Auto Workers, Dairy Interests Have Problems With Japan FTA Before Negotiations Begin

The United Automobile Workers union would like to see vehicles left out of trade negotiations entirely when Japan and the U.S. sit down to craft a free-trade deal. Josh Nassar, UAW legislative director, told the International Trade Commission that Japan has no tariffs on imported cars, yet its imports are just 7 percent of sales. From all countries, Japan imported 11.1 billion in vehicles in 2017, according to World's Top Exports. In 2017, the Commerce Department said the U.S. imported $51 billion in Japanese-built vehicles. The ITC also heard from the milk lobby, the American Chemistry Council and the American Apparel and Footwear Association during its hearing Dec. 6.

"We understand that's highly unlikely," Nassar told the commission, which will make private recommendations to the Office of the U.S. Trade Representative about the likely economic benefits in a U.S.-Japan FTA. "We should not reduce our tariffs on Japanese cars, parts and trucks until their market is truly open," Nassar added. The overall trade deficit between the U.S. and Japan was $55.5 billion last year. Nassar said vehicles and car parts account for 75 percent of that trade deficit. He said there are about 100 vehicles brought from Japan for every one sent there.

Nassar blamed non-trade barriers, including in the dealer network, for the discrepancy, as well as currency manipulation. He said the USMCA provision on currency manipulation has no teeth, because all it does is require transparency. "It's hard to see how that would ... hold actors responsible," he said. In response to a question from Commissioner Meredith Broadbent, Nassar said the most recent time the Japanese government chose to weaken the yen was in 2012, but there are many examples. "It's been a chronic problem," he said.

Nassar also suggested the U.S. should implement quotas on lithium ion batteries, which are used in electric vehicles. "We really could see a furthering of the trade deficit if there aren't special safeguards around EVs," he said. "If this agreement is not done right, we could make a bad situation much worse."

Jaime Castaneda, senior vice president for international trade with the U.S. Dairy Export Council, complained about the fact that the U.S. already agreed that it will not push Japan to open its agriculture market beyond the concessions Japan made for the Trans-Pacific Partnership. "America's trade agenda holds the key for helping turn things around for the dairy industry," he said, but only a major revision to Japan's quota system will help. He said if that were to happen, it would increase dairy exports by 400 percent. But if Japan sticks to TPP levels, it would just be $25 million in additional sales, he said. And if the U.S. does not get tariff rollbacks before the TPP and Europe-Japan FTAs take effect, he predicted American dairy exporters could lose $18 million a year in sales to Japan. Prejudging the outcome of agriculture before trade talks begin "sets a dangerous precedent," he said.

The apparel industry thinks a deal could hold promise if it eliminates tariffs on both sides. Nate Herman, AAFA senior vice president, supply chain, said they will be asking USTR to allow accumulation, in other words, let garments sewn in Mexico that contain U.S fabric go to Japan duty free. "Under TPP, we would've been able to do that," he said.

The group is also focused on customs reforms. He told ITC that the customs chapter in the new NAFTA is the gold standard, and that a Japan FTA should incorporate all of it. He suggested that CBP use six-digit Harmonized Tariff Schedule codes in apparel imports from Japan, because the two countries only use the same codes to the six-digit level of detail. Using 10 digits in the U.S. makes compliance costlier, he said.

He said the trade agreement should instruct customs authorities to rely on trusted trader certifications, instead of subjecting apparel imports to heightened scrutiny because of their relatively high tariff levels. "Apparel, we're one of the targeted industries for customs. Even though many of our members are [Customs-Trade Partnership Against Terrorism (CTPAT)] tier 3, they're still treated as some fly-by-night importer who's never imported apparel before," he said. He also asked that negotiators get Japan to increase its de minimis level to the same level as that in the U.S.

The American Chemistry Council said it is not worried about Japanese chemical manufacturers harming the domestic industry, and it would like zero tariffs on all chemicals in the agreement. With $12 billion in annual two-way trade in chemicals, he said that would create substantial savings, and could make up for lost sales to China. China put many chemicals on its tariff retaliation list this year. Generally, the ACC pointed to advances in the new NAFTA as building blocks for a U.S.-Japan pact.