USLaunchesNewTradeProbesIntoAutoImpo

On 23 May, US Secretary of Commerce Wilbur Ross announced the initiation of an investigation into the national security implications of auto imports under Section 232 of the Trade Expansion Act of 1962.

This investigation follows in the footsteps of the US Commerce Department’s probes into whether steel and aluminium imports threaten national security, whose findings were sent to President Donald Trump earlier this year. (See Bridges Weekly, 8 March 2018)

This new enquiry will analyse the impact of imported SUVs, vans, light trucks, and automotive parts into the US market. Under Section 232, the Secretary of Commerce can conduct comprehensive investigations to determine the effects of imported products on US national security.

In a letter to US Secretary of Defense James Mattis, Ross affirmed,“there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.”

The Department of Commerce announcedthat the investigation would “consider whether the decline of domestic automobile and automotive parts production threatens to weaken the internal economy of the United States.”

Currently, Mexico is the top exporterof passenger vehicles and light trucks to the US followed by Japan, Canada, Germany, and South Korea. According to the Commerce Department, imports of motor vehicles into the US have grown 16 percent over the past 20 years.

To determine the effects of imports on national security, the Section 232 investigation will consider criteria such as whether there has been a “loss of skills or investment, substantial unemployment, and decrease in government revenue” as well as the “impact of foreign competition on specific domestic industries and the impact of displacement of any domestic products by excessive imports.”

The Official Notice of Request – publishedon Wednesday 30 May on the Federal Register and which officially set in motion the auto import probe – establishes that public hearings will be held on 19-20 July 2018. Secretary Ross then has a period of 270 days to conduct the enquiry and present the department's findings to President Trump.

The administration will subsequently decide whether to apply tariffs, quotas, or other measures on the range of imported automobiles and auto parts that enter the US market. Any such action will be imposed within 15 days of the administration's decision.

Trading partners warn of implications for global markets, multilateral system

Shortly after Ross' 23 May announcement – and with the White House reportedlyseeking new tariffs on automobile imports of up to 25 percent – Japan's Nikkei index fell by over one percent in day trading following drops in Mazda, Nissan, and Toyota share values. In Europe, BMW, Daimler, and Volkswagen shares slumped between 1.7 and 2.8 percent.

Hiroshige Seko, Japan's Minister of Economy, Trade and Industry, saidthat any potential measure taken by the US would have to conform to the rules of the World Trade Organization (WTO). Seko also declared that Trump's proposed tariffs “would be an extremely far-reaching trade sanction that would put the global market into turmoil." Japan currently accounts for about 40 percent of US vehicle imports.

European Commission Vice President Jyrki Katainen tolda news conference that tariffs on auto imports similar to those imposed on steel and aluminium under Section 232 "obviously would be against the WTO [rules] and it’s very difficult to imagine [car imports] to create any sort of threat to the national security."

In the first semester of 2018, the department concluded two Section 232 investigations into steel and aluminium imports, breaking with a 17-year hiatus of government use of this type of probe. The Trump administration subsequently announced that it would impose a global 25 and 10 percent tariff on steel and aluminium imports as of 23 March.

Washington has since granted exemptions to some trading partners, normally in the form of quotas, and has given Canada, Mexico, and the EU until 1 June to reach an alternative arrangement to avert the duties. (See Bridges Weekly, 29 March 2018)

Those steel and aluminium tariff hikes continue to cause tension across the globe, both in terms of their commercial implications as well as their potential risks to some of the key tenets of the multilateral trading system – namely, whether the use of unilateral measures on national security grounds by one of the world's top traders could lead to a domino effect among other countries.

The existing steel and aluminium duties have prompted formal WTO dispute settlement complaints, most recently from India, along with formal announcements from Japan, Russia, and Turkey that they intend to suspend trade concessions to the US unless a solution is found.

EU Trade Commissioner Cecilia Malmstr?m has since informed the European Parliament that she believes that the bloc will likely face some form quota on steel and aluminium exports.

“Our future course of action will depend on the nature and the severity of measures imposed on our exports by the United States and the injury it does to our industry,” she said. Malmstr?m further warned that restrictive quotas would prompt “immediate retaliation.”

The Section 232 investigation into auto parts corresponds with a renewal of US-China tensions on planned actions following the United States Trade Representative's (USTR) Section 301 findingsregarding China's intellectual property and transfer of technology practices. (See Bridges Weekly, 9 May 2018)

On Tuesday 29 May, President Trump announcedthat the US would impose a “25 percent tariff on $50 billion of goods imported from China containing industrially significant technology, including those related to the 'Made in China 2025' program.” The final list of covered imports is expected to be announced by 15 June.

All eyes on Paris, Macron calls for comprehensive reforms

It is against this tense backdrop that ministers and business leaders from around the world gathered in Paris on Tuesday and Wednesday for the annual Organisation for Economic Co-operation (OECD) Ministerial Council Meeting, chaired by France, on the heels of which was held an informal meeting of global trade ministers – or “mini-ministerial” – that will conclude on Thursday 31 May.

Speaking at the forum, Secretary Ross gave the strongest indicationyet that EU demands for a full exemption from Section 232 steel and aluminium tariffs would not be met.

Discussions at the “mini-ministerial” were expected to echo the 8 May WTO General Council during which virulent exchanges were for the most part devoted to Section 232 and Section 301 concerns, as well as frustrations over the current Appellate Body impasse, rather than the post-Buenos Aires negotiating agenda. (See Bridges Weekly, 9 May 2018)

In addition, a ministerial dialogue between the EU, US, and Japan is slated for Friday 1 June. This builds on a similar meeting held on the sidelines of the WTO ministerial in Argentina where trade ministers from these economies pledged to undertake “trilateral cooperation” aimed at getting rid of “unfair market distorting and protectionist practices by third countries,” with a firm eye on Beijing.

In a much anticipated keynote speech deliveredby Emmanuel Macron at the OECD council meeting on Wednesday evening, the French President calledfor comprehensive reform of the WTO and a “complete update of global competition rules.”

Full reporting on the Paris meetings will be available in the next edition of Bridges.

ICTSD Reporting; “Trump administration looks into new tariffs on imported vehicles,” WALL STREET JOURNAL, 23 May 2018; “Protests worldwide against US idea of auto import tariffs,” NEW YORK TIMES, 24 May 2018; “Europe fears trade dispute escalation as the US weighs auto tariffs,” AGENCE FRANCE PRESS, 24 May 2018; “Trump car tariff threat prompts global condemnation,” FINANCIAL TIMES, 24 May 2018; “EU braces for U.S. metal curbs as hopes fade for Trump relief,” BLOOMBERG, 29 May 2018; “US trade secretary rebuffs EU demands for tariff exemptions,” FINANCIAL TIMES, 30 May 2018, “Macron calls for complete overhaul of world trade rules, WTO reform,” REUTERS, 31 May 2018.

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