Foreign trade

    Significance of trade policies for industry and Germany as an export nation

    The German automotive industry advocates fair market access and free trade worldwide

    The German automotive industry advocates fair market access and free trade worldwide

    Export ratio illustrates importance of foreign markets

    Access to foreign markets is essential for the companies within the automotive industry. Apart from the U.S. market, growth is primarily taking place in markets outside the Triad – in Eastern Europe, Asia, Latin America, and other emerging markets with increasing motorization. Germany, as a manufacturing location, is also benefiting from this growth abroad: At over 75%, the export ratio for passenger cars in 2020 remained at a respectable level. However, production growth is also increasingly taking place abroad, and many countries expect local production commitment. In addition, many countries continue to enact regulations designed to encourage, or even force, local manufacturing. These include high tariffs, non-tariff trade barriers, and government-mandated, high local content requirements (LCRs). All of this increasingly impairs exports from Germany.

    Local content policies contravene WTO regulations

    In India, for example, German passenger cars are sometimes subject to import duties exceeding 100%. As a result, manufacturers are forced to produce even small unit numbers locally so as to remain in the market at all. Similarly, in Brazil, taxes are incurred on imports that can only be avoided by domestic manufacturing – an important component of the country's automotive policy and a challenge for exports from Europe. Brazil is clearly focusing on local content, as seen in its "Inovar" program. The EU Commission has already requested consultations with the WTO, because local content policies contradict the rules of the organization.

    Russia is also pursuing the goal of manufacturing as much as possible in its own country, consequently making imports more difficult. WTO commitments are only being implemented gradually. For example, while the recycling levy has finally also been extended to local manufacturers, at almost the same time Russian manufacturers are receiving subsidies. Thus, it comes as no surprise that exports from Germany to Russia have recently declined significantly. Argentina has almost reverted to a form of barter trade, requiring proof of exports when domestic companies import, while Ukraine has increased its tariffs to incentivize local production. Other countries with which the EU already has free trade agreements, such as South Korea, are trying to make imports more difficult, for example, by way of technical regulations.

    Protectionist measures in developing countries impact Germany as a manufacturing nation

    All of these measures have one outcome: They restrict exports from Germany – and thus have a corresponding impact on Germany as a manufacturing location. It should be noted that foreign manufacturing has been developing much faster than domestic production for some years now. Of course, this is connected with the dynamics in the growth markets. But protectionist measures are additionally furthering this trend.

    The VDA advocates fair market access and a level playing field worldwide

    Economists agree that the costly development of new manufacturing sites should be as a result of potential market demand and not forced by "artificial factors" that make it difficult, or even impossible, to export to these countries.

    It may seem tempting, in the short term, for less-developed economies to impose import restrictions to promote and thus "protect" their own fledgling industry. In the long term, however, there is ample evidence that this "artificial nurturing" of one's own location merely leads to encrusted structures, to completely overstretched capacities, and thus to a considerable cost disadvantage in international competition.

    This is why the VDA supports fair market access and a level playing field worldwide – ultimately leading to a win-win situation for the global division of labor within the automotive industry.

    Multilateralism and free trade agreements

    The German automotive industry is in favor of concluding free trade agreements and has also always advocated the multilateral dismantling of trade barriers. Unfortunately, the Doha Round has yet to lead to a reduction in tariffs and non-tariff barriers.

    WTO must be further reinforced as a guardian of free trade

    According to a study carried out by the Peterson Institute for International Economics, the decisions affecting trade facilitation alone can be expected to increase global economic output by up to $1 billion. The study also assumes that 20.6 million jobs could be safeguarded. However, these results can only be achieved if trade facilitation is effectively implemented. It is, therefore, important that the "post-Bali" agenda be driven forward. The WTO must be further strengthened as an institution and as a guardian of free and fair trade, and continue to be reformed. Likewise, the goal of a comprehensive, broad-based round of tariff reductions must not be forgotten. The EU's trade policy has become an instrument for promoting European principles worldwide. While the protection of human rights and the environment is of great importance to the German automotive industry, increasingly mixing trade policy with other political objectives is not the best way forward.

    As long as there is no breakthrough in the WTO tariff reduction negotiations, bilateral free trade agreements are an important approach to improving market access. After all, not only do agreements with desirable partners have a certain attraction, they can also positively impact integration as well.

    Contact person

    Angela Mans

    Head of the Foreign Trade & Customs Division

    Division Foreign Trade & Customs

    Jendrik Niebuhr

    Expert Trade Policy

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