ATLANTA -- Pacific trade ministers reached a deal on the most sweeping trade liberalization pact in a generation that will lower U.S. tariffs on light vehicles, revamp global auto production and open Japan's market to U.S.-built vehicles.
Leaders from a dozen Pacific Rim nations are poised to detail the pact later today.
The deal cuts trade barriers and sets common standards for 12 countries and could reshape industries and influence everything from the price of cheese to the cost of cancer treatments.
The Trans-Pacific Partnership would affect 40 percent of the world economy and would stand as a legacy-defining achievement for U.S. President Barack Obama, if it is ratified by Congress.
Lawmakers in other TPP countries must also approve the deal.
The final round of negotiations in Atlanta, which began on Wednesday, had been stymied over the question of how long a monopoly period should be allowed on next-generation biotech drugs, until the U.S. and Australia negotiated a compromise.
Automotive impact
As part of the deal, the U.S., Mexico, Canada and Japan agreed to rules governing auto trade that dictate how much of a vehicle must be made within the TPP region to qualify for duty-free status.
The North American Free Trade Agreement between Canada, the U.S. and Mexico mandates that vehicles have local content of 62.5 percent. The way that rule is implemented means that just over half of a vehicle -- and its parts -- needs to be manufactured locally. It has been credited with driving a boom in auto-related investment in Mexico.
The set of rules approved by negotiators in Atlanta would lower the local content requirement to 45 percent, or about 55 percent under a separate calculation used by Japan's auto industry and regulators, people with knowledge of discussions have told Reuters.
With the Pacific accord covering four times as many countries as Nafta, some countries wanted that amount to be at least 60 percent, said people familiar with the matter, while Japan argued for 40 percent.
“It will have a negative impact on the U.S. auto industry and probably also on the Canadian and Mexican industries as well,” said Clyde Prestowitz, president of the Economic Strategy Institute, a nonpartisan research group, in Washington.
The deal includes provisions to eliminate U.S. import tariffs of 2.5 percent on cars and 25 percent on trucks over 20 years or more. But since it isn’t tariffs that keep American cars and light trucks from being sold in markets like Japan, there won’t be reciprocal trade going West across the Pacific, Prestowitz said.
“Imports to the U.S. will undoubtedly rise and exports from the U.S. will remain essentially stopped up,” he said.
The tariffs have been in place for more than 50 years. The truck tax has forced foreign automakers to build truck and SUV assembly plants in the U.S. and has kept some foreign rivals out of the truck market that is dominated by and a source of huge profits for the Detroit 3.
Freer hand for Japan
The TPP also gives Japan's automakers, led by Toyota Motor Corp., a freer hand to buy parts from Asia for vehicles sold in the United States.
According to reports, the sweeping deal also contains a side agreement between the U.S. and Japan intended to open the Japanese market to American-made cars. It would also cut tariffs on Japanese vehicles exported to the United States, but over a period of time expected to be 20 years or more.
The American International Automobile Dealers Association, which represents import car brands in the U.S., endorsed the pact.
"This deal will benefit not just the auto industry, but all Americans," AIADA President Cody Lusk said in a statement. "Today's announcement shows that the United States is fully committed to leading on global trade and securing a bright future for its citizens."
U.S. lawmakers sought strong and enforceable language on currency manipulation, but that wasn’t in the TPP agreement and will have to be negotiated separately, Rep. Sander Levin, D-Mich., said in a memo to fellow Democrats in the House Advisory Group for Negotiations prior to the deal’s announcement. The Treasury Department will handle those talks.
Ford Motor Co., however, called on the Obama administration to renegotiate the agreement -- and for Congress to reject ratification because of currency manipulation concerns.
“Within the U.S. Congress, there is bipartisan consensus that currency manipulation needs to be meaningfully addressed. This summer, U.S. lawmakers took unprecedented action to set a clear negotiating objective for addressing currency manipulation in all future trade deals. The TPP fails to meet that test," Ziad Ojakli, group vice president for government and community relations for Ford, said in a statement.
“To ensure the future competitiveness of American manufacturing, we recommend Congress not approve TPP in its current form, and ask the Administration to renegotiate TPP and incorporate strong and enforceable currency rules. This step is critical to achieving free trade in the 21st century.”
U.S. Rep. Debbie Dingell, D-Mich., also criticized the deal for ignoring currency manipulation, saying it’s a “bad deal for the working men and women of the American auto industry.”
In Canada, Prime Minister Stephen Harper said he was very confident that the Canadian auto and auto parts sector will compete and succeed under the TPP pact.
In the wake of the deal, Harper, who is running for reelection, plans to unveil new measures soon to attract investment in Canada's auto industry, which has seen jobs and factories decline under NAFTA.
Voters in industrial Ontario, where Canada's auto industry is concentrated, could be angered by the expected hit to the auto industry.
"All the signs point to the TPP posing a major threat to good-paying jobs in Canada," warned Jerry Dias, president of the Unifor union, which represents autoworkers.
Setback for China
China was left out of the agreement, which supporters promoted as a counterweight to its growing influence. “When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy,” Obama said in the statement.
The White House framed the deal as expanding markets for U.S.-made goods and job opportunities for people in the U.S. The pact would eliminate more than 18,000 tariffs that other nations impose now on U.S.-made products, the White House said in an e- mailed fact sheet.
Without the agreement, those tariffs are as high as 59 percent on the $56 billion in U.S. machinery products exported last year to countries in TPP, the White House said.
If implemented, it would be the largest trade deal the U.S. has negotiated since NAFTA took effect in 1994. The three signatories to that agreement, the U.S., Canada and Mexico, are included in this one, as is Japan.
Other terms
The TPP deal being readied for expected announcement today also sets minimum standards on issues ranging from workers' rights to environmental protection. It also sets up dispute settlement guidelines between governments and foreign investors separate from national courts.
The TPP deal has been controversial because of the secret negotiations that have shaped it over the past five years and the perceived threat to an array of interest groups from Mexican auto workers to Canadian dairy farmers.
Although the complex deal sets tariff reduction schedules on hundreds of imported items from pork and beef in Japan to pickup trucks in the United States, one issue had threatened to derail talks until the end -- the length of the monopolies awarded to the developers of new biological drugs.
Negotiating teams had been deadlocked over the question of the minimum period of protection to the rights for data used to make biologic drugs, made by companies including Pfizer Inc., Roche Group's Genentech and Japan's Takeda Pharmaceutical Co.
The United States had sought 12 years of protection to encourage pharmaceutical companies to invest in expensive biological treatments like Genentech's cancer treatment Avastin. Australia, New Zealand and public health groups had sought a period of five years to bring down drug costs and the burden on state-subsidized medical programs.
Negotiators agreed on a compromise on minimum terms that was short of what U.S. negotiators had sought and that would effectively grant biologic drugs a period of about years free from the threat of competition from generic versions, people involved in the closed-door talks said.
A politically charged set of issues surrounding protections for dairy farmers was also addressed in the final hours of talks, officials said. New Zealand, home to the world's biggest dairy exporter, Fonterra, wanted increased access to U.S., Canadian and Japanese markets.
Reuters, Automotive News staff and Bloomberg contributed to this report.
