By David Lawder
WASHINGTON (Reuters) - Detroit automakers and labor unions on Monday insisted that any U.S. trade deal with Japan contain strong provisions to combat currency manipulation and pry open Japan's largely closed auto market before lowering any U.S. autos tariffs.
At a hearing on U.S. negotiating objectives for trade talks expected to start early next year, the United Auto Workers union called on the Trump administration to demand imposing strict quotas on Japanese vehicles and parts, with any increases based on the growth of U.S. automotive exports to Japan.
Desiree Hoffman, UAW international representative, said that despite zero tariffs on vehicle imports, Japan's auto market is largely closed as a result of other barriers such as Japan-specific regulatory, safety and emissions standards and currency manipulation to push down the value of the yen.
"These barriers have created an uneven playing field so much so that for every car that the U.S. exported to Japan in 2017, Japan sent 100 back," Hoffman said. "Any loosening of the 2.5 percent automotive or 25 percent light truck tariff would further direct Japan's overcapacity to our shores, exacerbating the problem."
Currency provisions stronger than those negotiated in the new U.S.-Canada-Mexico free-trade deal are needed in a U.S.-Japan trade agreement, said Matt Blunt, president of the American Automotive Policy Council, which represents Ford Motor Co (N:F), General Motors Co (N:GM) and Fiat Chrysler (MI:FCHA).
Given Japan's history of currency market intervention, he said, "more enforceability" was needed with clearer penalties for violating currency provisions. He said in the past, AAPC has advocated that trading partners with high current account surpluses and high foreign currency reserve levels be cut off from free-trade agreement benefits if they are found to be intervening in currency markets.
"We recommend the administration avoid making any concessions that would further open the U.S. market to Japanese imports unless and until there is evidence that Japan is truly committed to opening its auto market to U.S. vehicles," Blunt said.
AFL-CIO trade policy specialist Celeste Drake said a U.S.-Japan trade deal should have a sunset clause that allows termination if it fails to achieve a 50 percent reduction in the U.S. non-military industrial goods trade deficit with Japan.
The total U.S. goods trade deficit with Japan was about $69 billion in 2017, with autos trade accounting for about 75 percent of the gap.
U.S. OBJECTIVES
Testimony from the hearing will feed into the U.S. Trade Representative's formulation of negotiating objectives for the trade talks, which U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe agreed to launch in late September.
Japan has sought to keep discussions on currency separate from trade agreements. The Bank of Japan has intervened on occasion to maintain currency stability in the face of safe-haven inflows.
A representative of foreign-brand automakers in the United States said currency issues are better dealt with by multilateral groups such as the Group of 20 or Group of 7 major economies.
"We don't want to limit our policy options to promote economic growth here," said John Bozzella, president of the Association of Global Automakers, adding that such provisions could restrict U.S. monetary policy.
Bozzella, whose organization represents major Japanese and European automakers, said an immediate elimination of U.S. automotive tariffs would help make U.S. auto production more competitive by increasing access to technology and components.
AG GROUPS: DON'T LIMIT TALKS
Japan is also seeking less than a full-range free trade agreement with only limited access to agriculture. In a joint statement issued in September on the sidelines of the United Nations General Assembly, the two sides said Japan would not offer any more access to the United States in agricultural, forestry and fishery products than it would have received in the Trans-Pacific Partnership. Trump quit the TPP early in 2017.
But agriculture groups said USTR should push for more access to Japan for U.S. beef, pork, grains and dairy products.
"Don't limit the potential market access gains that may be possible," said Shawna Morris, vice president of trade policy for the National Milk Producers Federation. She urged USTR to "not set a precedent of prematurely capping trade benefits for American farmers and food manufacturers before negotiations begin in earnest."