicle%20TOR%20-%20Attachment%20to%20Amb%20Sasae%20Letter%204-12-13.pdf.