Washington Delegation Press Room

Teamwork, Not Tariffs, Can Save Auto Industry

By John Bruton

Detroit Free Press, March 7, 2006

The Motor City's engines are coughing and sputtering. I heard this again and again while talking to member's from Michigan's congressional delegation last week. They talked about the decline in their companies, the resultant job losses, and how it is trickling down to small- and medium-sized business. A common refrain was the threat from Asia with undervalued currencies and trade barriers that can leave both Michigan and the European Union choking on fumes.

However, I don't think the game is over for us just yet. It is clear Europe and the United States can no longer dominate the world automobile market as we did for most of the last century. But we can still be key players if we work together to innovate, gain market access, control oil prices and harmonize regulations.

The European auto industry used to fear the competitive power of the American auto industry and sought to protect itself through high tariffs. But we have opened markets since and today enjoy an exemplary relationship with few barriers, and heavy direct investments into each other's markets. Daimler-Chrysler, with its European and U.S. engineers working together on cutting-edge technologies, notably earned a profit and grew its earnings last year.

Across all sectors, Michigan's No. 1 source of foreign investment is the 25 countries of the European Union. This investment of $29 billion is three times as much as Michigan received from the rest of the world and supports more than 136,000 in-state jobs. The EU is also Michigan's second-largest export market, consuming more than $4.5 billion in Michigan goods and services and accounting for an additional 91,000 local jobs.

While this is good news, problems must also be addressed. To stem the job losses in Michigan, some have prescribed a dose of protectionism in the form of a hefty surcharge on imports. This is deadly medicine. New tariff walls would weaken American industry. Instead, we must work together to break down barriers that raise our costs and constrain our ability to do business.

One way to do this is to get the Doha Development Round trade negotiations in the World Trade Organization back on track. Last week on National Public Radio, Gov. Jennifer Granholm described problems Michigan car companies face when they try to export vehicles to Korea. She noted that last year American companies were able to sell only 5,500 vehicles to Korea while Korean manufacturers exported 800,000 to the United States. The reason, she said, are distorted Korean tariffs and taxes based
on engine size -- two issues to be addressed in the Doha Round. A Doha agreement also could help to do away with import licensing and distribution roadblocks that constrain U.S. and European sales in Asia and other parts of the world.

We can also strengthen our auto industries by bringing our regulations into line -- one of the components in the Economic Initiative adopted at the last EU-U.S. summit. If we harmonize auto safety and environmental regulations across the Atlantic, we could cut the cost of motor vehicles an estimated 5% to 7% and stimulate more trans-Atlantic trade.

We saw last year that the auto industry suffers as it tries to adjust to fluctuating gas prices. We must reduce our oil dependency. The United States and the EU have agreed to promote sound energy policies and improve energy security. Europe is poised to become a world leader in clean, low-carbon energy technology, and the European Commission recently announced an ambitious biofuels strategy. We also
need policies to use energy more efficiently, in transport sector and other areas. If we can pull it off without reducing our competitiveness, it would create a new playing field for both of us.

We certainly have our work cut out for us. But I'm optimistic that if we meet these challenges head-on, we can keep our engines running.

JOHN BRUTON is ambassador of the Delegation of the European Commission to the United States. Write to him in care of the Free Press Editorial Page, 600 W. Fort St., Detroit, MI 48226.

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