Auto Industry Endorses U.S.-EU FTA Negotiations

BRUSSELS – Auto makers and parts manufacturers on both sides of the Atlantic welcome negotiations to forge a comprehensive free-trade agreement between the U.S. and the European Union (EU).

“An eventual EU-U.S. trade deal will promote production in both economies,“ says Ivan Hodac, secretary general of the ACEA, the European auto makers’ group. “It would also improve cooperation on such pressing issues such as climate change and regulatory convergence.”

U.S. President Obama endorsed the FTA in his recent State of the Union address. European Commission President Jose Manuel Barroso announced afterward that formal talks are planned.

Hodac is convinced a comprehensive deal between the two giant economies would deliver “large benefits for producers and consumers.”

In 2011, EU vehicle exports to the U.S. were worth €19.5 billion ($26 billion), while American car exports to the EU amounted to €4.7 billion ($6.2 billion).

Car-parts suppliers in Europe hope the agreement removes non-tariff barriers in the U.S. and better coordinates manufacturing rules between America and Europe.

“Technical regulations in the automotive sector are among the leading trade barriers and add cost and unnecessary complexity to the industry,” Jean Marc Gales, CEO of the CLEPA, the European association of automotive suppliers.

He believes greater transatlantic cooperation on regulatory and technical issues will lower the cost of doing business, expand new market opportunities and deliver what policymakers on both sides of the Atlantic wish for: growth, competitiveness and jobs.

Data provided by the CLEPA indicates trade in automotive components and accessories to and from the U.S. and the EU’s 27 member countries was worth €7 billion ($9.4 billion) in 2012.

In a statement announcing the talks, the European Commission’s directorate general for trade says “Both sides intend to align as far as possible or mutually accept their standards and procedures,” referring to the different rules the EU and U.S. apply when assessing vehicle safety and environmental standards.

The EC is in charge of negotiating and concluding FTAs for the EU.

Auto makers and suppliers currently must pay for and comply with two sets of procedures to be able to sell their products on both sides of the Atlantic.

The U.S. auto industry‘s reaction to the FTA proposal has been muted, albeit positive. Of the major players, only Ford so far is openly embracing the development.

“Ford Motor Co. is eager to partner with the U.S. and EU governments to create a completely open transatlantic market in automotive trade,” says Steve Biegun, vice president-international governmental affairs.

“By eliminating tariffs and harmonizing regulations, government and industry together will create the world’s largest automotive market. This is good for trade, good for investment, good for jobs and will create a stable foundation for the democratic free-market system in Europe and the U.S.”

The lowering of tariffs would make possible worldwide expansion of auto sales, while regulatory harmonization would enable auto makers such as Ford to “engineer once and sell twice,” Biegun says.

He is unconcerned about a possible flood of BMWs and Rolls Royces entering the U.S.: “In general, the luxury vehicles are the least impacted by tariffs, since their customers are least concerned about costs.”

Echoing this optimism is Tom Libby, lead analyst-North American forecasting at R. L. Polk, a Southfield, MI-based automotive data and marketing-intelligence firm.

Major American auto makers, he says, are “quite healthy in the U.S., but their profits are being dragged down considerably by the trouble in Europe.”

General Motors and Ford have a substantial manufacturing presence in Europe, and Libby estimates that each loses more than $1 billion annually in the region. Regulatory harmonization and lower duties for autos and parts could stem such losses, he says.

“In general, anything that would help production in Europe would help all of the manufacturers,” Libby adds.

“It doesn’t mean that everything is going to be easy,” says Ford’s Biegun, who acknowledges his company and other manufacturers will be coming to the table with their own concerns.

Overriding these individual issues, he argues, is the need to expand markets: “To quote Ben Franklin: ‘We can hang together or else we’ll all hang separately.’”

The exact shape of such a comprehensive agreement is anybody’s guess.

“There aren’t sufficient details of an EU-U.S. trade deal for us to comment at this time,” says Jim Dorsey of IHS Automotive, an Englewood, CO-based consultancy, pointing out that completion of any deal would be “two years in the offing, if then.”