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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 Organization Geneva, Switzerland February 14, 2006

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Automotive Trade Policy CouncilMotor 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

introduction presentation summary
-- 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
introduction automotive trade policy council
-- 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

introduction support for free trade
-- 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 WTO’s success in promoting trade
manufacturing assembly auto sector global
-- Manufacturing & Assembly–Auto Sector- Global
  • The Auto Sector is a key driver of the world economy:
    • Is the world’s 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)
manufacturing assembly auto sector global6
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 R&D 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

-- Manufacturing & Assembly–Auto Sector- Global

-- 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 &


Raw Materials


ATPC Member-

Produced Parts

Engineering &


U.S. Automotive

Parts Suppliers

Testing & Safety


Global Automotive

Parts Suppliers

Logistics /


Foreign Automotive

Parts Suppliers

Dealerships &

Auto Financing


Aftermarket Parts

Maintenance &


manufacturing assembly product complexity
-- 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

manufacturing assembly assembly complexity a case study
-- 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


# 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
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

-- Manufacturing & Assembly–Capital Intensive
manufacturing assembly capital intensive11
-- 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%.
manufacturing assembly auto sector assembly
-- 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

manufacturing assembly summary
-- 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)

rule of origin
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
rule of origin rule of origin principles
-- 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
rule of origin tariff shift works best for motor vehicles
-- 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
rule of origin tariff shift preferable approach
-- 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.
rule of origin value based roo not as effective
-- 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.
rule of origin tariff shift exceptions
-- 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.