THE TTALK QUOTES 

On Global Trade & Investment

 

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No. 65 of 2015

FRIDAY, SEPTEMBER 25, 2015      

   
Filed from Portland, Oregon  
     
Click  here for last Friday's quote on the Jones Act.
TPP AND NORTH AMERICA

"Canada cannot afford to be left behind to join later. [Prime Minister Stephen] Harper has said as much. But it is more than likely the results of the automotive negotiations this week will be 'Hello TPP-Sayonara NAFTA.'"

Peter Clark
September 21, 2015
CONTEXT
Peter Clark is a Canadian trade policy expert and frequent contributor to the Ottawa publication iPolitics. Today's quote is from the article by Mr. Clark that appeared in iPolitcs this past Monday.

The automotive negotiations he was referring to were the talks in San Francisco among four of the 12 TPP countries: Japan and the three NAFTA countries, namely, the United States, Canada, and Mexico. Reportedly, the negotiations in San Francisco did not resolve the issue. Or it may be that San Francisco wasn't the right place for an announcement. 
 
The topic of TPP and auto parts is a real gunpowder issue. It exploded on the pages of the world's trade press after the July ministerial in Maui, where the U.S. and Japan unveiled a plan that reportedly took Canada and Mexico by surprise. And it wasn't a pleasant surprise. We are not entirely sure of the numbers, but the starkest contrast between the reported proposal from the Maui Ministerial and the current NAFTA requirements is this: 

Under NAFTA, vehicles need to have at least 60 percent North American content and vehicle parts to qualify for duty free treatment, and auto parts must have 62.5 percent to qualify. The magic phrase in today's parlance is "regional value content" or RVC. And in the case of these NAFTA thresholds, they are backed up and enforced through a large and complex regulatory system. 

Just how low Japan and the U.S. might be willing to put the regional value content for autos is not quite clear; the range seems be somewhere between 40 and 55 percent. For auto parts, the proposed content requirement is 30 percent. And it is the parts number that is perhaps the more important. 

North American auto parts producers are not happy. The Automotive Parts Manufacturer's Association of Canada, for example, has an open letter to the Canadian and Mexican negotiators on its website. The addressees are Canada's Minister for International Trade, Ed Fast, and Mexico's Minister of Economy, Dr. Ildefonso Guajardo Villareal. The signatories are Canada's Automotive Parts Manufacturers Association (APMA) and the Mexican National Automotive Parts Association (INA). They are pretty clear about the consequences of switching out the current NAFTA content requirements for much lower ones in TPP. 
 
"A low [regional value content]," they write, "would seriously compromise our operations in the North American region and we may be forced to significantly reduce our operations-at the cost of providing an economic advantage to non-TPP members."

Before we can comment on any of this, three more background points are in order. 
 
***

The first relates to Japan. Japan is, obviously, not a NAFTA partner, but it is the second largest economy in the TPP negotiations after the United States. And in those negotiations, lots of countries want lots of things from Japan. But what does Japan want? 
 
Birgit Matthiesen and David Hamill of Arent Fox have written some excellent blogs on this issue. In the most recent one, published on September 23, they note that "Japan has made it very clear that one of its prime objectives in the TPP is to gain expanded access to the North American market" for auto parts. That is understandable enough, for as Matthiesen and Hamill also point out, "The United States remains the most attractive market for auto parts and assembly operations."

The second has to do with what Prime Minister Harper said. On October 19-that's 24 days from now-Canadians go the polls. In other words, Prime Minister Harper is in a very tough election battle against two opponents: Liberal leader Justin Trudeau, and NDP-New Democratic Party-leader Thomas Mulcair. They are, of course, having debates. There was one in Calgary on September 17, hosted by The Globe and Mail, and in that debate Prime Minister Harper spoke directly to the concerns about changes to the NAFTA rules or origin for autos and auto parts as a result of TPP. 
 
He said he thought the TPP negotiations would conclude successfully and that the agreement would be "the basis of the global trade network in the Asia Pacific for the generation to come." And then Prime Minister Harper said this: 

"And what I say to the auto sector in particular-I'm not suggesting they will necessarily like everything that is in that, but what I am saying is we simply cannot afford as a country to have our auto sector shut out of global supply chains. That would be a disaster. We're going to make sure we get the best deal for that. And of all of our sectors, but we are committed as a government, to making sure we do not fall behind in our access to a global trading economy which is so integrated. If we do that, that would be disastrous for this country."

Third, there is next week, which can be summed up in this short excerpt from a recent USTR press release: 

"The United States will host a meeting of Trans-Pacific Partnership (TPP) Ministers in Atlanta, GA, from September 30th-October 1st preceded by a meeting of TPP chief negotiators from September 26th-29th."


COMMENT
Does that mean it could all be over in a week? Might the TPP negotiators finally reach the stage where they say, We have a deal? Only a fool would confidently predict such an outcome. And only a greater fool would discount the possibility. 
 
New Zealand's outspoken and usually on-the-money trade minister Tim Groser has said, "The Canadians are negotiating as if there is no election." And Prime Minister Harper has been roundly criticized for accepting a bad deal. Would he and his government really be forcing issues as candidly and as openly as they are if they thought this upcoming ministerial would fizzle?

Just as telling, the rhetoric about TPP seems to be coming down to earth, with ministers accepting that it may not be all they had hoped for but is still worth doing and worth getting done. 
 
And then of course there is the admonition from Japan's Akira Amari that a failure in Atlanta could mean a delay of years. Routine as such warnings may have become, the political calendar would seem to back this one up, starting with the Canadian election on October 19. 

So, assume for today that there is "a deal," if not next week then very soon thereafter. What would that mean? Yes, it would be the starting bell for one hell of a political fight in the United States as well as some of the other TPP countries. 

For the U.S., Canada, and Mexico it should also be the launch of an intensive work program to make the transition from NAFTA to TPP as smooth as possible.
SOURCES & LINKS
Sayonara NAFTA is a link to the iPolitics article by Peter Clark that was the source for today's quote. 

A Debate in Calgary takes to you the McLean's transcript of The Globe and Mail Debate in Calgary on September 17. 

USTR to Host is a link to the USTR press release quoted above.

NAFTA, Autos, and TPP take you to the Arent Fox blog on this subject mentioned in the Context section. 

Canada Heads to Atlanta is a useful Globe And Mail article on the upcoming TPP ministerial. 

APMA is the home page of the Automotive Parts Manufacturers' Association of Canada.

 

 

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