Global trade agreements
The German automotive industry supports the worldwide dismantling of barriers to trade and investment. The objective is a so-called “level playing field” – namely equal conditions for all trade partners within the market. Free trade agreements are an important instrument here for the mutual opening up of markets. The EU has already concluded agreements with numerous countries; others are pending. In addition to TTIP, the priority for the German automotive industry is agreements with India, the ASEAN countries, Mercosur and Canada.
While the agreement with South Korea has improved market access for both sides, trade barriers are still to be encountered in South Korea, making access for European manufacturers and suppliers more difficult. The European commission has been negotiating on a free-trade agreement with Japan since 2013. The particular feature for the automotive industry is that Japan does not levy any import duties on vehicles and parts – meaning that they require no dismantling. Admittedly the share of the Japanese market accounted for by imports has been low for many years by international comparison; latterly it was 6 percent. One reason for this is non-tariff trade barriers. According to studies these have a cumulative customs equivalent of 50 percent. That is why it is important these barriers be dismantled. Japan has already responded and further opened its market. Other steps are still pending. The European Commission will continue to negotiate with Japan so that the agreement can be concluded.
Bilateral relations with important trade partners
In addition to the trade partners with whom the EU has negotiated, or is still negotiating, comprehensive free trade agreements, there are numerous other important partner countries for the automotive industry. China acceded to the WTO more than twelve years ago – an investment agreement is currently being negotiated with the EU. The further opening up of China since its accession to the WTO was accompanied by a breathtaking development of the market. The German automotive industry is investing heavily in China. That is why the VDA welcomes an investment agreement, which will enhance legal and planning security for both sides. On other issues as well, such as the reform of distribution rights in China, the VDA sets great store by constructive dialog. The VDA is boosting its local presence with its new office in Beijing. The importance of the Chinese market and networking with industry there will continue to grow.
Eastern Europe as a whole is increasingly important to the global automotive industry: many Eastern European countries have established themselves as both automobile markets and production locations. Whereas EU members are making good progress, the markets of Ukraine and Russia have been unable to develop any further because of political events and various measures restricting trade. Tariff increases were announced in Ukraine at the turn of the years 2014/2015 – not just for the automotive industry but for more than 100 products. In the context of sanctions, Russia is attempting to further reinforce its own manufacturing base. A purchase bonus was applied for vehicles made in Russia. Passenger car exports to Russia have fallen by around 30 percent in the past year. The German automotive industry remains engaged in Russia and sets great store by a constructive dialog and the prompt end to political crises in the region. Admittedly this is subject to the primacy of politics.
Regrettably it has not been possible thus far to bring the WTO’s multilateral approach to a successful conclusion. For the German automotive industry, a successful conclusion of the Doha Round with a comprehensive dismantling of trade barriers remains the ideal solution. The WTO must be further strengthened as the guardian of international trade. Arbitration processes can reduce, or even avoid, protectionist tendencies. The German automotive industry would like to see a worldwide “level playing field” – as the EU is for non-member country producers. However, as long as the WTO path remains deadlocked, bilateral free trade agreements – such as TTIP – offer enormous opportunities for the German automotive industry.
TTIP - the big opportunity
TTIP, the planned transatlantic trade and investment partnership, offers huge opportunities for the German automotive industry. In addition to the benefits to the industry in the EU and in the USA, such an agreement would also be beneficial to the population in both economic areas. The fears expressed in public are being taken seriously, even if they are often unfounded. But in weighing up the risks and opportunities, the verdict is clear: yes to TTIP! For the first time in the history of free trade agreements, the negotiating partner countries’ industries are collaborating closely on TTIP: the automotive associations on both sides of the Atlantic have issued joint statements in favor of the trade agreement. They are collaborating on important issues, for example what methodology to apply when comparing standards in the EU and the USA. If different regulations and standards can result in comparable outcomes, they could be mutually recognized. This would save a lot of money and work. Future regulations – for example in the electro-mobility and networked driving fields – could be developed jointly. If the EU and the USA agree on common regulations and standards, this will also have a knock-on effect on other regions. Especially in the context of work on global rules within the UN (United Nations), the EU and USA together could serve as a pioneer and role model.
A study by research institute Ecorys back in 2009 investigated the impact of non-tariff trade barriers to transatlantic trade. The study concludes that the impact of trade barriers on the automotive industry is the equivalent of customs duties of around 26 percent. The existing regulatory differences therefore have the effect of an additional 26 percent in customs duties. The elimination of customs duties alone and a reduction in other non-tariff trade barriers by a quarter would increase the EU’s vehicle and parts exports to the USA in the period 2017 to 2027 by around 150 percent. TTIP would yield enormous reliefs and cost savings to German companies wishing to supply to the USA. The environment and consumers will also benefit because increased resources will be freed up for additional innovation.
The German automotive industry alone would save around one billion euros annually by dismantling tariffs. The US industry’s economies are in addition to this. Here too, the dismantling of tariffs is of strategic importance. Because, at the same time, the USA is negotiating with eleven other trading partners in the Asia Pacific area on the far-reaching Trans-Pacific Partnership (TPP). This partnership includes the dismantling of tariffs and non-tariff trade barriers in Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the USA and Vietnam. Producers in the EU are not permitted to be at any disadvantage against competitors from the aforementioned countries. Such an agreement would also be beneficial to consumers: opening up markets enables more small and medium-size enterprises to offer their products on the market. This increases competition and benefits the customer through a more diverse product offering. According to an EU study, a European family of four would have up to 545 euros more to spend.
TTIP could become the global yardstick for fair and secure investment safeguards. The numerous small and medium-sized enterprises in Germany in particular, which are unable to afford legal departments of their own, would benefit. Numerous TTIP critics fear that investors will abuse the planned arbitration procedures in order to restrict countries’ regulatory autonomy and thereby stymie new laws in areas such as environmental and consumer protection. Investment protection agreements are treaties under international law protecting foreign investment. They ensure protection against discrimination and expropriation without compensation, but also the free transfer of capital. If a country infringes one of these aspects, a foreign investor can avail themselves of the Investor-state dispute settlement (ISDS). International arbitration courts are not intended to prevent higher standards, but to protect investment. Legislative sovereignty is not limited by investor protection such as this. The legislator may continue to pass laws. He must however pay compensation if he discriminates against foreign investors or changes the legal framework to such an extent that investments are made worthless.
Dispensing with an investment protection chapter in the case of TTIP would result in discrimination between countries and also impact forthcoming free trade agreement negotiations.