Automotive Trade Policy Council Motor Vehicle Manufacturing Assembly

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Automotive Trade Policy Council Motor
Vehicle Manufacturing / Assembly WTO
Non-Preferential Auto Rules of Origin Charles
Uthus, ATPC Paul Vandevert, Ford Motor
Co.Bernadette Shortt, General Motors
Corp.World Trade OrganizationGeneva,
Switzerland February 14, 2006
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-- Introduction --Presentation Summary

• Automotive Trade Policy Council
• Support for Free Trade
• Auto Manufacturing and Assembly
• Global
• Complex
• Capital Intensive
• Summary
• Rule of Origin
• ROO Predicates
• Tariff Shift Preferred (8701-8705)
• Modification/flexibility for 8708
• Value Approach Not Effective
• Conclusion

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-- Introduction --Automotive Trade Policy
Council

• The Automotive Trade Policy Council is a U.S.
  based association that represents the common
  international trade, investment and economic
  interest of its member companies DaimlerChrysler
  Corporation, Ford Motor Company and General
  Motors Corporation

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-- Introduction --Support for Free Trade

• The U.S. Automotive Industry is a global industry
  that depends on expansion of free trade and
  investment around the world for continued growth
  in sales, production, and investment
  opportunities
• We strongly support the WTO an believe that a
  well crafted WTO Doha Round agreement will
  promote economic growth, improved standards of
  living and lead to a stronger, more competitive
  global automotive sector
• We also support the establishment of
  comprehensive regional and bilateral trade
  agreements to augment the WTOs success in
  promoting trade

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-- Manufacturing Assembly Auto Sector- Global

• The Auto Sector is a key driver of the world
  economy
• Is the worlds single largest manufacturing
  sector
• In 2004, approximately 64 million motor vehicles
  were manufactured/ assembled worldwide by over 50
  major automakers that have their global
  headquarters in 11 countries (USA, Japan,
  Germany, France, China, Korea, Russia, India,
  Malaysia, Sweden and the United Kingdom), and
  have major manufacturing/assembly plants in over
  53 countries.
• These vehicles were sold in every single country
  in the world. With the United States, Europe
  (the largest in Germany, France, Spain, Italy,
  the U.K. and Belgium), Japan, China, Korea,
  Brazil, Canada, Russia, and Mexico the largest
  markets.
• With all this activity it is not a surprise that
  the auto sector directly represents 10 of global
  merchandise trade (not including the indirect
  global trade in raw materials and intermediary
  inputs that takes place in support of the auto
  sector)

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-- Manufacturing Assembly Auto Sector- Global

• Global auto production is increasingly
  integrated on a global basis
• Worldwide sourcing of parts and components is
  resulting in a longer supply chain and more
  international suppliers
• Shared RD for products produced in different
  geographic areas
• Each vehicle may include materials and parts
  built in-house, obtained from a domestic
  supplier, sourced from a FTA partner, and sourced
  from a foreign supplier. These suppliers in turn
  source from second and third tier suppliers that
  may be located anywhere in the world.
• The competitive nature of the global auto
  industry adds to this global scope. Automakers
  who do not take advantage of the most competitive
  parts and processes available worldwide cannot
  compete

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-- Manufacturing Assembly Auto Sector --
Complexity
Each vehicle involves a continuum of inputs and
commercial functions from research, design,
manufacture to the distribution, financing and
servicing of the vehicle throughout its useful
life
Research Development
Raw Materials Suppliers
ATPC Member- Produced Parts
Engineering Design
U.S. Automotive Parts Suppliers
Testing Safety Compliance
Global Automotive Parts Suppliers
Logistics / Transport
Foreign Automotive Parts Suppliers
Dealerships Auto Financing
Replacement/ Aftermarket Parts
Maintenance Servicing
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-- Manufacturing Assembly Product Complexity
Each vehicle incorporates thousands of parts and
components, supplied by hundreds of suppliers
from numerous sources
Supplier Capital Affiliation USA (26), Canada
(4), German(3), Japan (2), Sweden, Denmark,
France, Mexico, Korea
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-- Manufacturing Assembly Assembly
Complexity (A Case Study)

• The best way to demonstrate this is to look at
  the actual number of parts used in the assembly
  of one North American built motor vehicle
• Recent analysis of one vehicle indicated 700
  unique part numbers at final assembly-- for a
  total of 800 parts
• These 700 unique Tier 1 part numbers were
  comprised of approximately 2500 Tier 2 parts,
  which in turn represent approximately 8,250 Tier
  3 parts
• ONE AVERAGE VEHICLE MODEL
• of Unique Parts of Suppliers
• Tier 1 700 150
• Tier 2 2500 450
• Tier 3 8250 1,250
• does not include fasteners, standard parts
  and bulk materials
• Collectively, ATPC members produce over 90 car
  models on 50 vehicle platforms. Despite the
  sharing of parts across platforms and models it
  still represents hundreds of thousands of auto
  parts and thousands auto part suppliers from
  around the world

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-- Manufacturing Assembly Capital Intensive

• The Automotive Sector is highly capital
  intensive
• In the automotive sector, even the simplest
  vehicle assembly operations require substantial
  capital investment, facilities (including
  buildings,machinery equipment ), and labor
• A single vehicle auto assembly plant can cost
  between 100 million 1 billion, with millions
  necessary for annual support, retooling and
  capital improvement
• The auto sector is one of the most highly
  regulated industries in the world adding
  significant capital costs to meet safety and
  emissions standards
• Because of this there is no such thing as a
  "screwdriver" assembly in the automotive sector

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-- Manufacturing Assembly Capital Intensive

• The capital intensive nature of the sector
  limits the number of automakers and discourages
  small volume assembly
• Today 10 global automakers represent over 75 of
  total global auto production. The top 15
  automakers represent about 90.

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-- Manufacturing Assembly Auto Sector
Assembly

• Globally there is a wide range of assembly
  costs
• Assembly costs are similar from one location to
  another. Low labor costs in one location is
  often offset by the higher capital costs
• Labor, Capital assembly and Parts/Component costs
  ranges
• Labor Assembly 5 14
• Capital Assembly 12 32
• Parts/Components 55 65
• Ex Hypothetical Assembly plant
• (in low labor/high capital cost location)
• - Labor Assembly 7
• - Capital Assembly 30
• - Parts/Components 63
• TOTAL 100

Hypothetical Assembly Plant
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-- Manufacturing Assembly Summary

• Auto production is increasingly integrated on a
  global basis, and trade plays an very important
  and growing role in auto manufacturing and
  assembly
• The automotive sector, its product (motor
  vehicle), and its manufacturing and assembly
  process is complex
• The Automotive Sector is highly capital intensive
• Assembly cost (labor capital ranges from
  25-45)
• For these reasons, an automotive
  non-preferential rule of origin needs to be easy
  to use/enforce (given its global integration),
  simple (given its complexity), and not concerned
  with screwdriver operations (given its capital
  intensive nature)

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Rule of Origin

• WTO Introduction of Non-preferential Auto ROO
• Currently there is no formally accepted auto ROO
  standard for non preferential trade. The origin
  of vehicles are generally based on tariff shift
  and last country of assembly
• Requiring a non-preferential auto ROO will
  require changes that will add additional costs
  and burdens to automakers and customs authorities
• We strongly recommend that in developing this
  requirement, it is important that it is done in
  the least disruptive intrusive manner and
  consistent with the objectives of promoting and
  facilitating international trade and investment

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-- Rule of Origin- Rule of Origin Principles

• Non-preferential ROO
• Should be simple to understand and relatively
  easy to apply and enforce
• Must be conclusive in determining country of
  origin
• Should not be vulnerable to multiple
  interpretation or manipulation
• Should not be susceptible to be used for any
  other purpose than determining country of origin
• Must be able to maintain flexibility in order to
  keep pace with rapidly changing economy,
  industry, and technology
• Supports not hinders international trade of
  automotive goods

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-- Rule of Origin Tariff Shift Works Best for
Motor Vehicles

• The HTS codes for finished vehicles (8701-8705)
  stand entirely separate and apart from all other
  HTS codes for parts, components and assemblies
  necessary to constitute a complete vehicle. In
  other words, assembly of a complete, finished
  vehicle always requires a tariff shift at the
  Heading (4 digit) level
• Shipment of a complete motor vehicle in
  unfinished or disassembled form, classified under
  one of the 5 vehicle headings, is unheard of in
  the automotive industry
• Therefore, any vehicle assembly into a complete,
  finished motor vehicle classified under one of
  the 5 vehicle headings will necessarily represent
  substantial economic and commercial activity that
  justifies designation of that country as the
  country of origin for the finished vehicle

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-- Rule of Origin-- Tariff Shift Preferable
Approach

• Virtually all countries throughout the world,
  whether or not WTO members, use the Harmonized
  Tariff System for tariff classification
• Tariff shift rules are straightforward, objective
  and simple to apply in the automotive sector
• In the automotive sector, the HTS classification
  of virtually all parts, material and vehicles is
  well-established throughout the WTO member
  community so that tariff classification in this
  sector is uniform and consistent worldwide
• Because tariff classification in the automotive
  sector is well established and consistent, a
  tariff shift Non-Preferential ROO will be easily
  applied by exporters and importers, as well as
  being easy and clear for Customs authorities to
  administer and enforce.

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-- Rule of Origin Value-based ROO not as
Effective

• Value based ROO is subject to manipulation in
  that values are easily adjusted and therefore are
  less reliable indicators of substantial economic
  or commercial contribution for purposes of
  designating country of origin.
• Value based ROO is subject to multiple
  interpretations as definition(s) of value are
  continually being debated and interpreted by both
  Customs authorities and the trade community
• Under Value based ROO, if required content not
  met in country of final assembly, result will be
  no country of origin, which defeats whole purpose
  of Non-Preferential Rule of Origin. A tariff
  shift ROO will always result in a country of
  origin determination
• Value based ROO will require resources and
  capacity that majority of traders and national
  Customs authorities do not have. There would be
  no appreciable other benefit or reason to invest
  in or develop the necessary resources and
  capacity, except compliance with the
  Non-Preferential ROO
• Thus, value based ROO could have effect of
  stifling or restricting trade, which would
  contradict the WTO mission.

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-- Rule of Origin Tariff Shift Exceptions

• There may be issues with Tariff Shift
  conferring origin in a few instances of 8707
  8708
• In most cases it can be addressed by a simple
  adjustment of the Tariff Shift Rule.
• Auto Transmissions (HTS 8708.40) Parts and
  Accessories of Motor Vehicles - Gear Boxes
• Components of Auto Transmissions (HTS 8708.99)
  Parts and Accessories of Motor Vehicles Other
• While a Tariff Shift rule at the Heading level
  would not be sufficient, expanding the rule to a
  Sub-heading level would provide a workable rule
  as long as there is no limitation on shifting
  from 8708.99
• However, there are still cases where even
  adjusting the Tariff Shift rule will not be
  sufficient, such as
• Brakes (HTS 8708.31) Parts and Accessories of
  Motor Vehicles- Brakes, servo-brakes and parts
  thereof
• Components of Brakes (HTS 8708.31) Parts and
  Accessories of Motor Vehicles - Brakes,
  servo-brakes and parts thereof
• In these few cases an alternative rule needs to
  be considered. We recommend that in these
  instances the last country of manufacture be
  defined as the country of origin.

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-- Rule of Origin-- ROO Conclusion