Detroit business leaders understand the value of product innovation and market expansion. For many of these executives, the official release of the Trans-Pacific Partnership Agreement in November signaled a new opportunity of export growth in a region quickly becoming a consumer powerhouse.
In early February, the dozen members of this game changer trade agreement are expected to gather for a formal signing ceremony. After that, the ratification process will trigger numerous Congressional hearings during the summer and early fall. By most accounts, it is expected that a vote will be held to approve the pact sometime later this year. It is therefore not too early for Detroit businesses to start understanding the agreement and the new opportunities and the risks, that may lie ahead.
The sound bites coming from Washington that herald the agreement’s opening of new export markets for Detroit cars and parts manufacturers are certainly encouraging, but there is little discussion heard about the flip side — the anticipated competition from the Pacific Rim. This is good news for some and possibly not so great news for others.
For the automotive industry, the TPP will reduce import duties and market barriers for finished vehicles in a schedule that differs for Mexico, Canada, and the United States. For imports of automotive parts within the TPP region, the value content rules are in many cases lower than the NAFTA requirements. They also impose additional requirements specifically for automotive parts.
In addition, the TPP negotiators inserted a “co-existence” provision that would allow TPP members to retain existing trade agreements such as the NAFTA. How this will be actually implemented by TPP countries remains to be seen, but this key clause will be very important for Detroit CEO’s as they look ahead for strategic advantages. Again, depending on where the company buys and sells — and using which manufacturing processes they use — this is either good news or not so great news.
Detroit is currently hosting the North American International Auto Show and showcasing the latest in product innovation. As 2016 unfolds, innovative thinking will lead C-Suite executives to take full advantage of the risks and opportunities that this massive new trade agreement presents, for both their company and employees as well as what is in store for their competition. The agreement that leaders will sign in February will bear 12 signatures. That list is expected to grow sooner rather than later as other Pacific nations pledge to join.
For these reasons, Detroit automotive executives should take stock now of the TPP, and look past the sound bites and headlines. Understanding the new rules early in the game will best position their companies in a highly competitive post TPP world.
David Hamill and Birgit Matthiesen have provided insights for the Motor & Equipment Manufacturers’ Association, Automotive Industry Action Group, and the Automotive Parts Manufacturers’ Association. They co-chair the Canada-U.S. border business affairs for Arent Fox LLP.