DETROIT – We commend President Obama for his leadership and support for the U.S. auto industry. His actions helped prevent a second Great Depression, saving more than a million American jobs in the process. Domestic automakers have pledged investment in U.S. plants through 2015 that will mean more than 40,000 direct manufacturing jobs in the United States.
The renewed American automotive industry is now America’s No. 1 export sector. The Obama administration, American workers and retirees, and the U.S. automotive industry made tough choices and sacrifices to make this turnaround possible. The automobile sector supports over 3 million good-paying jobs in assembly plants, auto parts manufacturing, repair shops, dealerships and other supporting businesses nationwide. In 2012, U.S. automotive exports totaled $133 billion, an increase of more than $17 billion (14 percent) over 2011. Domestic manufacturing has long been the foundation of a strong middle class, and the automobile industry is the one of the most critical for U.S. manufacturing.
Under the president’s leadership, we are implementing higher fuel efficiency standards from 2017-2025, effectively doubling vehicle fuel efficiency, drastically reducing carbon emissions and creating several hundred thousand jobs. About 50,000 of these jobs will be in auto parts manufacturing and vehicle assembly alone.
The president should be commended for reaching consensus among constituencies from the automobile industry, environmental organizations, unions and several other organizations on forward-thinking emission standards that will benefit our economy, consumers and the environment. We also appreciate this administration’s engagement with us on trade issues, and we recognize their efforts to address our longstanding concerns with Japan’s auto industry.
The UAW is concerned that all of this progress could be threatened by Japan’s entry into Trans-Pacific Partnership (TPP) negotiations. Despite decades of efforts by Japan’s trading partners to open the Japanese market to imported automobiles, Japan remains the most closed automotive market in the world, with import penetration of less than 6 percent, despite a Japanese automotive import tariff that is already at zero percent.
The giant South Korean auto company, Hyundai Motors, provides us with a cautionary tale about attempting to break into the Japanese market. Even though Hyundai is one of the most competitive car makers in the world and spent nearly a decade trying to crack the Japanese market, it pulled out of Japan in frustration in 2009. In 2012, Japanese automobile production capacity exceeded 11 million vehicles in a domestic market with only 5 million customers. Japanese manufacturers have depended upon nearly complete control of its domestic market to provide scale and underpin the profitability of their global operations. Now, with a shrinking domestic market, the Japanese auto industry is under pressure to address its unsustainable overcapacity. But instead of allowing competition in its domestic market, they have stepped up efforts to keep a monopolistic stranglehold on the Japanese industry, with the desire to preserve the lopsided system that has served their interests for so long.
The United States already has an enormous trade deficit with Japan, nearly 70 percent of it from auto. The overall U.S. trade deficit with Japan in 2012 exceeded $76 billion (an increase of 21 percent since 2011), and the automotive trade deficit topped $52 billion in 2012 (an increase of 25 percent since 2011). In short, for every vehicle exported to Japan from the United States, Japan exports 130 vehicles to the United States. With their inclusion in the TPP, Japanese auto companies could maintain their protectionist system, keeping a major domestic market isolated from most foreign sales, all the while enjoying newly unfettered access to other international marketplaces. Their nation would become a hub for an export-based manufacturing industry, putting American jobs at risk.
One must only look at how Japan responded to the growing threats of offshoring by Japanese manufacturers in order to see their true intentions. The Japanese government and Bank of Japan have actively engaged in efforts to weaken the yen in order to stimulate exports. Despite multiple commitments at the G20, International Monetary Fund (IMF) and World Trade Organization (WTO) to the contrary, the Japanese government has made explicit statements of its intention to weaken the yen to a targeted exchange rate for the announced purpose of aiding Japanese exports (primarily automobiles). The yen has depreciated 23 percent since October 2012 due to direct intervention by the Japanese government.
This trade-driven monetary devaluation has produced upward forecasts among Japanese automotive companies and downward forecasts among their competitors. As a consequence of Japanese government currency intervention, in a market such as the United States, Japanese imports have seen several thousand dollars in subsidy while, at the same time, exports from the United States to Japan have seen several thousand dollars in added cost. The yen devaluation has had the effect of subsidizing Japanese exports not only to the United States, but also to all global markets. The impact of these policies undermines American auto exports and American jobs and the investment they support.
If Japan is already acting in direct violation of its existing commitments for fair currency and trade practices, why would one believe their actions would be any different in a trade agreement with major potential for increased exports?
If overcapacity is sustained in Japan through yen-subsidized and tariff-free exports to other markets, the capacity in the United States will come under severe pressure. The effect will drag down the U.S. auto industry – the United States’ leading sector of exports – and deeply undermine the business case for additional auto investment in the United States while erasing the competitive gains that are allowing new job creation here at home.
Japanese trade barriers are deeply embedded in an economy structured exclusively for export, and in a regulatory framework designed to exclude imports. A negotiation on nontariff barriers (NTBs) will barely touch the $52 billion U.S.-Japan automotive trade imbalance. The UAW is concerned that Japan’s entry in the TPP could serve as a disincentive to change as the Japanese industry sees the opportunity to sustain profitability for another generation with an export driven economic model – at the expense of American jobs and investment.
A recent study by the well-respected Center for Automotive Research (August 2012) forecasts that Japan’s inclusion in a trade agreement connected to the TPP combined with the impact of currency intervention by Japan to weaken the yen will result in a decline of 225,000 units of U.S. vehicle production and the loss of nearly 100,000 American jobs.
In order to avoid near certain damage to the U.S. automobile industry, and in order to create conditions for true, two-way trade between Japan and the United States, the Japanese auto industry must demonstrate that it can function without the active protection of its government. It must show a multi-year record of opening its domestic market to automotive imports and it must commit to end its currency manipulation to support its exports.
To reach a final agreement with Japan before they take concrete steps to realign their domestic capacity would all but ensure their continued dependence on unfairly exporting vehicles to foreign markets. Japan’s inclusion in the TPP could provide Japanese auto companies a $1 billion annual tax break from the United States in the form of tariff elimination. There absolutely should be no phase out of any passenger car, light truck and auto parts tariffs until there is concrete, measurable progress on these critical economic issues. To that end, the steps outlined below are essential to creating the foundation for free and open trade between the United States and Japan in automotive goods:
- Currency manipulation: The Japanese government must immediately stop manipulating their currency before being considered for membership in the TPP. Binding commitments must be included in the TPP against currency manipulation, with a tariff snapback in the event of violations, and with a bi-national oversight body established within the agreement. (In the event of violations prior to the onset of tariff reductions, snapback would have the effect of extending start of any tariff reductions for a period equivalent to the duration of noncompliance.)
- Competition and restructuring: Due to decades of protection against imports and government support, the consequent dominance of Japanese brands in the Japanese market makes aggressive competition policy essential. Japanese brands control almost 95 percent of the Japanese market and have a well-known relationship with supplier networks within the kieretsu system.·
- Labor standards: Japanese automakers manufacturing in the United States have a similarly poor track record in relations with U.S. workers. They have routinely violated global standards on workers’ rights to organize and bargain collectively – a terribly disturbing trend. The Japanese government must intervene with Japanese automakers to guarantee that they will fully-honor labor standards set by the International Labor Organization (ILO), the Organization for Economic Co-operation and Development (OECD) and the United Nations Global Compact (UNGC), and allow a fair, democratic process for workers to decide on union representation. The Japanese government must begin demonstrating a true commitment to fair trade and worker rights.
- Compliance: An essential improvement from a trade agreement with Japan would be to realize the opportunity for Japan and the United States to collaborate on achieving the highest standards of compliance in global business practices. Japan must enact legislation that fully implements the requirements of the OECD anti-bribery convention, as well as all other relevant international commitments against corruption and bribery.
- Tariffs: Any phase-out of passenger car or light truck tariffs should be first preceded by a restructuring of the Japanese auto market. During this period, and prior to any tariff reductions being initiated, importers should also have a transitional period to build distribution networks in Japan of similar scale to that which Japanese automakers have developed under the open trade and investment practices in the United States. Any delay in full implementation of other commitments would extend the start of tariff reductions.
- Nontrade barriers: Japan has a long history of implementing unique regulatory requirements that serve to block imported vehicles. In order to move past decades of acrimony on regulatory disputes, the Japanese government must recognize high U.S. safety and environmental standards as compliant in the Japanese market with a snapback of duties in the event of noncompliance.
- Customs: Full review and elimination of any customs or port barriers to the import of automobiles with a bi-national oversight body established within the agreement to ensure enactment and enforcement.
- Distribution: Full review and elimination of any barriers to establishment of a robust distribution network for imported vehicles with a bi-national oversight body established within the agreement to ensure enactment and enforcement.
- Non-discrimination: Due to the long history of Japanese government support for its domestic automakers, any automotive industry or consumer incentive must be reviewed and approved by both parties to ensure nondiscrimination against imported automobiles with a bi-national oversight body established within the agreement to ensure enactment and enforcement.
Absent meaningful action on the combined steps listed above, Japan’s inclusion in the TPP will cost American jobs, undermine the business case for automotive investment and will not produce realistic opportunities for automotive exports to Japan. All of this will happen with the U.S. industry at a historic level of global competitiveness.
The American auto industry and its workers have come too far and sacrificed too much to risk all on a one-sided trade agreement with Japan. The UAW remains committed to driving a manufacturing renaissance in America, driving productivity, growing jobs and building world class products for the global marketplace. The UAW will continue to work with all stakeholders on this critically important issue for our economy and the middle class.
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