Autos key to driving Pacific trade deal over finish line

Tue Sep 29, 2015 8:47pm EDT
 
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By Joanna Zuckerman Bernstein and Ana Isabel Martinez

MEXICO CITY/ATLANTA (Reuters) - For auto parts manufacturers in the Mexican state of Nuevo Leon, the fine print of a Pacific trade deal negotiators aim to wrap up this week could make or break an export industry boom built up over the last 20 years that is now worth $60 billion.

Trade ministers from the 12 countries negotiating the Trans-Pacific Partnership begin meeting in Atlanta on Wednesday and are on the cusp of sealing the biggest trade deal in a generation, cutting trade barriers and setting common standards for 40 percent of the world economy.

The deal, a legacy-defining achievement for U.S. President Barack Obama, hinges on overcoming deadlocks over trade in dairy, drugs and autos - sticking points that represent the sweet spot the deal must find between opening new markets, shielding existing industries and drafting new rules for issues ranging from intellectual property to labor rights.

The deal will have to protect a Mexican auto industry that emerged as the North American Free Trade Agreement locked Mexico and Canada into the supply chains for U.S. carmakers - and increasingly their Japanese competitors, who manufacture there to avoid U.S. import duties of 2.5 percent on Japan-made cars.

That tax will be phased out under the TPP, sparking fears in Canada and Mexico that low local content thresholds for autos will hand too great an advantage to rival supply chains in Asia.

Allowing cars with as little as 30 percent content from TPP nations to escape import duties, as proposed by Japan, would allow Japanese automakers to source parts in Asia and bypass Mexico, industry sources said.

"(That) would be opening our market in a way that means businesses here could not compete with Asian firms," said Manuel Montoya, director general of the Automotive Cluster of Nuevo Leon, an industry group that lists among its members companies ranging from Daimler (DAIGn.DE: Quote) to smaller manufacturers of batteries, lubricants and moulded plastic.

Mexico is vulnerable on high-volume, low-cost parts also produced in low-wage countries such as Thailand, a key supplier for Japanese auto makers, or China, which is building on its current 13 percent share of the U.S. imported auto parts market, compared with Mexico's 34 percent.   Continued...