ATLANTA – A U.S.-Japan agreement on automobile trade as part of a sweeping Pacific Rim trade deal would have its own dispute settlement mechanism, including penalties, if Japan does not open its market enough to U.S. vehicles, a source close to the negotiations said.
A deal on the ambitious free-trade zone appeared within reach Saturday as negotiators continued their push to resolve the remaining issues over automobiles, drug patents and dairy trade.
A broader agreement on auto related matters between Japan, the United States, Mexico and Canada was nearly complete, two people close to the closed-door talks said, requesting anonymity because of the sensitivity of the negotiations.
“We are very close on cars,” one of the people said near the end of the third day of ministerial level discussions Friday.
Remaining differences centered on local content thresholds for specific auto parts, a second person said.
The outline of the auto-related element of the Trans-Pacific Partnership taking shape in the negotiations in Atlanta would give Japan’s automakers, led by Toyota Motor Corp., a freer hand to buy parts for vehicles sold in the United States from Asia.
But the deal would also contain a side agreement between the United States and Japan intended to open the Japanese market to American-made cars. It would also cut tariffs on Japanese vehicles exported to the U.S., but over a period of time expected to be 20 years or more.
Although Japan does not impose tariffs on U.S.-made vehicles, U.S. automakers have complained for decades that the market is essentially shut to them because of other barriers, including difficulty in securing distribution networks and the need to meet separate safety certification.
The bilateral deal between the United States and Japan would include a first-of-its-kind dispute resolution mechanism that would impose penalties if Japan were judged to have fallen short of its commitments, the second person said.
At the same time, Japan’s auto manufacturers would be given clearance to buy more parts elsewhere for cars manufactured in North America without paying trade tariffs under the terms of the deal being discussed.
The North American Free Trade Agreement between Canada, the United States and Mexico mandates that vehicles have a local content of 62.5 percent. The way that rule is implemented means that just over half of a vehicle needs to be manufactured locally.
The set of rules under discussion in Atlanta would bring that to 45 percent, or about 55 percent under a separate calculation used by Japan’s auto industry and regulators, people with knowledge of the discussions said.
The United States has been pushing for expanded access to Japan’s car market since the 1980s. Japanese auto manufactures have said the lack of sales for American brands reflects a lack of effort, citing strong demand for German luxury brands like BMW and Daimler’s Mercedes.
Economy minister Akira Amari had said earlier Friday that negotiators were close to reaching a sweeping deal on the trade pact, citing additional progress on lingering issues involving dairy products and intellectual property protection for expensive biologic drugs.
Amari, who spoke to reporters between a meeting of the trade ministers in Atlanta, said he was hopeful of reaching a deal.
“Every country is working toward closure so we can hold a joint news conference tomorrow,” Amari, the minister in charge of TPP negotiations, told reporters Friday ahead of a ministerial session.
“We’ve made a big leap on automobiles,” he said. Negotiations through Friday evening have led Canada and Mexico to “considerably understand” Japanese positions, Amari added.
The countries discussing how long the patents on new biologic drugs should be protected have “come closer” to an agreement, he also said.
Australian trade minister Andrew Robb said the United States proposed shortening the period from 12 years to effectively eight, in an apparent concession to Australia and other countries that have called the 12-year period too long.
“But that’s unsatisfactory,” Robb said. Australia and other countries have demanded the period be no longer than five years to help encourage the production of cheaper generic medicine.
Robb expressed his eagerness to finally reach an agreement on drug patents, saying, “I see a path forward.”
Amari also mentioned progress over the issue of market access for dairy products over which New Zealand has disputes with Japan, the United States, Canada and Mexico.
New Zealand “can almost see a goal within sight with Japan, Canada and Mexico. The (remaining) task is relations between New Zealand and the United States,” Amari said.
The countries involved held a series of working-level consultations, both bilaterally and multilaterally, ahead of a plenary ministerial session Friday evening, Japanese officials said.
Trade ministers entered this week’s session under pressure to strike a final deal, after their talks in Hawaii two months ago failed. They have already addressed many other issues, including some other industrial and agricultural trade areas, competition with state enterprises, digital economy protections and investment-dispute mechanisms.
But the details of many of those specific TPP chapters remain secret to the public, with the idea that negotiators will produce a complete, unalterable final document for their governments or legislatures to ratify on an up-or-down basis, with no room left to negotiate.
That explained why aides to senior U.S. Rep. Paul Ryan and others were in Atlanta, to ensure that the final deal is acceptable for ratification by Congress.
But similar pressure arose from Canada, where the trade treaty is expected to be an issue in the Oct. 19 national elections.
According to reports, the leader of the New Democratic Party, which until recently was leading the polls, declared it would not feel bound to back the TPP treaty negotiated by the current Conservative government of Prime Minister Stephen Harper.
The United States started the TPP negotiations in 2010 with Australia, Brunei, Chile, New Zealand, Peru, Singapore and Vietnam. Canada, Japan, Mexico and Malaysia joined the talks later.