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Thursday, September 5, 2013

Japan Joins the Trans-Pacific Partnership: What Are the Implications?

William H. Cooper
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

On July 23, 2013, Japan formally joined negotiations to establish a Trans-Pacific Partnership (TPP) becoming the 12 participant, including the United States. Japan’s membership in the TPP with the United States would constitute a de facto U.S.-Japan FTA. On April 12, 2013, the United States announced its support for Japan’s participation in the TPP. The announcement came after a series of discussions on conditions for U.S. support and outstanding bilateral issues. As a result of the discussions the two sides agreed on measures to address these issues as part of, and in parallel with, the main TPP negotiations. On April 20, the then-11 TPP countries formally invited Japan to participate in the negotiations. On April 24, then-Acting USTR Demetrios Marantis notified Congress that the United States intended to begin negotiations with Japan as part of the TPP thus beginning a 90-calendar-day consultation period with Congress.

The TPP would be a free trade agreement (FTA) among Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The United States and its TPP partners envision the agreement as “a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st century challenges.”

Congress has a direct and oversight role in the issue of U.S. participation in the TPP. It must approve implementing legislation, if the TPP is to apply to the United States. Some Members of Congress have already weighed in on Japan’s in the TPP and under what conditions. More may do so as the process proceeds.

The TPP is the leading U.S. trade policy initiative of the Obama Administration and a core component of Administration efforts to “rebalance” U.S. foreign policy priorities toward the Asia- Pacific region by playing a more active role in shaping the region’s rules and norms. As the second-largest economy in Asia, the third-largest economy in the world, and a key link in global supply/production chains, Japan’s participation would be pivotal to enhancing the credibility and viability of the TPP as a regional free trade arrangement. A large segment of the U.S. business community has expressed support for Japanese participation in the TPP, if Japan can resolve longstanding issues on access to its markets for U.S. goods and services. However, the Detroit-based U.S. auto industry and the UAW union have expressed strong opposition.

The TPP presents both risks and opportunities for the United States and Japan. On the one hand, if successful, it could reinvigorate a bilateral economic relationship that has remained steady but stagnant, by forcing the two countries to address long-standing, difficult issues, and allowing them to raise their relationship to a higher level. On the other hand, failure to do so could indicate that the underlying problems are too fundamental to overcome and could set back the relationship. It could signify the failure of the United States and/or Japan to deal with domestic opposition to a more open trade relationship.

In bringing Japan into the TPP talks, Prime Minister Abe has had to confront influential domestic interests that argued against the move. Among the most vocal have been Japanese farmers, especially rice farmers, and their representatives. Abe has acknowledged these domestic sensitivities, but also insisted that Japan needed to take advantage of “this last window of opportunity” to enter the negotiations, if it is to grow economically. Other Japanese business interests, including manufacturers, strongly support the TPP.

Date of Report: August 13, 2013
Number of Pages: 22
Order Number: R42676
Price: $29.95

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U.S.-Chinese Motor Vehicle Trade: Overview and Issues

Bill Canis
Specialist in Industrial Organization and Business

Wayne M. Morrison
Specialist in Asian Trade and Finance

In 2009, China overtook the United States to become both the world’s largest producer of and market for motor vehicles. In 2012, assemblers in China sold 19 million vehicles, and forecasts project more than 30 million vehicles will be sold there in 2020. China’s increasing importance in this industry presents a unique set of opportunities and challenges for the United States. On the one hand, China is in some respects a relatively open market; it was the third -largest export market for U.S. autos and auto parts in the first six months of 2013 at $5.1 billion ($4.2 billion for autos and $ 0.9billion for auto parts), and has welcomed foreign direct investment by U.S.-based auto and auto parts manufacturers. Every year since 2010, General Motors has sold more cars in China (through exports and its joint ventures there) than in the United States.

On the other hand, China maintains a number of trade and investment barriers that affect trade flows in autos and auto parts. Foreign automakers can produce autos in China only through 50/50 joint ventures with Chinese partners. In addition, U.S. and other foreign auto firms have reportedly faced pressures relating to transfer of technology, export performance, and domestic content requirements, even though China’s commitments in the World Trade Organization (WTO) prohibit the Chinese government from enforcing such policies on foreign firms. Although the United States imports few vehicles from China, China has become the fourth-largest source of U.S. auto parts imports, with shipments totaling $14.5 billion in 2012.

The Chinese government has made the development of its auto and auto parts industries, including “new energy vehicles,” a major economic priority, and has implemented a number of industrial policies to promote and protect Chinese auto firms with the long-term goal of making them globally competitive. As a result, auto and auto parts trade has become a source of conflict between the United States and China, most recently in 2012, when the Obama Administration asked the World Trade Organization (WTO) to consider whether alleged Chinese subsidies of auto and auto parts manufacturers violate international rules.

China’s demand for motor vehicles is likely to continue growing rapidly because its population of 1.3 billion is just beginning to have the financial resources to purchase automobiles. For the United States, this will mean many new opportunities and challenges. Unlike some other markets, such as Korea, China’s large internal demand may well shape the industry for many years, with exporting a secondary interest. China’s rising investments in U.S. parts makers such as Nexteer and B456 Systems may help develop a U.S. technology lead in fuel-efficient, low-emission vehicles. But the prevalence of state and municipal ownership of many Chinese auto and auto parts companies may also cause friction. Many in Congress have called on the Obama Administration to take a tougher stand against China’s industrial policies that may favor Chinese automakers over foreign automakers.

Date of Report: August 16, 2013
Number of Pages: 27
Order Number: R43071
Price: $29.95

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