The big multinational corporations behind the still-secret Trans-Pacific Partnership (TPP) want to push it through Congress before the presidential campaign season risks bringing public scrutiny to the deal. To meet this timeline, our trade negotiators are under great pressure to finish the deal right away. To get it done it looks like they might be giving away (even more) American jobs, factories, and possibly entire industries, in areas that don't matter as much to them in exchange for securing their own dominant positions.
Auto parts are one example of an area that doesn't matter so much to these giant companies – another industry that can be given away. To get TPP finished as soon as possible U.S. negotiators appear to have tried to sell out TPP-country auto-parts manufacturers, giving away a big part of the industry to non-TPP countries like China.
Here is the background. In trade deals they set up rule of origin (ROO) requirements, where a certain percentage of the parts used to make things has to come from the country in the trade deal. A car, for example, contains a lot of parts that are made in a lot of places. To get around tariffs, a company might buy all the parts for their cars from a country that is not in the trade deal, assemble them in a country that is, and say the car was made in that country. So trade deals set content percentages – X percent of the parts in a car have to come from a country that is part of the trade deal, or else a tariff will apply.
American, Mexican and Canadian auto-parts manufacturers are facing intense competition from China. This is a lot of jobs and a lot of money, and the automobile supply chain is a key strategic industry in the world, important for jobs and the ability of countries to make a living in the world.
Under NAFTA the rule is that at least 62.5 percent of a car or light truck's cost (sum of parts) must originate in a NAFTA country to be tariff free. This increases to 75 percent over time. But in order to agree to sign TPP Japan wants this dropped to 45 percent for cars and 30 percent for parts! This means they can get 55-70 percent of their parts from countries like China. That is a huge difference that would gut the auto-parts industry in TPP countries.
Japan has been holding out on this. Mexico and Canada have been pushing the other side, but now might be caving to a 50 percent level. TPP's completion was being held up. To secure Japans's OK for TPP, our trade negotiators appear to be willing to let non-TPP countries get that business. They appear to have made a deal with Japan, without telling Mexico and Canada. Mexico and Canada are giving in – in exchange for what?
Michael Stumo further explains the auto-parts deal at the Coalition for a Prosperous America (CPA) in the post, "Why Does USTR Want to Want Non-TPP Auto Parts to Benefit?"
If the U.S. and Japan have their way in TPP negotiations, non-TPP countries' auto parts makers can access the U.S. and other TPP countries' markets with favorable tariff treatment. But those countries will not have to live up to TPP standards or concede anything in negotiations. They will be "free riders".
Canadian and Mexican auto parts makers that collectively employ nearly one million workers are warning of dire consequences for manufacturing jobs if the Trans-Pacific Partnership trade pact is concluded without better terms for their sector.
They’re worried about a concession sought by Tokyo in talks to create a Pacific Rim trade pact that would let Japanese auto makers ship cars and auto parts into North America duty free but with substantial content from non-TPP countries.
... The United States, which is leading the Trans-Pacific negotiations among 12 countries stretching from Chile to Japan, provisionally agreed to Japan’s request before Washington’s NAFTA partners, Canada and Mexico, were consulted on it.
This is complicated, yes, but it is really important. The implications for our jobs and industries are great.
TPP is called a "trade" deal but in fact not a lot of it is about trade at all. The parts that are not about trade are very important to certain very big and powerful companies. Pharmaceutical companies, for example, are trying to get an extension of patents and other rules that will severely limit the generic drug industry and the ability of government to limit price increases. Other giant companies get other benefits that rig the game for them. TPP could push monopolies that limit what seeds farmers can use, limit public banking, limit movies we can see, Internet use and other areas where giant companies want to secure their domination.
Even the parts that actually are about trade look to be disadvantageous for U.S. workers and smaller companies that want to make or do things inside the U.S. A tariff reduction on imported shoes, for example, rewards giant Nike for pioneering the offshoring business model, and punishes New Balance for trying to hold out and keep making shoes in the U.S.
To get TPP secured for the giant multinational corporations and their near-monopolies in certain areas the U.S. appears to have made a deal with Japan that guts American, Mexican and Canadian auto-parts industries. What are they offering Canada and Mexico to get them to go along? And what else are they offering up in order to rush this deal to completion? How many American jobs, factories, companies and industries will fall victim to this TPP rush job?