Detroit wants Trump to play offense in trade talks

Editor's note: A previous version of this report omitted information on Robert Holleyman's title at C&M International. It has been corrected.

WASHINGTON — They say defense wins championships. But in the context of trade, U.S. automakers want the Trump administration to go on offense, arguing that eliminating barriers to exports will do more to support the domestic industry than defensive measures to punish imports.

A big part of their game plan: get U.S. negotiators to aggressively push other nations to accept U.S. safety and performance standards for vehicles, alongside European Union or domestic standards.

The standards issue factors in the heated competition between U.S. and European manufacturers for global sales. Broader acceptance of U.S. standards is needed, U.S. automakers say, because it is too expensive to build vehicles to comply with disparate standards.

"Inaction in the face of the EU's efforts to promote its auto safety standards, and inaction in response to the broader regulatory fragmentation the industry is experiencing will lead to a further isolation of the U.S. and a shrinking ability to export vehicles to key emerging and growing markets," the American Automotive Policy Council, which represents the Detroit 3, said recently in comments submitted to the U.S. Trade Representative as part of its investigation into trade deficits.

Upcoming talks to renegotiate the North American Free Trade Agreement and tweak the bilateral trade pact with South Korea are expected to heavily focus on automobiles.

Industry officials and trade experts say the European Union in recent years has masterfully persuaded countries in other regions to accept vehicles certified to European safety standards, which often effectively freezes out cars built to U.S. standards. The potential damage to U.S. companies is even greater when EU standards are incorporated into free-trade agreements, such as with Vietnam, because regulators in participating countries often interpret the language as an exclusive standard.

European officials have marketed their auto standards as a de facto international standard because they are developed through the U.N. Economic Commission for Europe, which all countries can participate in even though it is a regional body.

A U.S.-certified vehicle must undergo 26 changes, including for external mirrors and defrosting systems, to make it compliant for the EU market. Those changes can cost as much as $1,150 per unit, making it unprofitable for certain U.S.-made vehicles to be sold in markets that exclusively recognize EU standards, according to the American Automotive Policy Council filing.

"What we encourage other countries to do is to accept both," council President Matt Blunt said in an interview.

Japan and South Korea, notably, have long had standards that effectively limit U.S. auto imports. In the 1990s, Japan approved U.S. vehicle standards, but only for a small annual quota.

The U.S. has had modest success countering EU efforts in Latin America and the Middle East. However, a more sustained global effort is necessary to keep open markets that accept U.S.-certified vehicles, as well as to expand the number of countries that accept U.S. auto standards, the American Automotive Policy Council said.

It also urged the government to re-engage with the U.N.'s special working group where global technical regulations are negotiated to jump-start a moribund process.

Automakers saw the Obama administration's pursuit of a U.S.-EU free-trade agreement as an opportunity to achieve mutual recognition of auto standards, which could have opened other markets that endorse the European standards. But the Trump administration, which is hostile to multilateral trade pacts, has scuttled the Transatlantic Trade and Investment Partnership.

"The challenge for U.S. negotiators is how to get greater acceptance of U.S. standards by other countries, while for our own domestic purposes we make sure that the high level of standards the U.S. has are maintained," said Robert Holleyman, deputy U.S. trade representative under President Barack Obama and now president of Crowell & Moring's international policy and regulatory affairs affiliate, C&M International. "The U.S. may have the gold standard and doesn't want to water it down."

The automakers' new game plan includes an old play: pushing the U.S. government to write strong, enforceable rules against currency manipulation into free-trade agreements. Countries such as South Korea and Japan, they argue, have benefited from keeping their currency artificially weak to boost exports and deter imports.

Other trade associations for U.S.-based automakers and suppliers have joined the Detroit 3 to urge the Trump administration to lock in standards recognition and currency manipulation as provisions in NAFTA so it can be a model for future deals, even though the problems don't exist in Canada and Mexico.