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  July 26th, 2018 | Written by

EU ambassador: Automobile imports do not threaten the health of the US economy

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  • Over the last five years, auto imports from the EU have been stable and correlated to US GDP growth.
  • Imposing restrictions on auto imports would negatively impact US GDP by $14 billion.
  • If US trading partners take countermeasures to auto import restrictions, US economy could lose $56 billion.

[Editor’s note: The following is the testimony of the EU Ambassador to the United States David O’ Sullivan at the public hearing on July 19 at the Section 232 national security investigation of imports of autos and auto parts.]

I am speaking today to convey personally the very serious concerns of the European Union and its 28 Member States with this investigation.

The EU believes, as in the case of the Section 232 steel and aluminium investigation, that this current investigation lacks legitimacy and factual basis and would lead the United States into a breach of international law.

The EU reiterates its firm opposition to the proliferation of measures taken on supposed national security grounds for the purposes of economic protection.

This development harms trade, growth and jobs in the US and abroad, weakens the bonds with friends and allies, and shifts the attention away from the shared strategic challenges that genuinely threaten the market-based Western economic model.

If import measures are imposed on automobiles and automotive parts, the five trading partners most affected would be Canada, Mexico, the EU, Japan and South Korea, all among your closest allies.

The notion that imports of autos and auto parts from your closest allies could threaten US national security is, bluntly speaking, absurd.

The EU’s written comments, submitted on 29 June, lay out our arguments in detail.  I would like to briefly recall some of the key points:

Imports of European automobiles are stable, in line with US production and respond to market signals. Automobile imports from the EU do not threaten or impair the health of the US industry and economy. The EU and US industry specialize in largely different market segments and over the last five years, imports from the EU have been stable and correlated to US GDP growth.

There is no economic threat to the US automobile industry, which is healthy, and has steadily expanded domestic production in the last 10 years, largely thanks to increased specialization and integration into global value chains. Imposing restrictive measures would undermine the current positive trends of the US automobile and automotive parts sector and negatively impact US GDP by up to $14 billion. This loss is likely to be multiplied by four in the likely event that US trading partners take countermeasures, as already seen in the reactions to the Section 232 tariffs on steel and aluminium. Import restrictions resulting from the present investigation could result in countermeasures on a significantly higher volume of US exports, which we estimate at $294 billion (around a fifth of total US exports in 2017).  For its part, the EU is proceeding with internal preparations in the event the US were to adopt trade restrictive measures.

EU auto companies producing in the US contribute significantly to US welfare and employment. They are well integrated in the US value chain and export about 60 percent of production to third countries, contributing towards improving the US trade balance. They provide 120,000 direct upstream jobs in manufacturing plants and 420,000 jobs with dealers.  Trade restrictions are likely to lead to higher input costs for US producers, thus in effect, taxing the American consumer.

EU auto companies foster innovation through domestic research and help develop the local workforce. Rather than threatening national security, EU companies are driving long-term economic stability and competitiveness. Almost a fifth of research and development expenditures in the US are derived from foreign-owned subsidiaries. The EU automotive industry also actively contributes to enhancing the skillsets of the US workforce.

Import restrictions would be contrary to international trade rules. There are no exceptions under the General Agreement on Tariffs and Trade (the GATT) that justify import restrictions by a developed country to protect a domestic industry against foreign competition, unless in the form of permitted trade remedy measures. Although the GATT provides for security exceptions, the scope of these exceptions is circumscribed for specific situations which are absent in this case.

There is no national security threat from imports of automobiles and automotive parts. Without prejudice, we underscore that the national security analysis must be narrowly tailored to focus on direct threats to national security, in particular, defense applications. US needs for vehicles or vehicle parts for defence or military purposes, mainly Light Tactical Vehicles, appear to be covered by US-based specialised suppliers. These operate in a niche market that is independent and unrelated to the automobile industry.  As only products from US based manufacturers are used by the US military, any trade restrictions imposed on passenger cars, light trucks and car parts cannot be justified by national security.

In conclusion: I urge you to conclude this investigation with a finding that imports of autos and auto parts do not threaten US national security.