Japan auto industry teams up for maximum benefit from trade deals

TOKYO — Toyota Motor, Honda Motor, Denso and six other Japanese automotive companies will cooperate in applying for reduced tariffs under free trade agreements Japan has signed with other countries and territories, Nikkei has learned.

Exports to economies which have free trade or economic partnership agreements with Japan are qualified for reduced tariffs under specific conditions, but the research required to apply can take as long as 11 months, thus delaying the start of the benefits and costing companies money.

By introducing a unified application system, the auto and parts makers are aiming to shorten the process to about seven months. Speeding up the procedure means they can expect to be able to export their products faster and at lower tariffs in what they envision will be a boon to competitiveness and profitability.

There are many examples globally of bilateral FTAs — either signed or already implemented — which have negotiated tariff reductions for autos and parts spurred by pressure from U.S. President Donald Trump. But in order to qualify for reduced tariffs, companies need to submit documents proving the country of origin for the vehicles and components being exported. But with vehicle supply chains spread across the globe, verification procedures have grown increasingly complex.

For Japanese companies to qualify for reduced tariffs under such deals, in general exporters must prove that the products are made in Japan. That requires them to show, for example, that components representing at least 60% of the product’s price were made in the country, though for automakers the percentage threshold can differ depending on the agreement and type of vehicle.

Automakers, thus, ask their suppliers to check where components are made, but the process takes time as they use numerous subcontractors and produce components in different countries. As automakers do not qualify for reduced tariffs while research on product origin are underway, sales are disadvantaged while that proceeds.

Therefore, Tokyo Kyodo Trade Compliance, a Tokyo Kyodo Accounting Office subsidiary providing FTA consulting services, and NTT Data developed a system to streamline the process. Other companies participating in the project include Isuzu Motors, Kawasaki Heavy Industries, Subaru, Mitsubishi Motors, Suzuki Motor and Mitsubishi Fuso Truck and Bus.

The new mechanism, named JAFTAS, allows an automaker to avoid making country-of-origin inquiry requests to parts suppliers as those companies input the necessary information into the system themselves.

Further, varying description methods for inquiry documents among participating automakers will be unified. At present, each time a new FTA takes effect, a separate response is necessary, putting a particularly heavy burden on small and medium-sized parts manufacturers as their personnel and expertise are limited. Denso, for example, is said to make about 3,500 certificate-of-origin inquiry requests to suppliers each year.

According to Tokyo Kyodo Trade Compliance, there has so far been no instance of overseas manufacturers from different corporate groups using common FTA application procedures.

An official in charge at one finished carmaker expressed optimism regarding the new method. “The uniform system will boost the accuracy and efficiency of certification and reduce the burden on suppliers,” the official said.

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