[CTC] Clinton Bashes TPP Auto Rules Of Origin; USTR Offers Detailed Defense

[Arthur Stamoulis]

Clinton Bashes TPP Auto Rules Of Origin; USTR Offers Detailed Defense

Inside US Trade, March 17, 2016 
Democratic presidential candidate Hillary Clinton for the first time charged that the automotive rules of origin in the Trans-Pacific Partnership are too weak, signaling that they allow too much Chinese content in cars that would qualify for the agreement's tariff benefits. She spoke at a March 12 campaign stop in Youngstown, Ohio, three days before the primary elections there.

"It's also important, though, that we keep building a strong platform for autos, that's why I support [Sen. Sherrod Brown's (D-OH)] position, we cannot let rules of origin allow China, or anybody else, but principally China to go around trade agreements, to go around any other kind of regulation and basically be importing cars that have a lot of Chinese content. We're not going let that happen," Clinton said. She attended a rally in Youngstown with Brown, who has endorsed her.

"It's one of the reasons why I opposed the Trans-Pacific Partnership, because when I saw what was in it, it was clear to me there were too many loopholes, too many opportunities for folks to be taken advantage of," she said.

Clinton has previously made clear her opposition to TPP and signaled she would seek changes if elected. Specifically, she has opposed the failure of the agreement to address currency manipulation as well as its pharmaceutical provisions.

Her Democratic opponent, Sen. Bernie Sanders (I-VT), blasted Clinton's latest comments on the auto rules of origin for implying that she would renegotiate the TPP. Sanders, who has made his opposition to past free trade agreements a keystone of his campaign, argued that the TPP should instead be killed.

"Well, I have a message for Secretary Clinton: We shouldn't renegotiate the Pacific trade proposal. We should kill this unfettered free trade agreement which would cost us nearly half a million jobs," Sanders said in a March 12 statement. "We don't need to tinker with this agreement. We need to defeat it. We need an entirely new trade policy that creates jobs in this country, not more low wage jobs abroad."

At the Youngstown rally, Clinton also reiterated her earlier pledge that, if elected, she would create a chief trade prosecutor charged with enforcing U.S. trade agreements. That job would include enforcing rules of origin in trade deals, she said.

Clinton stressed that enforcement of trade deals is especially important for the auto and steel industry, the latter of which she said has been subject to unfair dumping.

"We are going to enforce trade agreements and we are going to stop China or anybody else from dumping steel into our market, undermining our businesses and our workers," she said.

Clinton said she would also stand up for U.S. companies who are unable to access China's market due to barriers, as she had when she was a senator for New York.

She also said that enforcing trade agreements was one part of her broader strategy to boost manufacturing, pledging a "manufacturing renaissance." She cited Brown as saying that she is the only candidate in the presidential race who has a plan to boost manufacturing.

Clinton said the other ways she would boost manufacturing are by increasing access to credit for small businesses and creating jobs in the infrastructure and clean energy sectors.

In a related development, the lead U.S. negotiator for rules of origin in the TPP late last month defended the auto rules as "quite strong," noting that they require more TPP content than many other products.

Speaking at a Feb. 25 event at the Georgetown University Law School, Jason Bernstein, director of customs affairs at the Office of the United States Trade Representative, also argued that the TPP auto rules of origin were unlikely to drive auto production away from the United States.

This is because the U.S. tariff on imported autos and auto parts is already relatively low at 2.5 percent, and the U.S. applies no tariffs on the import of raw materials used in auto production, he said. This means that U.S. companies in the auto supply chain can already import raw materials from China and still have the finished vehicle face the relatively low 2.5 percent tariff when it enters the U.S. market -- for instance, if it is assembled in Mexico with U.S. components.

"If producers were importing more stuff from China or otherwise, they would have done it already," Bernstein said. "There's nothing in the [current situation] without the TPP that would be stopping them, and the fact that you see many … autos and auto parts still made in the NAFTA region, a lot of content coming from this region, would seem to indicate that … the TPP would not be responsible if they already could import more materials from this region and they're basically not."

This argument assumes that the current tariff is so low that companies would be willing to pay it instead of trying to ship duty-free under NAFTA. In order to qualify for duty-free treatment under NAFTA, companies would have to meet the rule of origin for finished vehicles, which requires 62.5 percent NAFTA content under the "net cost method" and complex tracing requirements.

In the TPP, the U.S. obtained a 25-year phaseout of the 2.5 percent auto tariff, which was one of the longest phaseouts in the agreement. Such long phaseouts are reserved for import-sensitive products, which implies the tariff is high enough that lowering it would provide a concrete benefit to importers.

But Bernstein implicitly rejected that notion. "If the tariff rate is already low, as it is for auto parts, changes in supply chain are really less likely to occur as a result of that, especially in autos and auto parts, which are highly capital intensive and produced here … ," he said.

 
 
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