ATLANTA – Japan, the United States, Mexico and Canada on Thursday overcame a major sticking point in the Trans-Pacific Partnership negotiations by agreeing to set a 45 percent local content requirement for automobiles, sources said Friday.
The rules of origin, including the local content rate, determine how much a finished vehicle can be sourced outside of a TPP country and still be exported tariff-free.
The content issue was one of the major stumbling points that prevented the TPP ministers from advancing the free trade pact when they met in Hawaii in late July.
The deal reached by the four is expected to help build momentum in the overall negotiations, which have been extended by a day.
TPP minister Akira Amari told reporters that the representatives of the 12 member countries will hold a joint news conference on Saturday. The ministerial meeting started on Wednesday.
According to the sources, the four countries also agreed to adopt a Japan-proposed rule to regard vehicles that use parts procured outside the economic zone as made in the zone if the key parts are made within a TPP country.
Under the North American Free Trade Agreement, Canada and Mexico export vehicles to the U.S. tariff-free.
Fearing that vehicles and auto parts made by Japanese manufacturers in non-TPP countries such as Thailand will flood the U.S. and other markets, Canada and Mexico had been demanding a local content rate of 60 percent or higher, close to the 62.5 percent spelled out under NAFTA.
Japan was seeking a level of around 40 percent.
However, no simple comparison is possible because local content rates are calculated differently in Japan and the NAFTA countries.
Although a rate of 45 percent appears like it will be detrimental to Japan, it is expected to benefit from the rule because of the agreed change to the definition of what constitutes locally made products.
Even with the progress made in the auto negotiations, it remains to be seen whether a broad-based TPP accord will be reached this time around.
Several other issues are bogging down the talks, such as how far Canada is willing to open its market to cheese and other dairy products from Australia and New Zealand, and the U.S. push to establish longer patent protection rules for biologic drugs, a new generation of pharmaceutical made from living organisms.
Also, the U.S. has been hoping to lock in rules on free trade and intellectual property protection that global trade heavyweight China would eventually have to heed.
The 12 countries in the TPP discussions represent about 40 percent of the global economy, so any agreement would lay down broad standards. China, however, has already begun trying to set up its own Asia trade agreement, which analysts worry could take concrete shape if the TPP talks fail.
The talks have drawn strong criticism for their secrecy and fears they will benefit some industries while harming others.
A group of Canadian provincial officials were in Atlanta on Thursday pressing Ottawa’s negotiators not to give in to pressure to open up the country’s dairy sector to more imports from dairy powers Austria and New Zealand.
If a proposal is accepted to allow another 17,000 tons of foreign cheese into Canada, it would destroy about 400 family farms in Quebec province, argued Pierre Paradis, the province’s agriculture minister.
But Australian lobbyists said they would only accept an overall deal that gives greater dairy access to Canada and greater access to U.S. markets for their sugar.
“We are an industry with no subsidies, we are free-traders,” said Robert Pettit of the Dairy Australia industry group.