Publication of a Report on the Effect of Imports of Automobiles and Automobile Parts on the National Security: An Investigation Conducted Under Section 232 of the Trade Expansion Act of 1962, as Amended, 62028-62079 [2021-24162]
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Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
DEPARTMENT OF COMMERCE
Publication of a Report on the Effect of
Imports of Automobiles and
Automobile Parts on the National
Security: An Investigation Conducted
Under Section 232 of the Trade
Expansion Act of 1962, as Amended
Department of Commerce.
Publication of a report.
AGENCY:
ACTION:
The Department of Commerce
in this notice is publishing the Report
on the Effect of Imports of Automobiles
and Automobile Parts on the National
Security. The report documents the
findings of the Department of
Commerce’s investigation to determine
the effects on the national security of
imports of automobiles, including cars,
SUVs, vans and light trucks, and
automotive parts. This investigation was
carried out under Section 232 of the
Trade Expansion Act of 1962, as
amended. All classified and business
confidential information in the report
was redacted before the release. This
report was completed on February 17,
2019 and posted on the Bureau of
Industry and Security (BIS) website on
July 6, 2021. The Department of
Commerce has not published the
appendices to the report in this
notification of report findings, but they
are available online at the BIS website,
along with the rest of the report (see the
ADDRESSES section).
DATES: The report was completed on
February 17, 2019. The report was
posted on the BIS website on July 6,
2021.
SUMMARY:
The full report, including
the appendices to the report, are
available online at https://
www.bis.doc.gov/index.php/otherareas/office-of-technology-evaluationote/section-232-investigations.
FOR FURTHER INFORMATION CONTACT:
Brittany Caplin, Office of Public Affairs,
U.S. Department of Commerce at (202)
482–4883. For more information about
the section 232 program, including the
regulations and the text of previous
investigations, see www.bis.doc.gov/232.
SUPPLEMENTARY INFORMATION:
ADDRESSES:
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The Effect of Imports of Automobiles and
Automobile Parts on the National Security
An Investigation Conducted Under Section
232 of the Trade Expansion Act of 1962, as
Amended
U.S. Department of Commerce
February 17, 2019
Table of Contents
I. Executive Summary
Findings
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1. A Healthy U.S. Automobile and
Automobile Parts Manufacturing
Industry Is Necessary for U.S. Defense
and National Security
2. Imports of Automobiles and Automobile
Parts Are Impairing the Ability of the
Domestic Industry To Meet National
Defense Requirements
3. Decline in U.S. R&D for Important
Automotive Technologies Threatens To
Impair U.S. National Security
Conclusion and Recommendations
II. Legal Framework
A. Section 232 Requirements
B. Discussion
III. Investigation Process
A. Initiation of Investigation
B. Public Comments
C. Public Hearing
D. Interagency Consultation
E. U.S. Producers’ Survey Responses
IV. Product Scope of the Investigation
V. Background on the Industry
A. Global Competitiveness of U.S.
Automobile Producers
B. U.S. Automobile Producers’ Transition
From Vertical Integration to Outsourcing
Automobile Parts Production
C. NAFTA and the Rise of Automobile and
Automobile Parts Production in Mexico
Instead of the United States
1. The Rise of Automobile Assembly in
Mexico and Offshoring of Automobile
Plants
2. Offshoring of Automobile Parts
VI. Analysis
A. Present Import Quantities of
Automobiles Have Weakened the
American-Owned Automotive Industry
1. U.S. Automobile Production Volume
Has Eroded Over Three Decades Due to
Imports
2. Market Penetration by Automobile
Imports Is Significant
3. Low Priced Foreign-Owned Automobile
Production and Imports Have Caused
Significant Market Penetration in the
United States and Have Suppressed U.S.
Producers’ Prices
B. Imports of Automobile Parts in Such
Quantities as Are Presently Found
Threaten the Viability of the U.S.
Automobile Parts Industry
1. Imports of Automobile Parts Have
Displaced U.S. Production, and the
United States Has Become Dependent on
Imported Automobile Parts that Are
Critical to Defense Applications and
National Security
2. U.S. Producers of Automobile Parts Are
Facing Downward Pressure on Prices
Due to Low U.S. Automobile Prices
C. Domestic Manufacturing and Domestic
R&D in Technologies for Engines,
Transmissions, and Electrical
Components Are Necessary for National
Security
1. The U.S. Military Relies on the Domestic
Automotive Sector for Technological
Advancements
2. Growth of American-Owned R&D for
Critical Automobile Parts Is Essential to
Strengthen U.S. National Security
D. Decline in Employment in the U.S.
Automotive Industry
VII. Conclusion
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VIII. Recommendation
Appendix A: Section 232 Investigation
Notification Letter From Secretary of
Commerce Wilbur Ross to Secretary of
Defense James Mattis, and Letter from
Secretary of Defense James Mattis to
Secretary of Commerce Wilbur Ross
Regarding U.S. Defense and National
Security
Appendix B: Federal Register—Notice
Request for Public Comments and Public
Hearing on Section 232 National
Security Investigation of Imports of
Automobiles and Automobile Parts
Appendix C: Public Hearing Transcript
Appendix D: Details on U.S. Harmonized
Tariff System (HS) Statistics
1. Automobile Parts HS–10 Codes
2. Automobile Parts Schedule B Codes
3. Passenger Vehicle HS–10 Codes
4. Passenger Vehicle Schedule B Codes
Appendix E: Technical Appendix—Detailed
Economic Impact, R&D Expenditure
Estimates, and Methodology
1. Impact of Tariffs on Automobiles &
Automobile Parts, Recommendation
Option 2
2. Methodology
Appendix F: Foreign Market Barriers Prevent
U.S. Automobile Producers’ Growth
1. The European Union
2. China
3. Japan
4. South Korea
Appendix G: Recent Trade Negotiations With
Canada and Mexico That Impact the
Recommendation
Appendix H: Risks to the U.S. Automotive
Industry and U.S. National Security if
U.S. Sales of Automobiles Decline
Further
I. Executive Summary
This report summarizes the findings
of an investigation conducted by the
U.S. Department of Commerce
(‘‘Department’’) pursuant to Section 232
of the Trade Expansion Act of 1962, as
amended (19 U.S.C. 1862) (‘‘Section
232’’), into the effects of imports of
automobiles 1 and automobile parts on
the national security of the United
States. In conducting this investigation,
the Secretary of Commerce (‘‘Secretary’’)
noted the Department’s prior
investigations under Section 232.2
Consistent with those investigations, the
Secretary in this investigation again
determined that ‘‘national security’’ for
purposes of Section 232 includes the
‘‘general security and welfare of certain
industries, beyond those necessary to
1 For purposes of this investigation, automobiles
include: Passenger vehicles, including sedans, sport
utility vehicles (‘‘SUVs’’), crossover utility vehicles
(‘‘CUVs’’), vans (including minivans and cargo
vans), and light trucks.
2 See, e.g., Department of Commerce, Bureau of
Industry and Security, The Effect of Imports of Steel
on the National Security, Jan. 2018 (‘‘2018 Steel
Report’’); Department of Commerce, Bureau of
Industry and Security, The Effect of Imports of
Aluminum on the National Security, Jan. 2018
(‘‘2018 Aluminum Report’’).
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satisfy national defense requirements,
that are critical to the minimum
operations of the economy and
government.’’ 3
On the basis of the facts considered in
this investigation, the Secretary finds
that the impact of excessive imports on
the domestic automobile and
automobile parts industry and the
serious effects resulting from the
consequent displacement of production
in the United States is causing a
‘‘weakening of our internal economy
[that] may impair the national security’’
as set forth in section 232.4 In making
this determination, the Secretary
examined the increase in volume of
subject imports and their effects on
domestic prices, domestic production,
and research and development (‘‘R&D’’)
relevant to technological advancements
for defense capabilities. As required by
section 232(d), the Secretary also
considered the impact of foreign
competition on the economic welfare of
the automobile and automobile parts
industry in the United States. He also
considered other relevant factors
bearing on the state of the industry. As
also required by statute, the Secretary
examined the effect of imports on
national defense requirements,
including: U.S. production needed for
such requirements; existing and
anticipated availabilities of the human
resources, products, raw materials, and
other supplies and services essential to
the national defense; the requirements
for growth of such industries and such
supplies and services including the
investment, exploration, and
development necessary to assure such
growth; and the importation of goods in
terms of their quantities, availabilities,
characters, and use as those affect such
industries and the capacity of the
United States to meet national security
requirements.
As also required by section 232(d), the
Secretary recognized the close relation
of the economic welfare of the United
States to its national security; the
impact of foreign competition on the
economic welfare of individual
domestic industries; and any substantial
unemployment, decrease in revenues of
government, loss of skills, or any other
serious effects resulting from the
displacement of any domestic products
by excessive imports, without excluding
other factors, in determining whether a
weakening of the U.S. economy by such
imports may impair national security. In
particular, this report assesses whether
automobiles and certain automobile
parts are being imported ‘‘in such
quantities or under such circumstances
as to threaten to impair the national
security.’’ 5 This report summarizes the
findings of the Secretary.
For purposes of this report, ‘‘U.S.
producers’’ and ‘‘domestic producers’’
of automobiles and automobile parts
refer to both American-owned and
foreign-owned producers operating in
the United States.6 Otherwise, specific
reference is made to American-owned or
foreign-owned producers, as
appropriate.
Findings
The automotive industry has
traditionally been a great engine of
economic growth throughout history
and, for decades, the strength of the
United States’ automotive
manufacturing sector has directly
contributed to the industrial base that
provides the economic strength and
technological innovation that enables
our armed forces to project military
power and maintain our status as a
world power. Many of the most
important innovations and
technological advancements over the
past 100 years have come from the
automotive sector, and the strength of
this sector drives technological
advancements in the defense sector.
Today, the defense sector is heavily
interconnected and reliant on the
automotive industry for R&D to meet
current and future military requirements
such as vehicle electrification,
autonomous driving, hydrogen fuel cell
products, advanced semiconductor
utilization, radar, laser and sonar
ranging, global positioning system
(‘‘GPS’’) navigation, anti-lock brakes,
reduction in vehicle weight
(‘‘lightweighting’’), and fuel efficiency
efforts. Product development in
partnership between U.S. automotive
manufacturers and defense agencies
results in technological advancements
in military aircraft, space aircraft,
unmanned aerial systems, missiles, and
submarines.
However, the United States’
automobile industry’s technological
leadership in innovation is quickly
diminishing. In conducting this
investigation, the Secretary has found
that significant import penetration over
the course of the past three decades has
U.S.C. 1862(b)(3)(A).
the purposes of this report, Americanowned producers are General Motors, Ford, and
Tesla, as well as Chrysler for years prior to 1998
and American Motors for 1985–1987. ‘‘Producers’’
and ‘‘manufacturers’’ are used interchangeably in
this report.
of Commerce, Bureau of Export
Administration, The Effect of Imports of Iron Ore
and Semi-Finished Steel on the National Security,
Oct. 2001 (‘‘2001 Report’’) at 5.
4 19 U.S.C. 1862(d).
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severely weakened the U.S. automotive
industry, as American-owned
production of automobiles and
automobile parts has been reduced by
imports and the domestic
manufacturing base has weakened.
Overall, the share of global R&D
investments in the automotive sector
attributable to the United States has
significantly declined and, today, the
share of R&D conducted by Americanowned companies is a fraction of the
share conducted by foreign competitors.
If production volumes continue to
decline domestically, the United States’
contribution to automotive R&D will
further weaken and will impede the
automobile industry’s ability to invest
in the development of technologies that
are imperative to maintaining a leading
edge in U.S. military capabilities.
This is especially significant for
American-owned manufacturers. The
Secretary notes that, in the procurement
of military equipment, including
military vehicles, automobiles, and
automobile parts, the United States’
Department of Defense (‘‘DOD’’) relies
predominantly on suppliers located in
the United States, both Americanowned and foreign-owned. However,
because in a time of national emergency,
foreign-owned suppliers operating in
the United States may not be reliable
sources of equipment, the DOD must be
able to rely on a sufficient presence of
American-owned manufacturers for its
military needs. In addition, due to the
high cost of technological innovation in
the automotive sector (and the
significant revenue potential from
innovative developments),
manufacturers fiercely protect their
technology and trade secrets in order to
stay competitive, which means that
American-owned firms do not have
access to technology and trade secrets
developed by foreign-owned firms and
that, in time of war, when foreignowned firms may decline to share their
R&D with the DOD, the United States
Government will not have access to all
the latest developments in the
industry.7 With respect to highlyadvanced technologies that have
significant, cutting-edge military
applications, moreover, firms tend to
conduct R&D in their home countries
where the potential for intellectual
property spillover and theft is reduced.
Thus, the U.S. military cannot depend
on foreign-owned firms in the United
States to access to new technologies. For
5 19
6 For
3 Department
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7 As much as 30 percent of industry revenue
potential is attributable to new services and
emerging technologies in the automotive sector. Jeff
Desjardins, The Future of Automotive Innovation,
Feb. 15, 2018, https://www.visualcapitalist.com/
future-automobile-innovation/.
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these reasons, the Secretary determines
that the United States cannot rely on the
presence of foreign-owned
manufacturers in the United States to
help meet U.S. defense requirements.
As set forth in this report, imports of
automobiles and certain automobile
parts are impairing the strength of
American-owned firms in the
automotive sector—in terms of both
production and revenue needed for R&D
investments—and improving the
conditions for such firms is necessary to
enable the development of technologies
needed for our national security
requirements. In conducting this
investigation, the Secretary has made
the following findings:
1. A Healthy U.S. Automobile and
Automobile Parts Manufacturing
Industry Is Necessary for U.S. Defense
and National Security
The rapid application of commercial
breakthroughs in automobile and
automobile parts technologies is key to
gaining competitive military advantages
and meeting defense requirements.
From new engine and powertrain
technology, to lightweighting and
advanced connectivity, the DOD is
actively working to incorporate
technologies that have been the subject
of years of effort and billions of dollars
of R&D by the U.S. commercial
automotive industry.8
While the U.S. defense industrial base
is dependent on the American-owned
automotive sector for the development
of high-tech products and capabilities,
the U.S. commercial automotive
industry is unable to survive solely by
supplying the DOD. To this point, in
2017, 17.1 million automobiles were
sold in the United States versus [TEXT
REDACTED] wheeled armored vehicles.
According to the DOD, it is commercial
sales that generate the production
volumes needed for manufacturing
efficiency, the revenues needed for R&D,
and the profits needed to sustain
domestic automotive businesses.9
Armored vehicles require highly
sophisticated automobile parts, and it is
commercial scale that allows the DOD to
benefit from reduced unit costs for
production of armored vehicles and cost
effective access to new technology. In
other words, a strong presence of
American-owned companies in the
United States industry allows for the
development and production of highly
technologically-advanced products that
8 Appendix A—Letter from Secretary of Defense
James Mattis to Secretary of Commerce Wilbur
Ross.
9 Consultations between Department of
Commerce and Department of Defense in August
2018.
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are essential to modern military
applications for U.S. national defense.
2. Imports of Automobiles and
Automobile Parts Are Impairing the
Ability of the Domestic Industry To
Meet National Defense Requirements
Production of automobiles in the
United States has significantly
weakened over the past several decades
as domestic production has been
replaced by an influx of low-priced
imports from countries where
automotive markets are protected from
foreign competition. These conditions
enable foreign producers to expand
production in their home markets,
achieve significant economies of scale
and reduce prices, produce in excess of
the needs of their domestic demand,
export that excess production to the
United States, and capture a dominant
and growing share of the U.S. market.
Further, the imports of the types of
automobile parts that are critical to U.S.
defense needs—namely engines and
engine parts, transmissions and
powertrain parts, and electrical
components—have significantly
displaced parts manufactured in the
United States and have weakened the
domestic manufacturing base, including
American-owned automobile parts
producers, such that the automotive
industry in the United States has
become increasingly reliant on imported
parts.
The contraction of the Americanowned automotive industry, if
continued, will significantly impede the
United States’ ability to develop
technologically advanced products that
are essential to our ability to maintain
technological superiority to meet
defense requirements and cost effective
global power projection, as well as
provide the necessary R&D and
manufacturing base in the event of a
national emergency.
3. Decline in U.S. R&D for Important
Automotive Technologies Threatens To
Impair U.S. National Security
This report establishes that a strong
and robust American-owned R&D and
manufacturing base for automobiles and
automobile parts is vital to national
security. However, the increase in
imports of automobiles and automobile
parts over three decades has put
American-owned producers at a
competitive disadvantage vis-a`-vis their
foreign-owned competitors in R&D
expenditures. In 2017, R&D by
American-owned manufacturers
amounted to only 20 percent of global
R&D spending in automobile production
and only 7 percent of global R&D
spending in automobile parts, lagging
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behind European Union (‘‘EU’’) and
Japanese competitors, which together
controlled 70 percent of global R&D
spending in vehicle production and
nearly 90 percent in automobile parts
R&D. Additionally, the Asia Pacific
region is now emerging as a favored
destination for R&D investments.
Protected foreign markets, which
discriminate heavily against imports,
have precluded American-owned
manufacturers from offsetting their
decline in the U.S. market, and thereby
building R&D revenue by expanding
sales through exports abroad.
Because R&D expenditures are
integral to promoting long-term
technological advancements in
automation, electrification, and
connectivity that enable cost effective
power projection and maintain
technological superiority for U.S.
national defense, the lag in R&D
expenditures by American-owned
manufacturers is weakening U.S.
innovation and, accordingly, the
capacity of the United States to meet
national security requirements. Indeed,
as the U.S. military relies heavily on
and adopts innovations from the
commercial automotive industry, a
significant decline in American-owned
automotive industry investment and
development also jeopardizes U.S.
military leadership and its ability to
fulfill America’s defense requirements.
Domestic conditions of competition
must be improved by reducing imports
so that American-owned producers are
able to increase R&D expenditures and
investment to assure the growth
necessary to meet national defense
requirements, particularly in a time of
national emergency.
Conclusion and Recommendations
Based on the findings in this report,
the Secretary concludes that the present
quantities and circumstances of imports
of automobiles and certain automobile
parts, specifically engines and engine
parts, transmissions and powertrain
parts, and electrical components as
defined in Section VIII, are ‘‘weakening
our internal economy’’ and threaten to
impair national security as set forth in
Section 232.
As discussed throughout this report,
the negative impact of imports and the
resulting displacement of production for
the American-owned automobile and
automobile parts manufacturers are
significant, and are increasing given that
the U.S. automobile market is
experiencing a decline in demand and
contracting due to excessive imports.
Defense purchases alone are not
sufficient to support a robust military
vehicle supply chain and R&D in key
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automotive technologies (such as
autonomous driving, vehicle
lightweighting, electrification, and
connectivity) vital to meeting the needs
of national defense. Hence, Americanowned automobile and automobile parts
manufacturers must have a robust
presence in the U.S. commercial market.
Moreover, innovations generated by
R&D investments are necessary for
manufacturers to remain competitive in
both the commercial automotive sector
and the defense sector. It is that
innovation capability which is now at
serious risk as imports continue to
displace American-owned production.
An American-owned automotive
industry that is not competitive in the
latest technologies, nor has the ability to
retain a large skilled workforce and
attract the next-generation workforce,
will be unable to remain globally
competitive and ensure that the United
States maintains the ability to produce
cutting-edge technologies that are
essential to America’s national security.
The foregoing factors explain the basis
for the Secretary’s determination that
the ‘‘displacement of domestic products
by excessive imports’’—in particular the
displacement of automobiles and certain
automobile parts manufactured by
American-owned firms—is causing a
‘‘weakening of our internal economy’’
that ‘‘may impair the national security.’’
See 19 U.S.C. 1862(d). Therefore, the
Secretary recommends that the
President take corrective action. See 19
U.S.C. § 1862(c).
The Secretary recommends the
following actions the President could
take as possible options to remove the
threatened impairment of the national
security:
1. Direct further discussions and
negotiations to obtain agreements that
address the threatened impairment of
national security. Since this
investigation was initiated, there have
been productive discussions that could
result in positive changes for the
automotive industry in the United
States, and the United States has signed
the USMCA. If these discussions and
the USMCA result in positive changes to
the U.S. automotive industry, the
President could determine whether
those actions address the threatened
impairment of the national security
found in this report.
As provided in section 232(c)(3), if
appropriate agreements have not been
reached in a timely manner or if a
negotiated agreement is not being
carried out, the President could
determine that further action under
section 232 is necessary.
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OR
II. Legal Framework
2. Impose tariffs of up to 25 percent
(in addition to any existing duties) on
imports of automobiles and certain
automobile parts (engines and parts,
transmissions and powertrain parts, and
electrical components) in order to
increase U.S. production of automobiles
and parts to a level sufficient to generate
additional revenue to increase R&D
investments by American-owned (as
well as foreign-owned) manufacturers in
the United States. Imports under
USMCA Side Letters would not be
subject to the tariffs.
A. Section 232 Requirements
Section 232 provides the Secretary
with the authority to conduct
investigations to determine the effect of
imports of any article on the national
security of the United States. It
authorizes the Secretary to conduct an
investigation if requested by the head of
any department or agency, upon
application of an interested party, or
upon his own motion. See 19 U.S.C.
1862(b)(1)(A).
Section 232 directs the Secretary to
submit to the President a report with
recommendations for ‘‘action or
inaction under this section’’ and
requires the Secretary to advise the
President if an article that is the subject
of the investigation ‘‘is being imported
into the United States in such quantities
or under such circumstances as to
threaten to impair the national
security.’’ See 19 U.S.C. 1862(b)(3)(A).
Section 232(d) directs the Secretary
and the President to, ‘‘in light of the
requirements of national security and
without excluding other relevant
factors, give consideration to domestic
production needed for projected
national defense requirements; the
capacity of domestic industries to meet
such requirements; existing and
anticipated availabilities of the human
resources, products, raw materials, and
other supplies and services essential to
the national defense; the requirements
of growth of such industries and such
supplies and services including the
investment, exploration, and
development necessary to assure such
growth; and the importation of goods in
terms of their quantities, availabilities,
character, and use as those affect such
industries and the capacity of the
United States to meet national security
requirements.’’ See 19 U.S.C. § 1862(d).
Section 232(d) also directs the
Secretary and the President in the
administration of this section to ‘‘further
recognize the close relation of the
economic welfare of the Nation to our
national security, and . . . take into
consideration the impact of foreign
competition on the economic welfare of
individual domestic industries’’ and
‘‘any substantial unemployment,
decrease in revenues of government,
loss of skills or investment, or other
serious effects resulting from the
displacement of any domestic products
by excessive imports . . . [or] other
factors in determining whether such
weakening of our internal economy may
impair the national security.’’ See 19
U.S.C. § 1862(d).
Once an investigation has been
initiated, Section 232 mandates that the
OR
3. Impose tariffs of up to 35 percent
(in addition to any existing duties) on
imports of SUVs and CUVs, which will
increase domestic production and
generate additional revenue to increase
R&D investments by American-owned
(and foreign-owned) manufacturers in
the United States. The Department of
Commerce would work with the U.S.
Customs and Border Protection on the
most appropriate means to implement
this option if selected. Imports under
USMCA Side Letters would not be
subject to the tariffs.
Exemptions
The President may wish to consider
agreements that the United States has
renegotiated recently in determining
whether specific countries should be
exempted from the proposed tariffs
based on an overriding national security
interest of the United States. For
example, the President should consider
the Republic of South Korea for an
exemption based on the recently
improved agreement and strong national
security relationship. The Secretary
recommends that any determination to
exempt a specific country should be
made at the outset and a corresponding
adjustment be made to the final tariffs
imposed on the remaining countries.
Any country exempted should be placed
under a quota to ensure that producers
in that country do not increase exports
to the United States and to prevent
transshipment through that country of
automobiles and automobile parts
seeking to avoid tariffs. This would
ensure that overall imports of
automobiles and automobile parts to the
United States remain at or below the
level needed to enable American-owned
producers to reach levels of production
sufficient to increase R&D for
technologies that are important to
national defense.
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Secretary provide notice to the Secretary
of Defense that such an investigation
has been initiated. Section 232 (b)(2)(A)
also requires the Secretary to do the
following:
(1) ‘‘consult with the Secretary of Defense
regarding the methodological and policy
questions raised in [the] investigation’’;
(2) ‘‘seek information and advice from, and
consult with, appropriate officers of the
United States’’; and
(3) ‘‘if it is appropriate and after reasonable
notice, hold public hearings or otherwise
afford interested parties an opportunity to
present information and advice relevant to
such investigation.’’ 10
As detailed in Part III of this report,
each of the legal requirements set forth
above has been satisfied.
In conducting the investigation,
Section 232 permits the Secretary to
request that the Secretary of Defense
provide an assessment of the defense
requirements of the article that is the
subject of the investigation. See 19
U.S.C. 1862(b)(2)(B).
Upon completion of a Section 232
investigation, the Secretary is required
to submit a report to the President no
later than 270 days after the date on
which the investigation was initiated.
See 19 U.S.C. 1862(b)(3)(A). The
required report must:
(1) Set forth ‘‘the findings of such
investigation with respect to the effect of the
importation of such article in such quantities
or under such circumstances upon the
national security’’;
(2) set forth, ‘‘based on such findings, the
recommendations of the Secretary for action
or inaction under this section’’; and
(3) ‘‘[i]f the Secretary finds that such article
is being imported into the United States in
such quantities or under such circumstances
as to threaten to impair the national security
. . . so advise the President . . .’’
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Id.
Department regulations require that
an executive summary of the report,
excluding any classified or proprietary
information, be published in the
Federal Register. Copies of the full
report, excluding any classified or
proprietary information, must be
available for public inspection and
copying. See 15 CFR 705.10.
Within 90 days after receiving a report
in which the Secretary finds that an
article is being imported into the United
States in such quantities or under such
circumstances as to threaten to impair
10 See
19 U.S.C. 1862(b)(2)(A). Department
regulations (i) set forth additional authority and
specific procedures for such input from interested
parties, see 15 CFR §§ 705.7–705.8, and (ii) provide
that the Secretary may vary or dispense with those
procedures ‘‘[i]n emergency situations, or when in
the judgment of the Department, national security
interests require it.’’ Id. at § 705.9.
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the national security, the President
shall:
(1) ‘‘determine whether the President
concurs with the finding of the Secretary;’’
and
(2) ‘‘if the President concurs, determine the
nature and duration of the action that, in the
judgment of the President, must be taken to
adjust the imports of the article and its
derivatives so that such imports will not
threaten to impair the national security.’’ See
19 U.S.C. 1862(c)(1)(A).
B. Discussion
Section 232 does not contain a
definition of ‘‘national security.’’
However, both Section 232 and its
implementing regulations at 15 CFR part
705 contain non-exclusive lists of
factors that the Secretary must consider
in evaluating the effect of imports on the
national security. Congress in Section
232 explicitly provides that ‘‘national
security’’ includes, but is not limited to,
‘‘national defense’’ requirements. See 19
U.S.C. 1862(d). In the 2001 Report, the
Department determined that ‘‘national
defense’’ includes both defense of the
United States directly and the ‘‘ability to
project military capabilities globally.’’ 11
The Department also concluded in the
2001 Report that ‘‘in addition to the
satisfaction of national defense
requirements, the term ‘national
security’ can be interpreted more
broadly to include the general security
and welfare of certain industries,
beyond those necessary to satisfy
national defense requirements that are
critical to the minimum operations of
the economy and government.’’ 12 This
report, like the 2018 Steel Report and
2018 Aluminum Report, uses these
reasonable interpretations of ‘‘national
defense’’ and ‘‘national security.’’ 13
Section 232 directs the Secretary to
determine whether imports of any
article are being made ‘‘in such
quantities or under such circumstances’’
that those imports ‘‘threaten to impair
the national security.’’ See 19 U.S.C.
1862(b)(3)(A). The statutory
construction makes clear that either the
quantities or the circumstances,
standing alone, may be sufficient to
support an affirmative finding. They
may also be considered together,
particularly where the circumstances act
to prolong or magnify the impact of the
quantities being imported.
The statute does not define a
threshold for when ‘‘such quantities’’ of
imports are sufficient to threaten to
11 2001 Report at 5 (supra n. 3). See also 2018
Steel Report at 13; 2018 Aluminum Report at 12–
13.
12 Id.
13 See 2018 Steel Report at 13–14; 2018
Aluminum Report at 13.
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impair the national security, nor does it
define the ‘‘circumstances’’ that might
qualify. Likewise, the statute does not
require a finding that the quantities or
circumstances are currently impairing
the national security. Instead, the
threshold question under Section 232 is
whether the importation of such article
in ‘‘such quantities or under such
circumstances’’ ‘‘threaten to impair the
national security.’’ See 19 U.S.C.
1862(b)(3)(A) (emphasis added). This
formulation strongly suggests that
Congress expected that an affirmative
finding under Section 232 would occur
before there is actual impairment of the
national security.
Additionally, in Section 232 Congress
explicitly directed the Secretary to
consider the ‘‘impact of foreign
competition’’ and ‘‘the displacement of
any domestic products by excessive
imports’’ in determining whether the
‘‘weakening of our internal economy
may impair the national security,’’ but
made no reference to an assessment of
the sources of imports. Therefore, it
appears likely that Congress recognized
adverse impacts might be caused by
imports from allies or other reliable
sources. As a result, the fact that some
or all of the imports causing the harm
are from reliable sources does not
compel a finding that those imports do
not threaten to impair national security.
Indeed, as this report finds, the imports
that threaten to impair the national
security largely come from allies of the
United States. However, as discussed
further in Section VI.C, the United
States cannot be certain of its ability to
access intellectual property needed to
maintain technological superiority and
assure the ability to cost-effectively
project U.S. military power when that
intellectual property is under foreign
ownership and control.
Section 232(d) contains a
considerable list of factors for the
Secretary to consider in determining if
imports ‘‘threaten to impair the national
security’’ 14 of the United States, and
this list is mirrored in the implementing
regulations. See 19 U.S.C. 1862(d) and
15 CFR 705.4. Congress was careful to
note twice in Section 232(d) that the list
it provided, while mandatory, is not
exclusive.15
Congress broke the list of factors into
two parts using two separate sentences.
14 19
U.S.C. 1862(b)(3)(A).
19 U.S.C. 1862(d) (‘‘The Secretary and the
President shall, in light of the requirements of
national security and without excluding other
relevant factors . . .’’ This section also provides
that ‘‘other serious effects resulting from the
displacement of any domestic products by
excessive imports shall be considered, without
excluding other factors. . .’’) (emphasis added).
15 See
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The first sentence focuses directly on
‘‘national defense’’ requirements, thus
making clear that ‘‘national defense’’ is
a subset of the broader term ‘‘national
security.’’ The second sentence focuses
on the broader economy, and expressly
directs that in the administration of this
section the Secretary and the President
‘‘shall further recognize the close
relation of the economic welfare of the
Nation to our national security.’’ See 19
U.S.C. 1862(d).16
The first sentence directs the
Secretary to ‘‘give consideration to
domestic production needed for
projected national defense
requirements, [and] the capacity of
domestic industries to meet such
requirements . . .’’ See 19 U.S.C.
1862(d). The report explains that
projected national defense requirements
include a viable American-owned
automobile and automobile parts
manufacturing industry because
military vehicles rely on commercial
R&D for important innovations and on
domestic manufacturers for parts and
production facilities. The report takes
into consideration the threat of
American-owned producers exiting the
U.S. economy and how a reduction in
domestic production impacts the ability
to meet national defense requirements.
The first sentence further directs the
Secretary to consider ‘‘existing and
anticipated availabilities of . . .
supplies and services essential to the
national defense . . .’’ See 19 U.S.C.
1862(d). The report discusses the
declining market shares of Americanowned automobile producers in the
United States. The report considers that
imports continue to displace
automobiles produced by Americanowned firms in the United States, as
well as automobile parts produced in
the United States, and the resulting
impact on R&D spending in the United
States. In a time of national emergency
where the United States might be
dependent solely on resources within its
own borders—including manufacturing,
a skilled workforce, and R&D—it is
essential to strengthen such capabilities
in the United States so that they are
16 See also 50 U.S.C. 4502(a)(7), in which
Congress explicitly recognized ‘‘much of the
industrial capacity that is relied upon by the United
States Government for military production and
other national defense purposes is deeply and
directly influenced by (A) the overall
competitiveness of the industrial economy of the
United States; and (B) the ability of industries in the
United States, in general, to produce internationally
competitive products and operate profitably while
maintaining adequate research and development to
preserve competitiveness with respect to military
and civilian production . . .’’
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fully deployable when demanded for
national security.17
Lastly, the first sentence directs the
Secretary to consider, ‘‘the requirements
of growth of such industries and such
supplies and services including the
investment, exploration, and
development necessary to assure such
growth, and the importation of goods in
terms of their quantities, availabilities,
character, and use as those affect such
industries and the capacity of the
United States to meeting national
security requirements.’’ See 19 U.S.C.
1862(d). The report details the
interdependence between R&D in the
automotive sector and U.S. national
security.
The factors listed in the second
sentence of Section 232(d) are also
relevant for this investigation. Under the
second sentence, the Secretary and the
President are required to ‘‘recognize the
close relation of the economic welfare of
the Nation to our national security, and
shall take into consideration the impact
of foreign competition on the economic
welfare of individual domestic
industries, and any substantial
unemployment, decrease in revenues of
government, loss of skills or investment,
or other serious effects resulting from
the displacement of any domestic
products by excessive imports.’’ The
report takes into consideration the
impact of excessive imports of
automobiles and certain automobile
parts on the American-owned
automotive industry by reducing
employment, weakening R&D, and
causing a loss of vital skills and
technological know-how in the
workforce, all factors that must be
considered when assessing threats to the
national security from excessive
imports. See 19 U.S.C. 1862(d).
It is these factors that the report
considers which have resulted in a
decline in American-owned
manufacturing needed to support the
research and development of
technologies that maintain America’s
ability to cost-effectively project
military power worldwide. This decline
threatens the national security. The
Secretary finds that this ‘‘weakening of
our internal economy,’’ by a continued
decline of the American-owned
automobile and automobile parts
manufacturing base and related R&D,
‘‘may impair the national security.’’ See
19 U.S.C. 1862(d).
17 See also 50 U.S.C. 4502(a)(8) recognizing that
‘‘the inability of industries in the United States,
especially smaller subcontractors and suppliers, to
provide vital parts and components and other
materials would impair the ability to sustain the
Armed Forces of the United States in combat for
longer than a short period.’’
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62033
Thus, the Secretary determines that
the products listed in Section VIII are
being imported into the United States in
such quantities or under such
circumstances as to threaten to impair
the national security. See 19 U.S.C.
1862(b)(3)(A).
III. Investigation Process
A. Initiation of Investigation
On May 23, 2018, Secretary of
Commerce, Wilbur Ross initiated an
investigation to determine the effect of
imported automobiles and automobile
parts on national security under Section
232 of the Trade Expansion Act of 1962,
as amended (19 U.S.C. 1862).
Pursuant to Section 232(b)(1)(B), the
Department notified the U.S.
Department of Defense with a May 23,
2018 letter from Secretary Ross to the
Secretary of Defense, James Mattis.18
On May 30, 2018, the Department
published in the Federal Register a
notice announcing the initiation of this
investigation to determine the effect of
imports of automobiles and automobile
parts on the national security. The
notice also announced the opening of
the public comment period as well as a
public hearing to be held on July 19 and
July 20, 2018.19
B. Public Comments
On May 30, 2018, the Department
invited interested parties to submit
written comments, opinions, data,
information, or advice relevant to the
criteria listed in Section 705.4 of the
National Security Industrial Base
Regulations (15 CFR 705.4) as they
affect the requirements of national
security, including the following:
a. The quantity and nature of imports of
automobiles, including cars, SUVs, vans and
light trucks, and automotive parts and other
circumstances related to the importation of
automobiles and automotive parts;
b. Domestic production needed for
projected national defense requirements;
c. Domestic production and productive
capacity needed for automobiles and
automotive parts to meet projected national
defense requirements;
d. The existing and anticipated availability
of human resources, products, raw materials,
18 19 U.S.C. 1862(b)(1)(B). See Appendix A:
Section 232 Investigation Notification Letter to
Secretary of Defense James Mattis, (May 23, 2018).
19 See Appendix B for Department of Commerce,
‘‘Notice of Request for Public Comments and Public
Hearing on Section 232 National Security
Investigation of Imports of Automobiles, including
Cars, SUVs, Vans and Light Trucks, and
Automotive Parts,’’ 83 FR 24,736–24,737 (May 30,
2018). Also included in Appendix B is the
subsequent Department of Commerce Notice,
‘‘Public Hearing on Section 232 National Security
Investigation of Imports of Automobiles, Including
Cars, SUVs, Vans and Light Trucks, and
Automotive Parts; Change of Date for the Public
Hearing,’’ 83 FR 32,833 (Jul. 16, 2018).
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production equipment, and facilities to
produce automobiles and automotive parts;
e. The growth requirements of the
automobiles and automotive parts industry to
meet national defense requirements and/or
requirements to assure such growth,
particularly with respect to investment and
research and development;
f. The impact of foreign competition on the
economic welfare of the U.S. automobiles
and automotive parts industry;
g. The displacement of any domestic
automobiles and automotive parts causing
substantial unemployment, decrease in the
revenues of government, loss of investment
or specialized skills and productive capacity,
or other serious effects;
h. Relevant factors that are causing or will
cause a weakening of our national economy;
i. The extent to which innovation in new
automotive technologies is necessary to meet
projected national defense requirements;
j. Whether and, if so, how the analysis of
the above factors changes when U.S.
production by majority U.S.-owned firms is
considered separately from U.S. production
by majority foreign-owned firms; and
k. Any other relevant factors.20
The public comment period ended on
June 29, 2018, and public rebuttal
comment period ended on July 13, 2018.
The Department received 2,356 written
public comment submissions
concerning this investigation. All public
comments were carefully reviewed and
factored into the investigation process.
A listing of all public comments is
available at the U.S. Government’s
Regulations.gov website specific to this
investigation: https://
www.regulations.gov/docket?D=DOC2018-0002.
C. Public Hearing
The Department held a public hearing
to collect additional information
concerning this investigation in
Washington, DC on July 19, 2018. The
second day of the hearing, originally
scheduled for July 20, was cancelled
because all parties who wished to
participate could be accommodated in
one day. The Department heard
testimony from 44 witnesses at the
hearing. The complete hearing
transcript is included in Appendix C.
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D. Interagency Consultation
In addition to the required
notification provided by the May 23,
2018 letter from Secretary Ross to
Secretary Mattis,21 the Department
carried out the consultations required
under Section 232(b)(2).22 Department
20 Id. In response to requests from interested
parties, the Department issued a Notice of Request
for Public Comments and Public Hearing; Extension
of Comment Period, 83 FR 28801 (Jun. 21, 2018),
extending the due date for comments to June 29,
2018 and rebuttal comments to July 13, 2018.
21 See Appendix A.
22 19 U.S.C. 1862(b)(2).
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staff consulted with counterparts at the
DOD and U.S. Customs and Border
Protection regarding any methodological
and policy questions that arose during
the investigation.23
Secretary Mattis also communicated
the views of the DOD in a November 15,
2018 letter to Secretary Ross.24 In that
letter, Secretary Mattis noted that the
Department of Commerce had consulted
with the DOD and stressed the
importance of the automobile sector and
related technologies to U.S. defense
requirements and national security
needs. Specifically, Secretary Mattis
stated:
A healthy U.S. automotive sector supports
the manufacturing ecosystem vital to our
national defense industrial base. As noted in
the National Defense Strategy, ‘‘new
commercial technology will change society
and, ultimately, the character of war.’’
Therefore, U.S. automotive sector leadership
in emerging technologies, like autonomous
systems, is also critical for continued
Department of Defense modernization.25
E. U.S. Producers’ Survey Responses
On June 29, 2018 and on July 25,
2018, respectively, the Department
issued industry surveys to U.S.
automobile producers and U.S. armored
vehicle producers pursuant to 50 U.S.C.
4555. Information sought included, inter
alia, facilities and production data, joint
venture data, trade flows, supply chain
data, sales and demand data,
employment information, conditions of
competition, R&D information, and
government and defense activities. The
principal goal of the survey was to assist
the Department in determining whether
automobiles and automobile parts are
being imported into the United States in
such quantities or under such
circumstances as to threaten to impair
national security. The resulting
aggregate data have given the
Department detailed industry
information that is otherwise not
publicly available and was needed to
effectively conduct its analysis for this
investigation.
Response to the Department’s survey
is required by law (50 U.S.C. 4555).
Information furnished in the survey
responses has been deemed confidential
and will not be published or disclosed
except in accordance with Section 705
of the Defense Production Act of 1950,
as amended (50 U.S.C. 4555). Section
705 prohibits the publication or
disclosure of this information unless the
23 Id.
24 See Appendix A: Letter from Secretary of
Defense James Mattis to Secretary Ross conveying
DOD views on Section 232 investigation on imports
of automobiles and automobile parts, Nov. 15, 2018.
25 Id.
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President determines that the
withholding of such information is
contrary to the interest of the national
defense. Information will not be shared
with any non-government entity other
than in aggregate form. The information
is protected pursuant to the appropriate
exemptions from disclosure under the
Freedom of Information Act (‘‘FOIA’’),
should it be the subject of a FOIA
request.
From June 29, 2018 to September 7,
2018, the following [TEXT REDACTED]
companies responded to the
Department’s questionnaires:
[TEXT REDACTED]
IV. Product Scope of the Investigation
The scope of this investigation
includes passenger vehicles, including
sedans, sport utility vehicles (‘‘SUVs’’),
crossover utility vehicles (‘‘CUVs’’), and
vans (including minivans and cargo
vans); light trucks (collectively
‘‘automobiles’’); and wheeled armored
and tactical vehicles used for U.S.
military applications. The scope also
includes all categories of automobile
parts used in automobiles and armored
vehicles, which are defined at multiple
points throughout the U.S. Harmonized
System (‘‘HS’’). A complete listing of
automobile and automobile parts codes
included in this investigation is
provided in Appendix D. As detailed in
this report, the Secretary finds that
imports of automobiles and imports of
engines, engine parts, transmissions,
powertrain parts, and electrical
components have displaced and
threaten further displacement of
domestic production and thereby
threaten to impair the national security
as set out in Section 232. For the
purposes of this report, Americanowned automobile producers are
General Motors (‘‘GM’’), Ford, and
Tesla. Prior to 1998, Chrysler was also
American-owned. During 1985–1987,
American Motors was American-owned.
V. Background on the Industry
A. Global Competitiveness of U.S.
Automobile Producers
The U.S. automotive industry has
been one of the most powerful forces
driving the U.S. economy. Automobile
manufacturing and associated services
industries employed 4.2 million
workers in 2017, amounting to 3 percent
of total private sector employment. Of
these jobs, 953,000 were in automobile,
automotive body, and automobile parts
manufacturing and an additional 3.3
million in service industries such as
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dealerships, repair shops, and
automobile parts stores.26
Global competition has greatly
changed the industry over the years. In
the 1960s and 1970s, U.S. automobile
producers enjoyed a dominant position
globally, as 48 percent of global
automobile production occurred in the
United States, and all of those producers
were American-owned firms.27 The
United States’ competitive position in
the global marketplace did not last,
however, as foreign competitors
aggressively penetrated the global
market and captured a significant
portion of global market share. By 1985,
automobile production in the United
States as a percentage of global
automobile production declined to 26
percent, then to 18 percent in 2005, and
to 12 percent in 2017 as shown in
Figure 1A.28 In 2017, American-owned
manufacturers within the United States
and abroad held only 12 percent of the
global market which, as shown in Figure
1B, represents a significant decline from
the 36 percent of global market share
held by American-owned manufacturers
in 1995. The decline in global market
share reflects the rise of foreign-owned
producers and the weakening of the U.S.
automotive manufacturing base.
The 2008–2009 worldwide economic
downturn exacerbated the contraction of
U.S. market share in the global
automotive sector, and in 2009 U.S.
automobile production in the aggregate
(by American-owned and foreign-owned
firms) declined to 5.7 million units,
which is just nine percent of global
production.29 Although global
production rebounded from 72.8 million
units in 2007 to 96.2 million units in
2017,30 the rise in production volume
62035
was largely attributed to China’s
dramatic rise, growing from less than
8.9 million units in 2007 to 29.0 million
units in 2017.31 China became the
number one automobile producing
country in 2009, and in 2017 produced
over 25 percent of the world’s supply of
automobiles.32 The EU, Japan, South
Korea, Canada, and Mexico are also
major producers of automobiles, and are
the top sources of automobile imports
into the United States. Manufacturers in
the United States, Japan, and the EU
moved some automobile production for
the North and South American markets
to Mexico, leading to an increase in
production there. Despite significant
automobile production in Canada and
Mexico, there are no Canadian- or
Mexican-owned automobile producers
in those counties.
BILLING CODE 3510–DR–P
Figure lA: 2017 Global Automobile Production by Country
Gl.obal Production: 96.2 Million Motor Vehicl.es
■ Asia ■ Europe • NAFI'A II South America • Rest ofWorld
Source: Wards Intelligence InfoBank. (Values shown in millions of units. Excludes small
26 Department of Labor, Bureau of Labor
Statistics, Automotive Industry: Employment,
Earnings, and Hours, https://www.bls.gov/iag/tgs/
iagauto.htm.
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27 Wards
30 Id.
28 Id.
Intelligence InfoBank.
(These figures include foreign-owned
manufacturers in the United States.)
29 Id.
31 Id.
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32 Id.
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countries that do not report to Wards. Includes medium and heavy duty trucks.)
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Figure lB: Share of Global Production, by Ownership, Major Producers
Rest of World
0%
10%
5%
15%
■
20%
25%
35%
40%
1995 •2005 iii2017
Source: Wards Intelligence InfoBank. (1995 statistics represent the earliest-available data on
global production by country in which the producer is headquartered; data include medium and
heavy-duty vehicles. In the case of a joint venture, the ownership is attributed to the majority
partner.)
BILLING CODE 3510–DR–C
Globally, the four largest automobile
producers in 2017 were GM, Toyota,
Volkswagen, and Ford, and each
manufacturer produces and sells a
significant percentage of its automobiles
in its home country. Further, because
global automobile production is
regionally focused, the world’s leading
manufacturers also produce automobiles
in foreign markets to supply local
customers. As summarized in Table 1
below, 23 percent and 39 percent of
automobiles produced by American-
owned manufacturers GM and Ford,
respectively, in 2017 were made in the
United States. Similarly, 35 percent of
automobiles produced by Toyota and 18
percent produced by Volkswagen were
made in their home markets.
BILLING CODE 3510–DR–P
Table 1: 2017 Share of Automobiles Produced in Home Market
GM
Tovota
Yolkswauen
Number Produced Globally
8.90
8.89
8.46
6.11
EN08NO21.025</GPH>
Source: Wards Intelligence InfoBank (excludes Africa). Volkswagen's home market is Germany, and
Toyota's home market is Japan.
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(millions)
Ford
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
The automobile industry in the
United States consists of 14 major
manufacturers: American-owned GM,
Ford, and Tesla, and 11 ‘‘transplant’’
manufacturers, i.e., manufacturing
62037
facilities that are ultimately owned by
corporations headquartered abroad.33
Figure 2: 2017 Automobile Production in the United States, by Manufacturer
3,000
2,500
j
2,000
;;,.
'IS
11,500
~ 1,000
500
0
■
Americm-Owned
Source: Wards Intelligence InfoBank. Data for Volvo, which began producing automobiles in
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BILLING CODE 3510–DR–C
Three major trends in automobile
manufacturing are (1) continuing efforts
to cut costs to remain globally
competitive, (2) improving
technological advancements in design
and materials used to decrease vehicle
weight (‘‘lightweighting’’) and enhance
fuel efficiency, and (3) developing
advanced technologies needed for
increased vehicle connectivity,
electrification and autonomous driving.
Manufacturers are increasingly cutting
costs through automation and by
relocating production to less expensive
regions. The tariff reductions achieved
in 1994 through the North American
Free Trade Agreement (‘‘NAFTA’’)
incentivized offshoring of automobile
and automobile parts production to
33 Wards Intelligence InfoBank. Volvo began
production at its Charleston, South Carolina plant
in October 2018 and is therefore not included in
Figure 2.
34 See Section V, Part C.
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B. U.S. Automobile Producers’
Transition From Vertical Integration to
Outsourcing Automobile Parts
Production
The automotive industry responded to
declining profits and structural and
technological changes in the late 1980s
by switching from a vertically-integrated
supply structure to a model that
increasingly sourced automobile parts
from independent suppliers serving
multiple customers. This global shift
was especially dramatic in the United
States, where automobile producers
were under tremendous pressure to
become more efficient and reduce costs
to compete with imports. Producers
opted to purchase large modules and
subassembly systems ready for
installation on their assembly lines,
rather than assemble thousands of
individual parts as before. In the United
States, union wages were lower for
component companies than for original
equipment manufacturers (‘‘OEMs’’).
Over time, U.S. automobile producers
also shifted to negotiating large longterm contracts with a select group of
tier-1 suppliers.35 As parts suppliers
became separate entities from the
automobile producers, the parts
suppliers were forced to assume more
responsibility for R&D and the design of
innovative modules and systems and
they began to maintain large inventories
of various automobile parts.36 The
percentage of parts that independent
suppliers contribute to a vehicle has
grown from 40–50 percent in the early
1990s to over 70 percent today.37
35 A tier-1 supplier provides components directly
to the OEM.
36 Thomas Klier and James Rubenstein, Who
Really Made Your Car, The Federal Reserve Bank
of Chicago, Chicago Fed Letter, No. 255a, Oct. 2008,
https://www.chicagofed.org/∼/media/publications/
chicago-fed-letter/2008/cfloctober2008-255apdf.pdf.
37 Patrick McGee, Carmakers Face Threat from
New Drivers of Profit, Financial Times, Aug. 8,
2017, https://www.ft.com/content/40065b50-715e11e7-93ff-99f383b09ff9.
Mexico where input costs, particularly
labor, were significantly cheaper.34
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the United States in 2018, is not yet available.
62038
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The shift away from the vertical
integration of automobile and
automobile parts production is also
essential to understanding the nature of
automotive industry employment. The
automotive supply chain has become
the backbone of the automobile
assembly industry, employing more
people than the automobile producers.
In 1990, 271,400 automobile
manufacturing employees and 653,000
automobile parts employees produced
9.5 million vehicles in the United
States. After a decade of record high
automobile production, beginning in
2001 automobile manufacturing
employment declined each year to a low
of 146,400 workers in 2009. For
automobile parts manufacturing,
employees increased by 29 percent to a
high of 839,500 in 2000 before falling to
a low of 413,700 workers in 2009. While
employment overall rebounded
somewhat after 2009, in 2017 workers in
both the automobile sector (212,000
employees) and automobile parts sector
(586,300 employees) remain 29 percent
below their 2000 levels, despite record
demand.38 Many of these jobs moved
offshore as a result of import
competition in the United States and
lower labor costs available abroad.39
C. NAFTA and the Rise of Automobile
and Automobile Parts Production in
Mexico Instead of the United States
The contraction of the U.S.
automotive industry has been ongoing
for decades, but the contraction became
more dramatic after NAFTA went into
effect and caused a significant portion of
the U.S. industry to shift production to
Mexico. Prior to NAFTA, Mexico had in
place a restrictive decree that limited
automotive trade. NAFTA, however,
expanded to Mexico the existing
integration of the U.S. and Canadian
automotive manufacturing supply chain
created under the Canada-United States
Automotive Products Agreement (signed
in 1965) and the U.S./Canada Free
Trade Agreement (signed in 1989).
NAFTA’s elimination of customs tariffs
allowed automobile producers and
automobile parts suppliers to optimize
operational structures by relocating
assembly operations and supply chain
manufacturing to Mexico the most cost
competitive location within North
America. The results of the shift in
supply chain are dramatic. Since
NAFTA’s entry into force, the value of
U.S. imports of automobile parts from
Mexico increased by 652 percent, and
the value of automobile imports from
Mexico increased by over 1,000
percent.40
1. The Rise of Automobile Assembly in
Mexico and Offshoring of Automobile
Plants
Mexico’s ability to compete for new
North American automotive
investments under NAFTA stemmed
primarily from the country’s relatively
lower labor costs. Automobile assembly
compensation had been approximately
80 percent lower in Mexico than in the
United States, and labor represented a
sizeable share of the production cost for
automobiles.41 For example, from 2008
to 2013, the average hourly wage in
Mexico was $5.89 ($US, nominal) for
the automobile sector. These wages
were slightly more than one-seventh of
the comparable wage in the United
States.42 In 2016, the hourly wage for
workers in the automobile sector was
$4.65 in Mexico compared to $40.17 in
the United States.43 In Mexico, dollar
equivalent wages decreased because the
currency depreciated sharply in
comparison to the U.S. dollar.44 This
large disparity in wages resulted in
significant cost savings to
manufacturers. One analysis estimated
that assembling an automobile in
Mexico resulted in an average cost
savings of $1,200 for an automobile sold
in the United States and $4,300 for an
automobile sold in Europe.45 Lower
Mexican wages, coupled with labor
productivity that is comparable to
workers in the United States, influenced
corporate decisions to increase
automobile assembly in Mexico.
In fact, between 2011 and 2016, nine
of the 11 announced new automobile
assembly plants in North America were
built in Mexico,46 while the number of
facilities in the United States declined.
The large rise in Mexican assembly
investment is relevant because 80
percent of Mexican vehicle production
is exported to the United States.47 As
shown in Table 2, in 1985, there were
65 automobile assembly plants in the
United States and 12 plants in Canada,
but only nine in Mexico. As of 2017, the
number of automobile assembly plants
in the United States declined by 30
percent to 46 plants, while the number
of Mexican automobile assembly plants
doubled to 18. The number of Canadian
automobile assembly plants declined
only modestly from 12 assembly plants
to 11 during the same period.48
Plants in North Americ~ 1985-2017
Canada
12
17
Mexico
9
65
United States
8
14
14
62
63
13
11
12
11
12
15
11
18
62
66
48
47
46
14
10
38 Department of Labor, Bureau of Labor
Statistics, Employees for Motor Vehicles (NAICS
3361) and Motor Vehicle Parts (3363) industries,
https://www.bls.gov/iag/tgs/iagauto.htm.
39 Thomas H. Klier and James M. Rubenstein,
Imports of Intermediate Parts in the Auto
Industry—A Case Study, November 6–7, 2009,
https://upjohn.org/measurement/klier-rubensteinfinal.pdf at 4.
40 Department of Commerce, Census Bureau,
International Trade Management Division.
Retrieved from Trade Policy Information System
(TPIS) Database: USHS IMPORTS, Revised
Statistics for 1989–2017.
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41 Bernard Swiecki and Debbie Maranger Menk,
The Growing Role of Mexico in the North American
Automotive Industry, Center for Automotive
Research, July 2016, https://www.cargroup.org/wpcontent/uploads/2017/02/The-Growing-Role-ofMexico-in-the-North-American-AutomotiveIndustry-Trends-Drivers-and-Forecasts.pdf.
42 International Labor Comparisons, The
Conference Board, https://www.conferenceboard.org/ilcprogram.
43 Id. These data are calculated by the Conference
Board’s International Labor Comparisons (ILC)
program using the same concepts and methodology
as those developed by the Bureau of Labor and
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Statistics. Compensation costs relate to all
employees in manufacturing and include (1) direct
pay and (2) employer social insurance expenditures
and labor-related taxes.
44 Board of Governors of the Federal Reserve
System, Foreign Exchange Rates—G.5A Annual
45 Swiecki and Menk, The Growing Role of
Mexico in the North American Automotive
Industry, supra.
46 Id.
47 Id.
48 Wards Intelligence InfoBank.
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Source: Wards Intelligence InfoBank (includes foreign-owned production in each country).
62039
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export.50 Between 1990 and 2017, the
percentage of automobiles manufactured
in Mexico for export increased from 34
percent to 84 percent.51 Since 2010,
moreover, automobile manufacturers
announced more than $24 billion in
investments in Mexico, including more
than $6.5 billion in investments from
Japanese firms, more than $5.7 billion in
investments from German firms, and
more than $1.1 billion from South
Korean firms.52
The rise of Mexico as a major
automobile producer has contributed to
the gradual decline of U.S. automobile
production, as the U.S.-made share of
automobile production in North
America, which was 78 percent in 1990,
dropped to 64 percent in 2017, as
Table 3: Share of North American Automobile Production
1985 1990 1995 2000
2005
2010
2015
2017
Canada
13.95 15.55 15.87 16.99 16.65
Mexico
3.16
6.54
6.15 10.89 10.20
United States
82.89 77.91 77.98 72.13 73.15
Source: Wards Intelligence InfoBank (includes foreign-owned production).
17.32
18.89
63.79
13.01
19.42
67.58
12.80
22.99
64.20
2. Offshoring of Automobile Parts
With the transition away from vertical
integration in the global automotive
industry, automobile parts
manufacturers have been under
systematic pressure from automobile
producers to lower prices. In response,
suppliers explored different ways to cut
costs and, soon after NAFTA’s
implementation, they began
supplementing and eventually replacing
significant domestic production with
‘‘near shore’’ production in Mexico.
Consequently, U.S. imports of
automobile parts from Mexico increased
rapidly. In 1990, U.S. imports of
automobile parts from Mexico were
valued at $4.5 billion, accounting for 14
percent of total U.S. automobile parts
imports. By 2004 (a decade into
NAFTA) U.S. imports of automobile
parts from Mexico rose to $23.4 billion,
accounting for almost 30 percent of total
automobile parts imports.57 And in
2017, U.S. imports of automobile parts
from Mexico reached $55.3 billion in
total, accounting for 37 percent of
overall U.S. imports of automobile parts.
Eleven percent of U.S. automobile parts
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shown in Table 3.53 Some analysts
expect the share of production in the
United States to drop to below 60
percent by 2020 under the existing
NAFTA rules.54
Although Canada’s share of North
American production remained
relatively stable, going from 14 percent
in 1985 to 13 percent in 2017,55
Canada’s production volume is expected
to rise in the near-term as a result of
Canada’s 2016 Comprehensive
Economic and Trade Agreement
(‘‘CETA’’) with the EU, which
immediately eliminated the EU’s tariffs
on Canada-made automobile parts
(which had ranged up to 4.5 percent)
and phases out tariffs on automobiles
over seven years.56
49 World Trade Organization, Tariff Download
Facility, https://tariffdata.wto.org/.
50 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank.
51 Swiecki and Menk, The Growing Role of
Mexico in the North American Automotive
Industry, supra.
52 Id.
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imports in 2017 came from Canada, and
imports from Canada and Mexico
together accounted for 48 percent of
total U.S. imports in 2017. Of the
remaining 52 percent of U.S. automobile
parts imports in 2017, 13 percent
originated from the EU and 36 percent
were imported from Asia, including
Japan, South Korea, and China.58
According to ProMexico, an export
promotion division of the Government
of Mexico, close to 90 of the global 100
tier-1 parts suppliers have operations in
Mexico.59 Although some of the
investments are for low value, laborintensive goods like wire harnesses,
Mexico has also attracted automotive
supplier investments for higher value
goods. For example, Mexico has
expanded its powertrain production
numbers over the past several years and,
from 2012 through 2015 alone, engine
production in Mexico has increased by
over 31 percent, from 2.8 million to 3.7
million engines, and is estimated to
have grown to 4.2 million units in
2018.60
Furthermore, automotive producers
have increasingly chosen Mexico as a
Intelligence InfoBank.
and Menk, The Growing Role of
Mexico in the North American Automotive
Industry, supra.
55 Wards Intelligence InfoBank.
56 Sara Lewis, Canadian, EU Auto Industries
Welcome Trade Pact, WardsAuto, Feb. 24, 2017,
https://www.wardsauto.com/industry/canadian-euauto-industries-welcome-trade-pact.
place to locate R&D centers.61 GM, Ford,
Toyota, Volkswagen, Nissan, and
numerous automobile parts companies
already conduct significant R&D activity
in Mexico. U.S. industry considers
university graduates in Mexico to be just
as skilled for R&D work as graduates in
the United States.62 With the tendency
of automobile producers to locate R&D
facilities near assembly plants, Mexico
is expected to become a growing market
for engineering jobs and an alternative
market to the United States. As R&D and
its related skilled workforce shifts from
the United States to Mexico, the loss of
specialized skills and production knowhow within the United States impedes
the ability of American-owned
manufacturers to access a skilled
workforce and advance technologies
that are critical for maintaining
America’s ability to project power
globally and respond in a national
emergency.
53 Wards
57 Department
54 Swiecki
58 Id.
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of Commerce, Census Bureau.
59 Swiecki and Menk, The Growing Role of
Mexico in the North American Automotive
Industry, supra.
60 Id.
61 Id.
62 Id.
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In addition to low production costs,
low tariffs on Mexican automobile
exports due to the broad reach of
Mexico’s numerous Free Trade
Agreements (‘‘FTAs’’) made it possible
for the country to emerge as a prime
manufacturing and export base not only
within North America, but globally as
well. Exports from Mexico to 46
countries are exempt from automobile
tariffs, including the 10 percent tariff
the EU applies to imported passenger
vehicles.49 The domestic Mexican
market for new automobiles is relatively
small, less than 10 percent the size of
the U.S. automobile market, and the
growth of automobile production in
Mexico correspondingly includes a large
share of automobiles manufactured for
62040
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VI. Analysis
A. Present Import Quantities of
Automobiles Have Weakened the
American-Owned Automotive Industry
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In the U.S. automobile sector, there is
substantial evidence that imports have
weakened the domestic industry and are
causing the American-owned segment of
the industry to contract. Foreign-owned
automobile producers in the United
States are able to offset the economic
effects of a contraction in the U.S.
market by maintaining significant sales
volumes in their protected home
markets. However, as explained in
Appendix F, under the present trade
regime, American-owned manufacturers
are unable to meaningfully penetrate
those same protected foreign markets to
offset their shrinking sales in the United
States. In fact, as shown in Figure 1B
above, from 1995 to 2017 Americanowned automobile producers’ share of
the global automotive market contracted
by 24 percentage points, from 36
percent to 12 percent, while EU
automobile producers’ share grew from
20 percent to 23 percent and Japanese
automobile producers’ share stayed
relatively steady at 26 percent and 24
percent during the same period. Clearly,
American-owned manufacturers are
trailing behind their foreign-owned
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competitors in the global market, which
impacts their sales revenue and, hence,
R&D investments in technologies that
are integral to maintaining America’s
technological advantage in military
applications. Consequently, America’s
ability to cost-effectively project power
globally is also trailing behind. As set
forth in Section VI.C, the U.S. military
depends heavily on innovation in the
commercial automotive sector, and in
particular will depend on Americanowned manufacturers’ innovation
capabilities in time of war. The
following sections analyze the impact of
imports on the U.S. automotive market,
the weakened competitive position of
American-owned producers, and the
consequent threat to the impairment of
national security.63
1. U.S. Automobile Production Volume
Has Eroded Over Three Decades Due to
Imports
The strength of the U.S. automotive
industry has weakened since 1985.
Evidence establishes that purchasers
have increasingly shifted away from
domestically-produced automobiles to
imported vehicles, and data provided in
Figure 3 show that from 1985 to 2017
demand for automobiles in the U.S.
63 See
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market grew by 11 percent, but total
domestic production by both Americanand foreign-owned firms declined by 4
percent. More specifically, U.S. demand
for automobiles grew from 15.4 million
units in 1985 to 17.1 million units in
2017, while production by domestic
automobile producers declined from
11.4 million units in 1985 to 10.9
million units in 2017.64 Over the same
period, U.S. imports of automobiles
nearly doubled from 4.6 million units to
8.3 million units.65 Expressed as a
percentage of market share (an indicator
of competitive strength), domestic
producers’ share of the U.S. market
declined over this 32-year period from
70 percent of overall U.S. demand in
1985 to 52 percent in 2017.66
Production by domestic manufacturers
of automobiles held steady in 2018.67
BILLING CODE 3510–DR–P
64 According to Wards Intelligence InfoBank, U.S.
automobile production peaked at 12.6 million units
in 1999, but subsequently plummeted to 5.6 million
units in 2009 as a result of the economic recession.
Although production ultimately recovered to 11.9
million units in 2016, by 2017 production again
slipped to 10.9 million units.
65 Department of Commerce, Census Bureau.
66 Wards Intelligence InfoBank and Department of
Commerce, Census Bureau. Domestic producers’
market share is calculated as (domestic sales minus
imports) divided by domestic sales.
67 Wards Intelligence InfoBank.
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62041
Figure 3: U.S. Automobile Production Relative to Demand
--- --- --------------
20
18
16
14
~
I
;;;;;
12
10
s
6
4
-u_s_ Prodoctian
-us_ Sales(Demmd)
- - -- - Trend {US_ Prndnctfon)
Source: Wards Intelligence InfoBank.
68 Wards Intelligence InfoBank and Department of
Commerce, Census Bureau.
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to 14.4 million passenger vehicles in
2017, while U.S. production decreased
by 12.9 percent over the same period,
from 9.6 million passenger vehicles to
8.4 million passenger vehicles. Of the
8.4 million passenger vehicles produced
in the United States in 2017,
approximately 6.8 million were sold in
the United States in 2017.68 Expressed
69 Wards
PO 00000
as a percentage of market share,
domestic producers’ share of U.S.
passenger vehicle sales declined from
72 percent in 1985 to 48 percent in
2017.69 Section VI.A.3 explains that this
contraction is due, in large part, to
displacement by passenger vehicle
imports.
Intelligence InfoBank.
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When disaggregated into passenger
vehicles (sedans, SUVs, CUVs, and
vans) and light trucks, it becomes clear
that the decline in U.S. production has
been concentrated in the passenger
vehicle segment. Figure 4 demonstrates
that, for passenger vehicles overall, U.S.
demand increased by 13 percent, from
12.8 million passenger vehicles in 1985
62042
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 4: U.S. Passenger Vehicle Production Relative to Demand
16
14
12
6
4
2
0
...I s,.,
-U.S. Sales (Demmd)
-U-8.:Promctim
----- TRDd(U.S.Pceu:lim)
For light trucks, Figure 5 illustrates
that U.S. demand held constant at 2.7
million light trucks in both 1985 and
2017, while U.S. production increased
from 1.8 million light trucks to 2.6
million light trucks during the same
period. Of this 2.6 million,
approximately 2.0 million trucks were
sold in the United States in 2017.70
During the same period, imports of light
trucks decreased by 24 percent, from 1.1
million to 833,000.71
70 Wards Intelligence InfoBank and Department of
Commerce, Census Bureau.
71 Department of Commerce, Census Bureau. The
United States has imposed a 25 percent tariff on
imports of light trucks since 1964 pursuant to
Presidential Proclamation 3564 in 1964. U.S.
Presidential Proclamation No. 3564, Proclamation
Increasing Rates of Duty on Specified Articles,
December 4, 1963, 77 Stat. 1035–1036, https://
www.govinfo.gov/content/pkg/STATUTE-77/pdf/
STATUTE-77-Pg1035.pdf.
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Source: Wards Intelligence InfoBank.
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62043
Figure 5: U.S. Light Truck Production Relative to Demand
35
3
25
2
15
1
05
0
-u_s.. Sares(Demmd)
-us. Producti.n
----- Traid(U.S.. Prooociion)
Source: Wards Intelligence InfoBank.
in the United States manufactured 11.0
million automobiles, representing 97
percent of overall domestic (Americanand foreign-owned) production of
automobiles. By 2017, American-owned
production fell to 4.6 million
automobiles, amounting to 42 percent of
domestic automobile production (i.e., a
decline of 6.3 million units), and
production by American-owned firms
accounted for only 22 percent of total
U.S. sales.72
72 Figure 6 accounts for the fact that Chrysler
became foreign-owned in 1998. See supra note 6.
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Notably, the domestic performance of
American-owned automobile
manufacturers (GM, Ford and Tesla)
underpins the dramatic contraction of
production volumes in the United
States. As shown in Figure 6, in 1985,
American-owned automobile facilities
62044
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 6: Automobile Production in the United States by American-Owned and ForeignOwned Manufacturers
1111
Source: Wards Intelligence InfoBank. (From 1998 forward Chrysler is foreign-owned.)
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(American- and foreign-owned)
production. By 2017, American-owned
production fell to 2.8 million passenger
vehicles, representing just 34 percent of
domestic production and 17 percent of
domestic sales. As set forth in Section
VI.C, this decline in production depicts
the loss of American-owned producers’
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competitive position in the U.S. market
(and globally, as described above), with
the consequence that declining sales
revenue has weakened the United
States’ ability to maintain a leadership
position in R&D investments needed to
develop technologies that are critical to
national defense.
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Figure 7 illustrates a similar trend for
American-owned producers in the
passenger vehicle segment over the
course of the past 32 years. In 1985,
American-owned U.S. manufacturers
produced 9.3 million passenger vehicles
(sedans, SUVs, CUVs, and vans),
representing 97 percent of domestic
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62045
Figure 7: Passenger Vehicle Production in the United States by American-Owned and
Foreign-Owned Manufacturers
8
I....
i'
4
2 -----
■ American-Owned Manufacturers
1111 Foreign-Owned
Manufacturers
Source: Wards Intelligence InfoBank. (From 1998 forward Chrysler is foreign-owned.)
73 Wards
domestic production in 1985 (1.67
million units), a share that decreased to
68 percent (1.75 million units) in
2017.73 This relatively narrower decline
is attributed to U.S. consumers’
preferences for American-made brands
and models of light trucks, and the 25
percent tariff imposed by the United
States on imports of light trucks since
1964.
Intelligence InfoBank.
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For light trucks, American-owned
U.S. manufacturers have also
experienced a declining share of U.S.
production over the past three decades.
They accounted for 94 percent of
62046
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 8: Light Truck Production in the United States by American-Owned and ForeignOwned Manufacturers
3
■ Americim-Owned Manufacturers
111 Foreign-O\~med
M.anuracturers
Even accounting for the strong
presence of American-owned producers
in the light truck segment, the overall
competitive position of Americanowned automobile producers has been
weakening over time, as Americanowned production volumes overall have
steadily declined. Expressed as a
percentage of overall U.S. demand for
automobiles, the market share held by
American-owned automobile
manufacturers has contracted sharply
from 67 percent in 1985 (10.5 million
units produced and sold in the United
States) to 22 percent in 2017 (3.7
million units produced and sold in the
United States) as illustrated in Figure 9,
with increases in demand and lost
American-owned market share captured
by both imports and foreign-owned
manufacturers in the United States.74
[TEXT REDACTED].75 In other words,
the share of the U.S. market captured by
imports plus vehicles produced in the
United States by foreign-owned firms
increased from 33 percent in 1985 to 78
percent in 2017.76
74 Wards Intelligence InfoBank; Department of
Commerce, Census Bureau.
75 U.S. Producers’ Survey Responses, Question
2b. In 2017, American-owned firms produced and
sold in the U.S. market [TEXT REDACTED].
76 Wards Intelligence InfoBank; Department of
Commerce, Census Bureau.
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Source: Wards Intelligence InfoBank. (From 1998 forward Chrysler is foreign-owned.)
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62047
Figure 9: U.S. Production and Imports of Automobiles, Share of U.S. Sales
100%
90%
Iii
;;$
00%
!
60%
as 70%
i
50%
'I
a
40%
30%
20%
10%
■ U.S.--owned Manulil.d:urers in U.S.
■ Fcreign--Owned .Mauutacmrera in U.S.
■ Imporls from Cll!.lllda andMex:ioo
Ill Imporis from.OtbecQimlries
(NAFTA)
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. (From 1998
forward Chrysler is foreign-owned.)
77 Wards
by light trucks produced in the United
States by American-owned
manufacturers declined by eight percent
over the same period, as shown in
Figure 11. American-owned
manufacturers now hold less than half
(i.e., 47.7 percent) of the U.S. market for
light trucks. Section VI.A.3 below
explains that imports of both passenger
vehicles and light trucks have displaced
American-owned U.S. production and
threaten the ability of American-owned
producers to invest in the R&D that is
critical to maintaining technological
innovation that enables America to
maintain global military superiority.
Intelligence InfoBank.
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For passenger vehicle sales where
head-to-head competition with foreign
producers is greatest, Figure 10 shows
that from 1985 to 2017 the market share
held by American-owned firms’
domestic production declined from 70
percent to 16 percent.77 Also significant
is the fact that the market share claimed
62048
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Figure 10: U.S. Production and Imports of Passenger Vehicles, Share of U.S. Sales
■
u..s.-owned l\!Ia.tmmctnrern mu_s_
■ Imports iromCllllada andl'ldexiro
■ Foreigll--OWlled Mammcinren1 in U_S.
(NAFTA}
11 Imports irom Other
C.onotries
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. (From 1998
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forward Chrysler is foreign-owned.)
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62049
Figure 11: U.S. Production and Imports of Light Trucks, Share of U.S. Sales
7
■ U.S.-oW!ll!d MammictureB :in U.S.
■ Foreign-owned ~iitcmrecs in U.S.
ill Imports from OtberCouotries
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. (From 1998
2. Market Penetration by Automobile
Imports Is Significant
Automobile producers continuously
strive to increase production scale to
maximize profits. Indeed, scale is
important because the enormous startup
costs associated with the launch of a
new production line must be amortized
over substantial production and sales
volumes in order to maximize revenue
and minimize unit costs. As set forth in
Appendix F, because automobile
producers headquartered in the EU,
Japan, South Korea, and China are
protected from import competition in
their respective home markets, these
foreign producers are able to utilize
significant sales profits in those home
markets to heighten production to levels
in excess of volumes needed to supply
their respective domestic markets.
Those firms consequently become
increasingly export focused. Because the
United States has the second largest
78 According to Wards Intelligence InfoBank,
China is the largest consumer market for
automobiles.
79 This represents nominal figures, which do not
take into account inflationary and foreign exchange
changes over time.
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automobile demand market in the
world,78 imposes a low 2.5 percent tariff
on imports of passenger vehicles, and
has a strong economy that allows
manufacturers to maximize profits,
foreign automobile producers take
advantage of the open U.S. market to
unload excess production at significant
financial gain. Figure 12 illustrates this
point using the United States’ trade
deficit in automobiles with Germany,
Japan, and the rest of the world.79
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forward Chrysler is foreign-owned.)
62050
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Figure 12: U.S. Deficit in Automobiles with Trading Partners
0
-20
I
I
I
i
i
-40
vi
p
..fiO
';
i
I
-80
-100
-120
-140
■ BestofEU
■ Germany
■ Japan
■ Korea
Iii Rest ofWoo.d
Source: Department of Commerce, Census Bureau.
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This trade deficit underscores the
significant disadvantage that U.S.
automobile producers have
internationally as a result of protected
markets abroad. In 2017, manufacturers
in the United States exported 2.0
million units ($56.9 billion U.S. dollars)
compared to imports of automobiles
from abroad of 8.3 million units ($191.7
billion U.S. dollars).80
From 1985 to 2017, overall imports of
automobiles from all countries almost
80 Department
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21:19 Nov 05, 2021
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doubled from 4.6 million units to 8.3
million units, representing an increase
from 30 percent of U.S. market share in
1985 to 48 percent in 2017 as shown in
Figure 13.81 As noted above, of the
remaining 52 percent of U.S. market
share, foreign-owned U.S.
manufacturing operations account for 30
percent and American-owned U.S.
manufacturing operations account for
the remaining 22 percent. The fact that
imports and foreign-owned production
of automobiles in the United States
81 Wards Intelligence InfoBank; Department of
Commerce, Census Bureau.
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accounted for 32 percent of the U.S.
market share in 1985 but now hold 78
percent of the U.S. market, and the fact
that American-owned automobile
production in the United States
declined by 6.3 million units over the
same period (from 11.0 million units to
4.6 million units), underscores the
displacement of American-owned
production in the United States by
imports and by foreign-owned
manufacturers’ U.S. production.82
BILLING CODE 3510–DR–P
82 Id.
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Figure 13: Rise in Imports of Automobiles into the United States
60%
50%
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. Calculated by
Department of Commerce.
By both volume and value, Mexico,
Canada, Japan, South Korea and the EU
account for nearly 98 percent of
automobiles imported into the United
States, although China is planning to
rapidly grow exports to the United
Number of Vehicles
Share of I otal
WORLD
8,271,840
.
46.65%
NAFTA
4,271,298
51.64%
22.33%
Japan
1,725,757
20.86%
20.75%
EU
1,159,947
14.02%
929,419
11.24%
58,515
0.71%
126,904
1.53%
PARJNER
191,748,525,445
WORLD
States as well.83 Table 4 below lists the
top sources of automobile imports into
the United States.
NAFfA
89,443,769,290
EU
42,814,095,422
Japan
39,781,128,900
Korea
15,731,937,656
8.20%
China
1,455,678,215
0.76%
China
Rest of World
2,521,915,962
1.32%
Rest of World
Korea
the tariff is removed by an FTA such as
NAFTA.84 Consequently, there is a
notable lack of import competition from
non-FTA regions but significant import
83 China’s intentions to dominate production of
advanced technologies such as electric vehicles is
detailed in the Section 301 Report on China
prepared by the United States Trade Representative.
A 2009 Chinese Central Government ‘‘Opinion’’
targets a 10 percent share of global automobile parts
exports for Chinese automobile producers by 2020.
Several provinces including Anhui, Chongqing, and
Zhejiang have issued 5-year plans (their 13th)
seeking increased automotive exports in response to
these directives. See Findings of the Investigation
Into China’s Acts, Policies, and Practices Related to
Technology Transfer, Intellectual Property, and
Innovation Under Section 301 of the Trade Act of
1974, Office of the United States Trade
Representative, Executive Office of the President,
March 22, 2018, https://ustr.gov/sites/default/files/
Section%20301%20FINAL.PDF at 139. See also
Shai Oster, Excess auto capacity in China could
leave dents in car makers, Wall Street Journal,
November 17, 2005, https://www.wsj.com/articles/
SB113218114486399413.
84 International Trade Commission, Official
Harmonized Tariff Schedule, https://
www.usitc.gov/tata/hts/index.htm.
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U.S. imports of light trucks are subject
to a 25 percent tariff rate, except where
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Source; Department of Commerce, Census Bureau.
62052
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penetration from Mexico where light
trucks are largely produced for the U.S.
market. In 2017, imports from Mexico
represented over 96 percent of the
PAR'fNER
Share of Total
832,755
-
NAFfA
801,486
96.25%
30,029
3.61%
771
0.09%
18,346,921,785
NAFfA
17,903,922,414
97.59%
423,727,370
2.31%
EU
13,294,493
0.07%
Japan
Japan
Number of Vehicles
WORLD
WORLD
EU
overall volume and value of light truck
imports into the United States.
Australia
2,482,036
0.01%
China
174
0.02%
China
1,431,528
0.01%
Australia
141
0.02%
Rest of World
2,063,944
0.01%
Rest of World
154
0.02%
Source: Department of Commerce, Census Bureau.
In contrast, because U.S. imports of
passenger vehicles are subject to a low
2.5 percent tariff, or zero tariff from FTA
countries,85 there is significant import
penetration in this segment. By both
volume and value, Mexico, Canada,
PARTNER
Japan, South Korea and the EU account
for over 97 percent of the overall U.S.
import volume of passenger vehicles.
Number of-Vehicles
Share of Total
WORLD
7,439,085
-
NAFTA
3,469,812
46.64%
24.45%
Japan
1,724,986
23.19%
22.93%
EU
1,129,918
15.19%
929,418
12.49%
58,341
0.78%
126,610
1.70%
WORLD
173,401,603,660
NAFTA
71,539,846,876
41.26%
EU
42,390,368,052
Japan
39,767,834,407
Kore-a
15,731,917,446
9.07%
China
1,454,246,687
0.84%
China
RestofWorld
2,517,390,192
1.45%
Rest of World
Korea
Source: Department of Commerce, Census Bureau.
For every automobile market segment,
moreover, the U.S. market has
witnessed an acceleration in imports
over the past five years. [TEXT
REDACTED].86 In 2017, imports of
automobiles by foreign-owned
manufacturers in the United States
accounted for [TEXT REDACTED] of
total import volume, whereas imports
by American-owned manufacturers
accounted for [TEXT REDACTED] of the
import volume.87
85 Id.
86 U.S.
2014
2015
2016
1
J
l
]
l
l
]
l
1
Producers’ Survey Responses, Question
87 Id.
4b.
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2017
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Item
2013
[TEXT REDACTED
[ TEXT REDACTED
[ TEXT REDACTED
[TEXT REDACTED
[ TEXT REDACTED
[ TEXT REDACTED
[TEXT REDACTED
[ TEXT REDACTED
[ TEXT REDACTED
Source: U.S. Producers' Survey Responses, Question 4b.
([TEXT REDACTED]).
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Table 7: Volume of U.S. Imports of Automobiles by Vehicle Segment
62053
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Table 8A further shows that, by
market segment, imports were largely
sourced from producers in [TEXT
REDACTED]. [TEXT REDACTED].
Whereas American-owned producers’
imports in 2017 from North America
totaled [TEXT REDACTED] of their
overall imports, foreign-owned
automobile producers’ imports from
regions outside North America
accounted for [TEXT REDACTED] of
their overall imports. In other words,
while American-owned automobile
producers expanded operations to
[TEXT REDACTED] to remain
competitive in the U.S. market, foreignowned producers not only took
advantage of the [TEXT REDACTED]
integrated North American supply chain
to reap competitive gains in the U.S.
market, [TEXT REDACTED] to displace
U.S. production by American-owned
firms. In fact, [TEXT REDACTED] of
foreign-owned producers’ [TEXT
REDACTED]. More specifically, EU
automobile producers in the United
States [TEXT REDACTED] of their
automobile [TEXT REDACTED],
Japanese producers in the United States
[TEXT REDACTED] of their automobile
[TEXT REDACTED], and South Korean
producers in the United States [TEXT
REDACTED] of their automobile [TEXT
REDACTED].88
BILLING CODE 3510–DR–P
Table SA: Sources of U.S. Im orts of Automobiles for All Market Se ments
[TEXT REDACTED
]
Source: U.S. Producers' Survey Responses, Question 4b.
Table SB: Sources of American-Owned U.S. Manufacturers' Imports of Automobiles for
AllM ktS ' 11 t
I
Light
Countrv
Sedans/Sl:Vs/Ct1 Vs Trucks Vans
EN08NO21.045</GPH>
Source: U.S. Producers' Survey Responses, Question 4b.
88 Id.
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[TEXT REDACTED
62054
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Table 8C: Sources of Foreign-Owned U.S. Manufacturers' Imports of Automobiles for All
Mak tS
•
I
t
I..ight
Sedans/Sl1Vs/ClWs Trucks
Countrr
[TEXT REDACTED
Vans
Source: U.S. Producers' Survey Responses, Question 4b.
Vehicle "fv >e
0
dP d
ti
. th U ·t d St t
Pi·oducti@n
Voluine in 2013
units)
:Production
Volume in
2017 ·units)
production, respectively. Americanowned producers were not operating at
full capacity in 2017 and, thus, had the
ability to produce more vehicles.89
C
I
ed t I
Impod Volume
in 2013 units)
rt
Import
Volume in
2017 units
Passenger Vehicles
2,952,.994
2,832,439
6,633.574
7,439,085
Light Trucks
1,351,645
1,750,198
517,241
832,755
4,304,639
4,582,637
7,150.815
Total
Source: Wards Intelligence lnfoBank; Department of Commerce, Census Bureau.
lotter on DSK11XQN23PROD with NOTICES2
I
3. Low Priced Foreign-Owned
Automobile Production and Imports
Have Caused Significant Market
Penetration in the United States and
Have Suppressed U.S. Producers’ Prices
Imported and domestically-produced
automobiles compete head-to-head in
the same geographic markets based
primarily on price, brand, and quality,
with price being a significant factor
driving consumers’ purchasing
decisions.90 From 2005 to 2017, the
average unit value (‘‘AUV’’) on retail
sales of automobiles in the United States
increased by 13.0 percent,91 which is
well below the 28.3 percent increase in
89 Board of Governors of the Federal Reserve
System (US), G.17. Capacity Utilization: Durable
Manufacturing: Automobiles and parts, https://
www.federalreserve.gov/releases/g17/current/.
90 Christian Wardlaw, 10 Top Reasons Why
People Buy Specific Cars, New York Daily News,
Mar. 4, 2016, https://www.nydailynews.com/autos/
buyers-guide/10-top-reasons-people-buy-specificcars-article-1.2552707.
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8,271,840
consumer prices over this period. 92
Further, for both passenger vehicles and
light trucks each year during the 2013
to 2017 period, Tables 10A, 10B, and
10C show that [TEXT REDACTED] and
hence contributed to the suppression of
automobile prices in the United States
market.
91 Wards
Intelligence InfoBank.
of Labor, Bureau of Labor
Statistics, Consumer Price Index, https://
www.bls.gov/cpi/ (accessed January 24, 2019).
92 Department
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T bl 9 A
passenger vehicles and light trucks
equal to 263 percent of Americanowned passenger vehicle production
and 48 percent of domestic light truck
EN08NO21.046</GPH>
Significantly, imports now exceed
American-owned production in the
United States. As Table 9 demonstrates,
in 2017 the United States imported
62055
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Table 10A: Average Unit Value of Automobiles Produced in the U.S.
21H3
2014
[TEXT REDACTED
[TEXT REDACTED
[TEXT REDACTED
Passenger Vehicles
Light Trucks
Overall Average for All Automobiles
2015
2016
201 i
]
]
]
Source: U.S. Producers' Survey Responses, Question 2b.
Table 10B: Average Unit Value of Automobiles Produced in the U.S.,
American-Owned Manufacturers
2013
Passenger Vehicles
Light Trucks
2014
2015
2016
[TEXT REDACTED
[TEXT REDACTED
[TEXT REDACTED
Overall Average for All Automobiles
2017
]
]
l
Source: U.S. Producers' Survey Responses, Question 2b.
Table 10C: Average Unit Vahle of Automobiles Produced in the U.S.,
Foreign-Owned Manufacturers
2013
Passenger Vehicles
Light Trucks
2014
2015
2017
J
[TEXT REDACTED
[TEXT REDACTED
[TEXT REDACTED
Overall Average for All Automobiles
2016
]
]
Source: U.S. Producers' Survey Responses, Question 2b.
index for all manufactured goods
increased by 27 percent.93
EN08NO21.049</GPH> EN08NO21.050</GPH>
price index for automobiles increased
by 15 percent while the producer price
93 Department of Labor, Bureau of Labor
Statistics, Producer Price Index (PPI) for
Automobiles.
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Figure 14 moreover shows that,
between 2005 and 2017, the producer
62056
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Figure 14: Increase of U.S. Producer Price Index for Automobiles Compared to All
Manufactured Goods
80
~---•c-· , ' - ~ - ,
.. -
. - ,-
_
,
___
~~~s~~~--~~0~QQQ
, .,
___
_
,
,
,
, _,
__
~,
_ ,
,
,
,_,
__ , , _,
""~~~a•••~~~~~~~~~-
Jl}Jl}&l}Al}Al}]}}JljJjjJ}}Ai}J}jJl}Jl
-PPI (100= Dec 2005) fur NAICS 33611 -PPI (100= Dec 2005) fur All Manufactured Goods
Source: Bureau of Labor Statistics, PPI Database, adjusted by U.S. Department of Commerce.
(Data adjusted to rebase the index period to December 2005.)
automobile in the United States
increased by 14 percent compared to a
5 percent increase in the average price
of imported automobiles.94 These data
demonstrate that low vehicle import
prices permitted imports to capture
significant market share from U.S.
producers.
94 Id.
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The slow growth of U.S. prices for
automobiles is also attributable to the
low prices of foreign imports. As shown
in Figure 15, since 2005, the average
price of a domestically produced
62057
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Figure 15: Increase of U.S. Producer Price of Automobiles Compared to the Price of
Imported Automobiles (NAICS 33611)
120 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
!
m-----------------------------1
Il no
J
lj
105 - - - - - - - - - - - - - - - , , , , , . : :
100
-·-....:~---="---------:~"----------------------
I
!~---~------------90-----------------------------2005
2006
2000
2008
2009
2010
-Domestic PPI (100= Dec 200S)
2011
2012
2013
2014
2015
2016
201'7
-Import Price (100= Dec 200S)
Source: Bureau of Labor Statistics, PPI Database, adjusted by Department of Commerce. (Data
adjusted to rebase the index period to December 2005.)
When this analysis is disaggregated by
passenger vehicles and light trucks for
a more recent comparison period,
[TEXT REDACTED], as shown in
Figures 16 and 17 below. With respect
to passenger vehicles, [TEXT
REDACTED]. For light trucks, [TEXT
REDACTED].95
Figure 16: AUVs of Passenger Vehicles:
Domestic Production vs. Imports
[TEXT REDACTED]
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Figure 17: AUVs of Light Trucks:
Domestic Production vs. Imports
[TEXT REDACTED]
A more detailed examination of
import prices reveals that differences in
prices have been most significant with
respect to imports from [TEXT
REDACTED]. [TEXT REDACTED].96
95 U.S. Producers’ Survey Responses, Questions
2b; Department of Commerce, Census Bureau.
96 U.S. Producers’ Survey Responses, Question
2b; see also Mike Monticello, Are Pickup Trucks
Becoming the New Family Cars?, Consumer
Reports, Feb. 22, 2013, https://www.consumer
reports.org/pickup-trucks/are-pickup-trucksbecoming-the-new-family-car/.
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Figure 18: AUVs of Passenger Vehicles:
Domestic Production vs. Imports
[TEXT REDACTED]
Figure 19: AUVs of Light Trucks:
Domestic Production vs. Imports
[TEXT REDACTED]
Low-priced imports have placed
significant competitive pressure on U.S.
producers throughout the market by
preventing the price increases that
would otherwise have occurred. As
explained below, from 2013 to 2017,
[TEXT REDACTED], while during this
period, the industry’s total cost of goods
sold (‘‘COGS’’) [TEXT REDACTED]
(from [TEXT REDACTED].97
Accordingly, the [TEXT REDACTED].98
In short, imported automobiles have
prevented American-owned automobile
producers from increasing sales prices
[TEXT REDACTED] in producers’ costs
for producing vehicles in the United
States. As explained in Section VI.B and
VI.C, this has negatively impacted
97 U.S. Producers’ Survey Responses, Questions
2b and 3.
98 U.S. Producers’ Survey Responses, Question 3.
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American-owned producers’ ability to
invest in technological advancements
that are critical to U.S. national security
needs.
B. Imports of Automobile Parts in Such
Quantities as Are Presently Found
Threaten the Viability of the U.S.
Automobile Parts Industry
The automobile parts industry is
experiencing a significant revolution in
technological advancements. In the area
of intelligent mobility technology, over
the past decade, the electrical
components industry has made
significant strides in advanced sensor
systems, vehicle automation, and
vehicle connectivity. All major
international automobile producers are
heavily investing in technology, and
advancements in electronic components
are expected to accelerate over the
course of the next decade as
automobiles transition to full
automation capabilities. In the area of
light duty vehicle propulsion,
automobile engine and transmission
technologies have rapidly progressed
because manufacturers, in response to
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increasingly stringent emission and fuel
economy regulations, have invested in a
broad portfolio of different
lightweighting propulsion technologies,
including internal combustion engines,
plug-in hybrid vehicles, and fuel cell
technologies. As set forth in Section
VI.C., these innovations are integral to
advancements in military vehicle
capabilities and, hence, U.S. defense
requirements.
1. Imports of Automobile Parts Have
Displaced U.S. Production, and the
United States Has Become Dependent
on Imported Automobile Parts That Are
Critical to Defense Applications and
National Security
In consultation with the DOD, the
Secretary has specifically determined
that automobile engines and parts,
transmissions and powertrain parts, and
electrical components are essential to
national security, and [TEXT
REDACTED].99 [TEXT REDACTED].100
Further, U.S. automobile producers are
now more than ever relying on imports
of such automobile parts to satisfy their
production needs.
In fact, every U.S. producer of
passenger vehicles—whether Americanowned or foreign-owned—imports a
significant volume of automobile parts
for its vehicle production operations in
the United States. [TEXT
REDACTED].101 As shown in Table 11A,
American-owned automobile producers
have, on average, [TEXT REDACTED] 102
Further, both American-owned and
foreign-owned producers reported
[TEXT REDACTED] [TEXT
REDACTED].103 Table 11B below lists
the major countries from which U.S.
automobile producers (whether
American- or foreign-owned) sourced
automobile parts in 2017.
Table 11A: 2017 U.S. Domestic Content by Vehicle Type,
American-Owned vs. Foreign-Owned Manufacturers
'
~-'-\merican-O'wned
Foreign-Owned
Manufacturers
l\Ianufacture1·s
Sedans/SUVs/CUVs
[TEXT REDACTED
]
Light Trucks
[TEXT REDACTED
]
Vans
[TEXT REDACTED
]
Source: U.S. Producers' Survey Responses, Question 2b.
Table UB: Top Sources oflmports for Specific Automobile Parts, American-Owned vs.
F .' 0
dM
f t
t
Import Source, AmericanImport Source, Foreign1 •1 p
Aut omo,n
e ar
Ownecl Manufacturers
Owned Manufacturers
[TEXT REDACTED
]
[TEXT REDACTED
]
]
[TEXT REDACTED
]
[TEXT REDACTED
Source: U.S. Producers' Survey Responses, Questions 5a and 5c.
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102 Id.
103 Id.
104 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank. (Data prior to 1989
would not be directly comparable with data for
1989 forward due to classification changes.
105 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank.
106 Department of Commerce, Census Bureau.
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the United States and foreign-owned
producers sourced [TEXT REDACTED]
of engines in the United States in
2015.107
Furthermore, U.S. automobile
producers have become increasingly
reliant on foreign suppliers for engine
parts. In particular, from 1989 to 1999,
the United States imported an average of
$346 in parts per engine produced,
which grew from 2010 to 2017 to an
import average of $1,178 in parts per
engine produced.108 As illustrated by
107 U.S. Producers’ Survey Responses, Question 6.
(2015 is the most recent year for which data were
available.)
108 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank. (This represents
nominal figures, which do not take into account
inflationary and foreign exchange changes over
time. Appropriate ‘‘real’’ figures are not publicly
available.)
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99 U.S. Producers’ Survey Responses, Questions
10a and 10b.
100 U.S. Producers’ Survey Responses, Question
10b.
101 U.S. Producers’ Survey Responses, Question
2b. [Although average imported content was 35
percent, individual producers reported imported
content shares as high as 70 percent for some
market segments].
while imports of automobile engines
increased by 32 percent (from 3.0
million units to 4.0 million units).105
The 4.0 million units imported in 2017
represents 37 percent of U.S. demand.
Over this period, imports of automobile
engines from Mexico expanded by 1.1
million units (to 1.8 million units in
2017) and imports from Germany grew
by 190,000 units (to 450,000 units in
2017).106 By engine type, Americanowned producers sourced [TEXT
REDACTED] of engines domestically in
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Substantial evidence demonstrates the
extent to which import penetration has
significantly weakened U.S. production.
With respect to automobile engines, the
United States has been a significant
importer of completed engines since
1989 when it imported 3.0 million
engines, or 29 percent of U.S. demand,
for domestic automobile production.104
Between 1989 and 2017, production of
automobiles in the United States
increased by 3 percent (from 10.6
million units to 10.9 million units),
62059
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Figure 20, U.S. engine manufacturers
have, in large part, transitioned to
assembly operations and away from
manufacturing and innovation.109
BILLING CODE 3510–DR–P
Figure 20: U.S. Engine Production for Domestic Use vs. Imports of Engine Parts
10,000
9
9,000
8,000
7,000
6,000
S,000
J
!i
0
4,000
3,000
2,000
1,000
0
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-Engine Production (Left Axis)
2010
2011
2012
2013
2014
2015
2016
2017
-Imports of Engine Parts (Right Axis)
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. ('Domestic
With respect to automobile
transmissions, the United States has
long been a significant importer of
completed transmissions. From 1989 to
2017, the United States imported, on
average, 50 percent of transmissions
used in domestic automobile
manufacturing.110 In 2017, automobile
manufacturers in the United States
imported 5.1 million completed
transmissions representing 47 percent of
domestic demand while domestic
production captured the remaining 53
percent.111 As with engines, American-
owned producers sourced [TEXT
REDACTED] of transmissions
domestically in the United States
whereas foreign-owned producers
sourced [TEXT REDACTED] of their
transmissions in the United States in
2015.112
In addition to import penetration by
transmissions displacing domestic
production, transmission producers in
the United States have increasingly
shifted to foreign suppliers for the parts
needed to build transmissions. As
shown in Figure 21, in 2000 the United
States imported $457 in parts per
transmission produced domestically. By
2017 imports had increased to $1,226 in
parts per transmission produced
domestically.113 U.S. transmission
producers are increasingly becoming
assemblers; they are not developing
emerging technologies associated with
next-generation transmissions, and
thereby are reducing the availability of
the skills, equipment, and R&D needed
to maintain global leadership in this
important component of automotive
production and defense mobility.
109 Id. Although the value and complexity of
automobile engines has increased over this period,
the relative rate of growth of the average unit value
of imported engines (up 179 percent from 1989 to
2017) and imported parts per domesticallyproduced engine (370 percent from 1989 to 2017)
indicates that there is an increased reliance on
imported parts by U.S. engine manufacturers.
110 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank. Department of
Commerce calculations.
111 Id.
112 U.S. Producers’ Survey Responses, Question 6.
(2015 is the most recent year for which data were
available.)
113 Department of Commerce, Census Bureau;
Wards Intelligence InfoBank. This represents
nominal figures, which do not take into account
inflationary and foreign exchange changes over
time. Appropriate ‘‘real’’ figures are not publicly
available. Includes HS–10 codes 8708996700,
8708996790, and 8708996890 in addition to the
transmission parts listed in Section VIII to create a
more consistent time series.
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use' refers to use in automobiles produced and sold in the United States.)
62060
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Figure 21: U.S. Transmission Production for Domestic Use vs. Imports of Transmission
Parts
9,000
8
8,000
7,000
6,000
5,000
I
4,000 fl'>
3,000
2,000
"" 1,000
0
0
2000
2001
2002
2003
2004
2005
2006
2007
200!
2009
-Transmissioo Prodcution (Left Axis)
2010
2011
2012
2013
2014
201:5
2016
2017
-Imports of Transmission Parts (Right Axis)
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau. ('Domestic
use' refers to use in vehicles produced and sold in the United States.) (Includes HS-10 codes
8708996700, 8708996790, and 8708996890 in addition to the transmission parts listed in Section
Finally, with respect to U.S.
producers of electrical components,
domestic production has also been
displaced by imports, as shown in
Figure 22. From 1999 to 2016 (latest
available data), U.S. production of
electrical components declined by 4
percent while U.S. demand grew
steadily, with the result that imports
captured all of the growth in overall
U.S. demand.114 In 1999, imports of
electrical components represented 29
percent of U.S. demand by value, 115
and by 2016, imports grew to 56 percent
of U.S. demand by value. 116 Further,
American-owned producers sourced
[TEXT REDACTED] of electrical
components in the United States and
foreign-owned producers sourced
[TEXT REDACTED] of electrical
components in the United States in
2015 (latest available data).117
114 Bureau of Labor Statistics, Industry
Productivity & Costs Database, https://www.bls.gov/
lpc/; Department of Commerce, Census Bureau.
115 Demand is approximated to be U.S.
production plus net imports (imports less exports).
116 This refers to nominal value figures. However,
over the same period, an output index estimating
the change in real production shows a similar trend;
U.S. output in the automobile electrical and
electronic equipment sector in 2016 was 5 percent
lower than output in 1999. Source: Bureau of Labor
Statistics, Industry Productivity & Costs Database,
https://www.bls.gov/lpc/.
117 U.S. Producers’ Survey Responses, Question 6.
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VIII to create a more consistent time series.)
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62061
Figure 22: Growth of Imports and U.S. Production of Automobile Electrical and Electronic
Equipment
25
20
r:
:§
&
....
C
lit
15
;J
.!!
'!,f
i~
10
-Value ofproduction
-ImportV:we
Source: Bureau of Labor Statistics, Industry Productivity & Costs Database and Department of
Commerce, Census Bureau. (Automobile Electrical and Electronic Equipment defined as
NAICS 33632.)
118 U.S.
producers in the United States, [TEXT
REDACTED].118 Excessive imports have
weakened the U.S. automobile parts
manufacturing base, as these imported
parts could have been produced
domestically.
Producers’ Survey Responses, Question 6.
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Tables 12A and 12B below illustrate
the sourcing patterns of Americanowned and foreign-owned automobile
62062
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Table 12A: Domestic & Foreign Sourcing of Automobile Parts for
U.S.Production,2015
Estimated Share of Components
1\fanufactured In:
Com onent Tv e
rnited States
Other Countries
[TEXT REDACTED]
Engines - 4 Cylinder
[TEXT REDACTED]
Engines - 6 Cylinder
[TEXT REDACTED]
Engines - 8 or More Cylinder
Transmissions - 7 or Fewer
[TEXT REDACTED]
Gears
Transmissions - 8 or More
Gears
[TEXT REDACTED]
Electronics and Controls
[TEXT REDACTED]
Electrical Systems
[TEXT REDACTED]
Source: U.S. Producers' Survey Responses, Question 6.
Table 12B: Domestic & Foreign Sourcing of Automobile Parts for U.S. Production, 2015,
America.n-Owned vs. Foreign-Owned Manufacturers
]
]
]
[TEXT REDACTED
Engines - 4 Cylinder
[TEXT REDACTED
Engines - 6 Cylinder
[TEXT REDACTED
Engines - 8 or More Cylinder
Transmissions - 7 or Fewer
[TEXT REDACTED
Gears
Transmissions - 8 or More
[TEXT REDACTED
Gears
[TEXT REDACTED
Electronics and Controls
[TEXT REDACTED
Electrical Systems
Source: U.S. Producers' Survey Responses, Question 6.
119 Department of Commerce, Census Bureau.
This represents nominal figures, which do not take
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automobiles has become dependent on
foreign-sourced parts. Although the
United States has consistently incurred
a trade deficit in automobile parts over
the past 30 years, this deficit has
increased to record levels within the
past three years, reaching over $60
billion in 2017.119
into account inflationary and foreign exchange
changes over time. Appropriate ‘‘real’’ figures are
not publicly available.
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U.S. trade deficit data in Figures 23
and 24 further illustrate the dramatic
extent to which domestic production of
EN08NO21.058</GPH>
BILLING CODE 3510(–DR–C
]
]
62063
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 23: U.S. Trade Deficit in Overall Automobile Parts
- -~
$'
~
~
~
~
~
~
~
,# ,<t> ,di> .,_&p .# ~~-~ -""' . ~
. -!1
■ EU28
t.'~---~-~~ .,,ii'.,_,$,
b
~
■ NAFTA
~
~
~
■ China
~
~
'\,'i> ..~ ,,,# ..~
■ Japan
~
~
~
~ ~
~ ~
#'.,, '!,#,,,..,,_~~- ..~. ~~ .:'~ .:'~
~ ~"' ~
b ~i
w;R.estofWcdd
Source: Department of Commerce, Census Bureau.
that the trade deficit in engines and
engine parts grew from a deficit of $0.7
billion in 1985 to a deficit of $15.2
billion in 2017, the deficit in electrical
components grew from a deficit of $211
million in 1985 to a deficit of $12.7
billion in 2017, and the deficit in
transmission and powertrain parts grew
from a deficit of $60 million in 1985 to
a deficit of $3.9 billion in 2017.120
120 Ibid.
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Disaggregated by component type, the
trade deficit in automobile engines and
parts, transmissions and powertrain
parts, and electrical components is
equally as significant. Figure 24 shows
62064
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 24: U.S. Trade Deficit in Automobile Parts by Type
20
Cl
to
.!:!I
-30
I: lJTTl'' 'tr I~ Il_tlf rr
-oO
-70
..go
■ Engines
II T'r.msmissioos
III Electrical Equipment
■ All Othe-fll
Source: Department of Commerce, Census Bureau.
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technological innovations in engines,
transmissions and electrical
components are critical for U.S. defense
capabilities as set forth in Section VI.C,
the United States’ increasing
dependence on imports—and thereby
loss of the manufacturing base and
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related worker skills and technological
know-how for cutting-edge innovations
with significant military applications—
poses a significant threat to national
security.
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Further, a comparison of the increase
in U.S. imports of overall automobile
parts to the decline in U.S. automobile
production, as shown in Figure 25,
confirms that U.S. automobile producers
have become increasingly reliant on
foreign-produced parts. As
62065
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 25: Comparison of U.S. Automobile Parts Imports to U.S. Automobile Production
14
$140
US. Automobile
Production
(right axis)
12
,_.,._._.,_~. ,..,,.,,_~-<-~sc-"Sa-"a,c_
$120
~
Trendline
8
6
4
Automobile Parts
Import Value
(left axis)
$40
$20
0
Source: Wards Intelligence InfoBank; Department of Commerce, Census Bureau.
lotter on DSK11XQN23PROD with NOTICES2
As U.S. production of engines and
parts, transmissions and powertrain
parts, and electrical components has
been negatively impacted by imports,
producers—especially American-owned
producers—in the U.S. market are
finding it difficult to stay competitive
due to escalating costs associated with
technological advancements. Cost
increases have been driven, in large
part, by advancements in vehicle
electronics, connectivity systems, safety
features, advanced driver-assistance
systems, and autonomous vehicle
technologies.121 To illustrate, a
McKinsey study of North American
121 Jim Irwin, EV, AV Spending in Slowing Market
Points to ‘Pile Up,’ WardsAuto, July 30, 2018,
https://www.wardsauto.com/alternativepropulsion/ev-av-spending-slowing-market-pointspile?NL=WAW-04&Issue=WAW-04_20180730_
WAW-04_297&sfvc4enews=42&cl=article_1_
b&utm_rid=CPENT000004033195&utm_
campaign=19649&utm_medium=email&elq2=
017d7eb1c3c741dba293777515e91e6a.
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automobile parts suppliers found that
the aggregate average real cost of
automobile parts (indexed to 2010
dollars and adjusted to compensate for
inflation, productivity changes, and
other macroeconomic forces) for
passenger vehicles was approximately
$13,400 in 2010, and is expected to rise
to $15,900 by 2020, an increase of
almost 20 percent. These estimates also
indicate that parts costs increased to
approximately $14,100 in 2013 and
$15,100 in 2017 (with an overall 13
percent increase from 2010).122 This
presents a significant problem to
automobile parts suppliers, as they have
been unable to increase prices to help
compensate for higher costs. Indeed,
during the same 2010 to 2017 period,
the average sales price of a new
automobile in the United States
increased from $24,063 in 2010, to
122 McKinsey & Company, The Future of the
North American Automotive Supply Industry,
March 2012, https://www.mckinsey.com/∼/media/
mckinsey/dotcom/client_service/automotive%20
and%20assembly/pdfs/the_future_of_the_north_
american_automotive_supplier.ashx; Department of
Commerce calculations.
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$24,454 in 2013, and to $25,366 in 2017
(a five percent increase).123 That is to
say, over the same seven-year period,
the average price of a vehicle increased
far less than the price increase
associated with components. As
acknowledged by the McKinsey study,
‘‘OEMs were unable to raise prices for
mass-market cars. In turn, [they] used
their purchasing power to limit
suppliers’ abilities to increase prices,
even in the face of higher input costs,’’
thereby eroding automobile parts
producers’ profitability.124
Further, for automobile producers’
U.S. operations, [TEXT REDACTED]
from 2013 to 2017, while the average
revenue earned per vehicle [TEXT
REDACTED].125 For American-owned
automobile producers in particular,
[TEXT REDACTED].126 During the 2013
to 2017 period, American-owned
123 Wards
Intelligence InfoBank.
& Company, The Future of the
North American Automotive Supplier Industry,
supra.
125 U.S. Producers’ Survey Responses, Question
2a and Question 3.
126 Id.
124 McKinsey
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2. U.S. Producers of Automobile Parts
Are Facing Downward Pressure on
Prices Due to Low U.S. Automobile
Prices
62066
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
producer’s [TEXT REDACTED]. As a
result, the COGS-to-revenue ratio per
vehicle [TEXT REDACTED].127 That the
average unit COGS for automobile
producers in the United States [TEXT
REDACTED] makes clear that Americanowned producers of automobiles [TEXT
REDACTED] in costs to their U.S.
customers, [TEXT REDACTED].
Foreign-owned automobile producers
operating in the U.S. market, where a
significant volume of automobile parts
are sourced abroad [TEXT REDACTED],
have not experienced [TEXT
REDACTED].128 From 2013 to 2017,
foreign-owned producers’ average pervehicle COGS [TEXT REDACTED],
while their [TEXT REDACTED].129 This
led to an overall average COGS-torevenue ratio [TEXT REDACTED],
which means that foreign-owned
producers [TEXT REDACTED].130
Further, during the 2013 to 2017 period,
foreign-owned automobile producers’
[TEXT REDACTED].131 Import prices,
moreover, were [TEXT REDACTED], as
noted above.
In short, [TEXT REDACTED] given
that low-priced imports have prevented
U.S. producers from increasing their
automobile prices by a sufficient margin
to offset increases in costs. Additionally,
as noted, U.S. automobile producers
often used their purchasing power to
limit price increases (or compel price
decreases) by their parts suppliers.132
Consequently, automobile parts are
now being increasingly produced in
foreign countries. As previously shown
in Figures 20 through 25, automobile
producers have become increasingly
reliant on automobile parts imported
from foreign suppliers. Furthermore, the
number of automobile parts
manufacturing establishments in the
United States have fallen, decreasing
from 5,624 in 2005 to 4,948 in 2016.133
[TEXT REDACTED].134 Domestic
demand for automobile parts clearly
exists, but the contraction of the
automotive parts manufacturing base in
the United States has impeded the
growth of related R&D investments by
American-owned firms in technological
advancements that are essential for U.S.
defense capabilities.135
127 Id.
128 Id.
129 Id.
130 Id.
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131 Id..
132 See McKinsey & Company, The Future of the
North American Automotive Supplier Industry,
supra.
133 U.S. Census Bureau, Business Patterns, NAICS
code 3363.
134 U.S. Producers’ Survey Responses, Questions
4–6.
135 John Moavenzadeh, Offshoring Automotive
Engineering: Globalization and Footprint Strategy
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C. Domestic Manufacturing and
Domestic R&D in Technologies for
Engines, Transmissions, and Electrical
Components Are Necessary for National
Security
As previously noted, the automotive
industry is a key driver of innovation for
the U.S. military and develops state-ofthe-art technologies, from autonomous
vehicles equipped with navigation
systems that enable them to maneuver
over dangerous terrain to lighter and
more powerful fuel-efficient vehicles.
Given that many of the technological
advancements in military vehicle
connectivity, electrification,
lightweighting, and autonomous driving
are first developed through R&D in the
commercial automotive sector in the
United States, it is imperative that
related R&D remain within the United
States, be conducted by Americanowned firms, and that the United States
Government take measures to secure the
long-term viability of domestic R&D in
the automotive sector.
As a general matter, it is well
understood that globalization of the
automobile sector has decentralized
production such that decoupling R&D
from manufacturing has become
possible, allowing producers to seek
manufacturing investments in areas
where production costs are lowest and
in the Motor Vehicle Industry, Dec. 1, 2006, https://
www.nae.edu/File.aspx?id=10284&v=79e01bce. The
erosion of the U.S. automobile parts supplier base
has been a decades-long trend. In 1998 the New
York Times reported that from 1978–1998 GM’s
Delphi division had built over 50 manufacturing
plants in Mexico. A major factor listed for the shift
of parts assembly was lower costs (derived from
lower labor costs), with some U.S. workers earning
$22 an hour in 1998 being replaced by Mexican
workers earning $1 to $2 an hour. Sam Dillon, A
20-Year G.M. Parts Migration To Mexico, New York
Times, Jun. 24, 1998, https://www.nytimes.com/
1998/06/24/business/international-business-a-20year-gm-parts-migration-to-mexico.html. In 2006,
Delphi announced the closing or sale of 21 out of
29 of its U.S. automobile parts plants, with new
operations being announced in Mexico and China.
Kate Lithicum, A tale of two cities: What happened
when factory jobs moved from Warren, Ohio, to
Juarez, Mexico, Los Angeles Times, Feb. 17, 2017,
https://www.latimes.com/world/mexico-americas/lafg-mexico-us-factories-20170217-htmlstory.html. In
2007, TRW’s Chief Operations Officer discussed in
an interview the firm’s ongoing plans to shift
production to low-cost countries. At that time 37–
38 percent of the firm’s operations were in low cost
countries, but TRW had a five-year plan to move
to 50 percent sourcing from those countries.
Douglas Bolduc, TRW Plan: Buy More Parts from
Low-Cost Countries, Automotive News, May 21,
2007, https://www.autonews.com/article/20070521/
SUB/70516021/trw-plan%3A-buy-more-parts-fromlow-cost-countries. By 2013, Automotive News
reported seven of the largest North American
automobile parts suppliers were expanding their
operations in Mexico. China was also listed by the
large supplier companies as a key destination for
new operations. David Sedgewick, Global Industry
Craves Megasuppliers, Automotive News, Jun. 17,
2013, https://www.autonews.com/assets/PDF/
CA89220617.PDF.
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to focus R&D investments in locations
where specific technological progress is
being made.136 To the extent R&D is
removed from manufacturing, it occurs
in areas where technology has matured,
the value of integrating product design
with manufacturing is low, and the
product has little bearing on national
security. On the other hand,
manufacturers tend to locate R&D in
close proximity to manufacturing
facilities when the technology is
emerging or product-specific.137
Further, where technology is
important to product innovation and
R&D directly impacts national security
capabilities, it is essential that R&D
remain in each producer’s home
country, so as to minimize knowledge
and innovation outflows that could
undermine a nation’s competitive
advantage.138 In the automotive sector,
co-locating the manufacture of
automobiles and automobile parts with
related R&D increases the rate of
efficiency in the adoption of
technological gains. Advancements in
vehicle lightweighting, connectivity,
electrification and autonomous driving
require highly specialized and
innovative manufacturing processes,
such that R&D is optimized when
located in close proximity to
manufacturing facilities.139 As
complexities in product design increase
and the market demands faster
innovation, R&D proximity facilitates
the rapid development of product life
cycles and gives manufacturers
sufficient flexibility to capture R&D
breakthroughs.140 For technologically
advanced products, ‘‘even minor
changes in the [manufacturing] process
can have a huge impact on the product,
the value of closely integrating
manufacturing and R&D is high, and the
136 Global Location Strategy for Automotive
Suppliers, KPMG International, Feb. 21, 2009,
https://www.kpmg.de/docs/Global_Location.pdf.
137 See Gary P. Pisano and Willy C. Shih, Does
America Really Need Manufacturing, Harvard
Business Review, March 2012, https://hbr.org/2012/
03/does-america-really-need-manufacturing; The
Proximity of Manufacturing Increases the Rate of
R&D Efficiencies, Aalto University, Mar. 15, 2017,
https://phys.org/news/2017-03-proximityefficiencies.html.
138 Id.; Juan Alcacer and Minyuan Zhao, Local
R&D Strategies and Multi-Location Firms: The Role
of Internal Linkages, Harvard Business School
Working Paper, 2010, https://www.hbs.edu/faculty/
Publication%20Files/10-064.pdf.
139 Supra n. 137.
140 European Commission, Study on the
Relationship Between the Localisation of
production, R&D and Innovation Activities, Final
Report ENTR/90/PP/2011/FC, Sep. 2014, https://
ec.europa.eu/DocsRoom/documents/6958/
attachments/1/translations/en/renditions/native at
30, 50.
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risks of separating them are
enormous.’’ 141
Moreover, it is important that R&D be
conducted by American-owned firms in
the United States, given the national
security implications of advanced
vehicle technologies with military
applications. Indeed, all major
automobile-producing countries utilize
export control laws to restrict the
transfer of military technologies to
foreign entities, whether within or
outside their domestic borders, which
means that the United States may not be
able to rely on technologies developed
in allied countries to give its military a
competitive edge. Even for R&D
conducted in the United States, it is
important that the R&D be conducted by
American-owned firms to reduce
reliance on foreign-owned companies’
domestic R&D investments and ensure
access in time of national emergency to
the necessary intellectual property
(‘‘IP’’). Although the DOD utilizes R&D
conducted by U.S. operations of foreignowned firms, this R&D may not be
available in a time of national crisis.
Indeed, foreign-owned manufacturers
are unlikely to share cutting-edge IP
with their American competitors,
especially technologies in which they
have invested billions of dollars for
commercial reasons. Further, in a time
of war (or other crisis) their home
governments may also prevent them
from providing DOD with access to
innovative technologies.
The interdependence between
domestic manufacturing and Americanowned R&D explains precisely why
imports of automobile parts pose a
threat to U.S. national security.
Dependence on imports over time leads
to the loss of domestic manufacturing
competence and related R&D, and
therefore the deterioration of the ability
to lead advancements in innovation that
are important for military needs.
1. The U.S. Military Relies on the
Domestic Automotive Sector for
Technological Advancements
According to the DOD, technological
advancements in U.S. military
automotive programs are driven by
domestic innovations in engine,
transmission and electrical component
technologies, and the U.S. military
relies on rapid application of U.S.
commercial breakthroughs to gain
competitive military advantages.142 For
example, the National Advanced
Mobility Consortium (NAMC) recently
awarded a $47 million contract to
141 Supra
n. 137.
Department of Commerce’s consultations
with Department of Defense.
142 The
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Cummins and Achates Power to develop
a supercharged turbo diesel engine for
the Bradley and Next Generation
Combat Vehicle under the Advanced
Combat Engine (‘‘ACE’’) program.143
This program builds on the 60 years of
experience that Cummins Diesel has
manufacturing commercial turbo diesel
engines.144 It also provides an
opportunity for the commercial supplier
to incorporate technologies that focus
on military specifications such as
engine thermal management, power
density, and fuel efficiency into
commercial automobiles.
Likewise, the U.S. military is
exploring power options such as hybrid
electric engines and hydrogen fuel cells,
finding that quiet new engine designs
promise additional military benefits
beyond breakthroughs in fuel
consumption, range and reliability. The
U.S. military has long sought to reduce
its dependence on fossil fuels to lower
costs and the risks associated with
producing and transporting combustible
fuels through war zones.145
Accordingly, the U.S. military has been
exploring hybrid electric drive systems
that combine an electric drive with a
combustion engine for greater
efficiency. These technologies have
been the subject of years of effort and
billions of dollars of research by the
passenger vehicle industry. Engines,
both gas and electric, and the drivetrain
parts required to integrate them into an
efficient combination, are all critical
automobile parts technologies that must
be retained for both R&D and
production in the United States.
In fuel cells, General Motors Global
Fuel Cells Activities Division is working
with the U.S. Army Tank Automotive
Research, Development and Engineering
Center (‘‘TARDEC’’) 146 to develop a
hydrogen fuel cell-powered light-duty
utility truck (‘‘ZH2’’). This vehicle,
based on a Chevy Colorado light truck
design, is powered by a fuel cell and a
143 Kylie Veleta, Cummins to Design Combat
Engines That Elude the Enemy, Inside Indiana
Business with Gerry Dick, Feb. 15, 2018, https://
www.insideindianabusiness.com/story/37513588/
cummins-to-design-combat-engines-that-elude-theenemy.
144 Cummins, ‘‘Holset Turbo Technologies,
Innovative Engineering, Absolute Reliability,’’
https://www.cummins.com/components/holsetturbo-technologies.
145 The Department of Commerce’s consultations
with Department of Defense.
146 The U.S. Army Tank Automotive Research,
Development and Engineering Center’s (TARDEC)
mission is to ‘‘develop, integrate and sustain the
right technology solutions for all manned and
unmanned Department of Defense (DoD) ground
systems and combat support systems to improve
Current Force effectiveness and provide superior
capabilities for the Future Force,’’ https://
tardec.army.mil/#content/4.
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battery that has near silent operation,
gives off less heat, and provides water
as a by-product for use in the field. This
work builds on GM’s fuel cell
experience via their Project Driveway, a
119-vehicle fleet driven by more than
5,000 people in a multi-year fuel cell
experience program accumulating 3.1
million miles of hydrogen fuel cell
testing. The Army is in the process of
evaluating the truck for potential use in
military operations.147
Along with engines, transmission
technology is also critical to military
vehicles. For example, the Advanced
Vehicle Power and Technology Alliance
(‘‘AVPT’’), which aligns experts from
the U.S. Department of Energy and the
Department of the Army, has
specifically identified advanced
combustion engines and transmissions
as products of special interest for
collaboration.148 The U.S. military has
found it challenging to source
transmissions with sufficient
performance capabilities for the extreme
demands and conditions under which
military vehicles must operate.149
Transmissions for modern military
vehicles must be engineered to adapt
and operate efficiently, offering peak
performance in wheeled military
applications. Military transmissions
must reliably deliver precise propulsion
control, high productivity and
efficiency, and reliable operation. The
U.S. commercial automotive industry
has made significant progress in these
performance capabilities, and
adaptation of advancements in
automotive transmission technology for
military applications is common.
Indeed, the U.S. automotive industry’s
move away from manual to automatic
transmissions has been closely followed
by the military, with automatic
transmissions now routinely
incorporated in military tactical
vehicles.
Similarly, the DOD’s TARDEC has
evaluated various suppliers including
147 Mission-Ready Chevrolet Colorado ZH2 Fuel
Cell Vehicle Breaks Cover at U.S. Army Show,
Modified Midsize Pickup Goes into Extreme Military
Field Testing in 2017, GM Corporate Newsroom,
Oct. 3, 2016, https://media.gm.com/media/us/en/
gm/news.detail.html/content/Pages/news/us/en/
2016/oct/1003-zh2.html.
148 Chris Williams, DoE, Army Alliance
Underlines Achieving Energy Security, Tank
Automotive Research, Development and
Engineering Center, Aug. 1, 2011, https://
www.army.mil/article/62727/doe_army_alliance_
underlines_achieving_energy_security.
149 John Tasdemir, Ground Vehicle Systems
Engineering and Technology Symposium, GVPM
Powertrain Overview, Aug. 11, 2011, https://
www.dtic.mil/dtic/tr/fulltext/u2/a547261.pdf.
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Allison, L3, and SAPA 150 to provide
steering transmissions to support the
next generation Bradley Fighting
Vehicle.151 The goal of the Advanced
Powertrain Initiative is to test the
performance of a 32-speed transmission.
Although defense is the dominant
market for these steering transmissions,
the next generation transmission
depends on innovation developed in
standard transmissions and steering
transmissions used in the commercial
sector. Many suppliers supporting
defense applications in this segment
participate in commercial activity,
including:
• First tier suppliers: Allison, L3,
Twin Disc, General Engine Products
• Sub-tier commercial suppliers for
transmissions and transmission
components: ZF Friedrichshafen AG*,
Valeo SA*, BorgWarner, Inc., GKN
Driveline*, JATCO*, Linamar Corp.*,
Schaeffler Group USA Inc.*, Brose
North America, Inc.*, Powertech
America, Inc.*, NSK Americas*,
Johnson Electrics*
* The supplier is a U.S. affiliate of a
foreign-owned parent.
Similarly, electrical equipment is
critical for military vehicles. There is a
large overlap in the commercial
automobile control/electronics systems
and the connectivity systems that are
being incorporated into military
vehicles. Network technology is now
embedded in every new civilian vehicle,
and military vehicles are increasingly
becoming more network intensive.
Military vehicles now routinely utilize
the Controller Area Network (‘‘CAN’’)
technology developed for the
commercial vehicle world, which
allows remote monitoring of the
vehicle’s performance and need for
maintenance. Military vehicles are also
connected to operational or mission
networks that link vehicle computers,
data links, radios, vision, and navigation
systems directly involved in missions.
These networks are similar in nature to
advanced connected networks that are
now routinely available in new
passenger cars and trucks.152
150 Allison, L3, and SAPA are leading global
suppliers of transmissions, other automobile parts
and defense technologies.
151 Ashley Tressel, Race to replace Bradley
transmissions stirs up defense industrial base
issues, Inside Defense, June 22, 2018, https://inside
defense.com/share/196943. A foreign-owned
supplier won this competition, indicating the needs
to better support the competitiveness of Americanowned manufacturers.
152 Richard Wilson, Military Vehicles in High
Speed Data Connection,’’ ElectronicsWeekly.com,
May 21, 2013, https://www.electronicsweekly.com/
market-sectors/military-aerospace-electronics/
military-vehicles-in-high-speed-data-connection2013-05/.
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Further, semiconductors are vital to
U.S. national security as they power
many of the high-tech systems used by
the U.S. military,153 including field
communications, transportation
systems, and various weapon systems
and platforms.154 Specific and unique
U.S. military semiconductor
requirements include radiationhardened semiconductors for satellites
and space operations, high performance
converters for radio frequency
communication systems, special
processors for radar systems, and
advanced imagers.155 As with the
transmission sector, there are many
suppliers that overlap with the
commercial sector, including:
• First tier suppliers: Harris,
Telephonics Corporation, DRS*,
Rockwell Collins.
• General suppliers of
semiconductors: Intel, Micron,
Qualcomm, AMD, Applied Materials,
Cadence, Synopsys.156
• Sub-tier commercial suppliers for
communication systems/components to
North America: Denso International
America Inc.*
153 Michaela D. Platzer and John F. Sargent Jr.,
U.S. Semiconductor Manufacturing: Industry
Trends, Global Competition, Federal Policy,
Congressional research Service, Jun. 27, 2016,
https://fas.org/sgp/crs/misc/R44544.pdf at 21; Brig.
Gen. John Adams, America’s Semiconductors
Supply Chain Faces Big Cybersecurity Risks,
Alliance for American Manufacturing Blog, Mar. 23,
2017, https://www.americanmanufacturing.org/blog/
entry/americas-semiconductors-supply-chain-facesbig-cybersecurity-risks. See also Falan Yinug, How
U.S. Semiconductor Technology Strengthens Our
Military on the Battlefield, Semiconductor Industry
Association Blog, Jan. 26, 2016, https://
blog.semiconductors.org/blog/how-ussemiconductor-technology-strengthens-our-militaryon-the-battlefield.
154 Dave Chesebrough, Trusted Microelectronics:
A Critical Defense Need, National Defense, Oct. 31,
2017, https://www.nationaldefensemagazine.org/
articles/2017/10/31/trusted-microelectronics-acritical-defense-need.
155 For example, semiconductors are key to the
land-based weapons system that the United States
uses to defend airspace against aircraft, cruise
missiles, drones, and ballistic missiles. Joe
Pappalardo, How Patriot Missiles Will Stay a Step
Ahead of the Enemy, Popular Mechanics, Aug. 27,
2015, https://www.popularmechanics.com/military/
research/a17100/patriot-missiles-radar-galliumnitride/; NDIA Trusted Microelectronics Joint
Working Group, Future Needs & System Impact of
Microelectronics Technologies, Jul. 2017, https://
www.intrinsix.com/hubfs/Premium_Content/
trusted-asic-design/Future_Needs_and_System_
Impact_of_Microelectronics_Technologies.pdf.
156 Electronic systems for automotive purposes
account for 9 percent of total global electronic
system production (2017 estimate), after
communications, computer, industrial/medical/
other, and consumer purposes. This is significant
for semiconductor suppliers, as their products are
required for many of these automotive systems.
Automotive Electronic Systems Growth Strongest
Through 2021, IC Insights, Nov. 8, 2017, https://
www.icinsights.com/news/bulletins/AutomotiveElectronic-Systems-Growth-Strongest-Through2021/.
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• Sub-tier commercial suppliers for
navigation system/components to North
America: Panasonic Automotive
Systems Co. of America*, Mitsubishi
Electric Automotive America Inc.*,
Alpine Electronics of America Inc.*,
Pioneer Automotive Technologies Inc.*
• Sub-tier commercial suppliers for
sensors to North America: Panasonic
Automotive Systems Co. of America*,
Valeo Inc.*, Flex Ltd.*, Infineon
Technologies North America Corp.*,
Stoneridge Inc.
• Sub-tier commercial suppliers for
electronics to North America:
Continental Automotive Systems U.S.
Inc. (safety and powertrain)*, Robert
Bosch (electrical devices, electronics &
steering systems)*, Aisin World Corp. of
America (electronics)*, Hyundai Mobis
(electronics)*, Autoliv North America
(safety electronics)*, Sumitomo Electric
Wiring Systems Inc. (electronics
systems)*, Yanfeng Automotive
Interiors (electronics)*, Brose North
America Inc. (electronics)*, Magneti
Marelli Holding USA (electronics)*,
Eberspaecher North America Inc.
(electronics)*.
* The supplier is a U.S. affiliate of a
foreign-owned parent.
In addition to providing unique
product development and performance
enhancements for key products such as
engines, transmissions and electrical
components, the U.S. defense sector
relies on the automotive industry more
broadly. The automotive sector provides
unique innovation to the defense sector
in various areas, including
manufacturing processes, R&D, and use
of new materials.
Importantly, the defense industrial
base is also dependent on the
commercial scale of the automotive
sector for critical commodities and
capabilities.157 Yet, the continued
offshoring of key automotive
manufacturing and resulting loss of
scale to support U.S. operations leaves
the military at risk of not having supply
chains in the United States for critical
equipment. Additionally, the military
relies not only on technology and
innovations from the U.S. automobile
industry, but also on the technical skills
and know-how of its workforce as the
commercial sector is a key recruiting
ground for defense industry
manufacturers.158
The broad-scale overlap between
commercial and defense R&D activities
underscores the interdependence
between the commercial automobile
industry and the military sector:
157 The Department of Commerce’s consultations
with Department of Defense.
158 Id.
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• The DOD partners with the
commercial automotive sector to
conduct pre-competitive research in
areas that ultimately prove to have
commercial and defense applications.
For example, the DOD is a partner in
LIFT (Lightweight Innovations for
Tomorrow, an industry-led,
government-funded consortium), along
with General Dynamics and the Original
Equipment Supplier Association, which
represents commercial automobile parts
suppliers. LIFT is ‘‘part of a national
network of research institutions and
industrial companies geared toward
advancing America’s leadership in
manufacturing technology.’’ 159
Ansys, Inc ...........................................................
* Ballard Power Systems, Inc .............................
* Robert Bosch ....................................................
Detroit Diesel Corporation ..................................
Ford Motor Company .........................................
General Motors Corporation ...............................
Quantum Signal LLC ..........................................
Soar Technology ................................................
Argonne National Lab ........................................
Environmental Protection Agency (EPA) ...........
National Renewable Energy Lab .......................
• University Centers of Excellence
(‘‘COEs’’) seek to expand the frontiers of
knowledge in research areas where the
Army has enduring needs. COEs couple
state-of-the-art research programs at
academic institutions with broad-based
graduate education programs to help
increase the supply of scientists and
engineers in automotive and rotary wing
technology.160
• DOD’s TARDEC 161 and GM have
enjoyed a successful fuel cell-focused
collaborative research relationship for
years, beginning with a Cooperative
Research and Development Agreement
to test fuel cell stacks. This relationship
grew through the development of the
*AVL North America, Inc ..................................
* BETA CAE Systems USA ..............................
Caterpillar .........................................................
* FEV Group .....................................................
General Dynamics Land Systems ...................
* HBM nCode ...................................................
RAMDO Solutions ............................................
* Ultra AMI ........................................................
Army Research Lab .........................................
National Aeronautics and Space Administration (NASA) Jet Propulsion Lab.
Oak Ridge National Lab.
62069
Chevrolet Colorado ZH2 light truck,
which debuted in 2016 and was tested
and demonstrated by the U.S. Army
over the next year. GM presented
SURUS (a hydrogen fuel cell vehicle) in
2017 at the annual meeting of the
Association of the United States
Army.162
• The Automotive Research Center, a
U.S. Army Center of Excellence for
Modeling and Simulation of Ground
Vehicles led by the University of
Michigan, partners with the following
government and private sector entities
for R&D advancements:163
BAE Systems.
Boeing Research and Technology.
* Daimler.
* Fiat Chrysler.
GE Global Research.
* Henkel North America.
* Rolls-Royce North America.
* Yokohama Rubber, Inc.
Cold Regions Test Center.
National Institute of Standards and Technology, U.S. Department of Commerce.
* The supplier is a U.S. affiliate of a foreign-owned parent.
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These examples illustrate the intense
level of cooperation between the
commercial and military vehicle sectors
and the importance of commercial R&D
spending in the United States that
supports U.S. military leadership.
Finally, while the U.S. military
presently benefits from R&D
investments by both American-owned
and foreign-owned companies in the
United States, it is important to
underscore that, in the time of national
emergency, foreign-owned subsidiaries
may not be willing or able to continue
their R&D collaboration with the U.S.
Government. Nor would it be logical to
expect foreign R&D enterprises in the
United States to share their research and
patented technology with Americanowned competitors. It is for this reason
that innovation by American-owned
firms is essential to U.S. national
security and, as explained in the
following section, the overall weakening
of the United States’ automotive
industry adversely impacts Americanowned firm’s ability to invest in R&D in
159 LIFT, Manufacturing USA, https://
lift.technology/manufacturingusa/.
160 John F. Sargent Jr., Defense Science and
Technology Funding, Library of Congress,
Congressional Research Service, R45110, Feb. 21,
2018, https://crsreports.congress.gov/product/pdf/
R/R45110.
161 TARDEC, https://tardec.army.mil/.
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order to maintain leadership in
technologies that have important
military applications.
The 2018 U.S. National Defense
Strategy explicitly states that ‘‘[n]ew
commercial technology will change . . .
the character of war’’ and that ‘‘many
technological developments will come
from the commercial sector.’’ 164 In
describing necessary tactics to solidify
the U.S. military’s competitive
advantage, the National Defense
Strategy emphasizes that the DOD must
invest broadly in the ‘‘rapid
application’’ of commercial
breakthroughs.165 Comparing the [TEXT
REDACTED] establishes the importance
of maintaining a robust automotive R&D
presence in the United States. In 2017,
foreign- and American-owned
automobile producers spent [TEXT
REDACTED] on R&D in the United
States, with American-owned producers
accounting for [TEXT REDACTED] of
that total, compared to [TEXT
REDACTED] spent on R&D by armored
vehicle producers.166 [TEXT
REDACTED].167 Therefore, U.S.
armored vehicle producers, and by
extension the U.S. military, depend on
the continued U.S. leadership and
innovation of the commercial
automotive sector.
Given the importance of automobile
engines, transmissions and electrical
systems to technological advancements
in military transportation vehicles, and
given the importance of co-locating R&D
and manufacturing for these
technologies, it is imperative that the
United States maintain and grow a
robust commercial automobile and
automobile parts industry. Designing
and producing automobile parts is a
massive engineering challenge, which is
why automobile producers globally
continue to increase spending on R&D.
An automobile purchased today is the
product of years of R&D investments.
Typically, it takes five years or more for
162 Douglas Halleaux, TARDEC, GM bring SURUS
to Smithsonian and SOFIC, Defense Visual
Information Distribution Service, U.S. Army Tank
Automotive Research Development & Engineering
Center, https://www.dvidshub.net/news/277762/
tardec-gm-bring-surus-smithsonian-and-sofic.
163 Automotive Research Center, Industry
Partners, https://arc.engin.umich.edu/about/
industry-partners.html.
164 Department of Defense, Summary of the 2018
National Defense Strategy of the United States of
America, Jan. 2018, https://dod.defense.gov/
Portals/1/Documents/pubs/2018-National-DefenseStrategy-Summary.pdf at 3.
165 Id. at 7.
166 U.S. Producers’ Survey Responses, Question
10a.
167 Id.
2. Growth of American-Owned R&D for
Critical Automobile Parts Is Essential To
Strengthen U.S. National Security
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a technology or a new vehicle model to
go from design to testing to production
and sale. Today’s high-tech vehicle is
comprised of as many as 15,000 parts all
performing specialized functions in
carefully designed ways.168 The stakes
for keeping pace on the development of
technologically advanced and efficient
engines, advanced powertrains, and
better sensors are intense, and the
advent of new technologies is forcing
companies to augment R&D spending to
remain competitive. The long lead-times
for bringing technology to market and a
reliance on imported automobile parts
increases the vulnerability of the United
States.
As most automotive R&D is focused
on new vehicle design and testing,
significant money is spent on the
development of engines, transmissions,
and electrical equipment technologies
that have national security applications.
Yet American-owned automobile
producers have lagged behind their
foreign counterparts in automotive R&D
spending. Table 13 shows that, in 2017,
American-owned producers represented
20 percent of global R&D spending in
automobile production and seven
percent of global R&D spending in
automobile parts, trailing behind the EU
and Japanese producers, which together
controlled approximately 70 percent of
global R&D spending in automobile
production and nearly 90 percent in
automobile parts R&D.169 For Americanowned firms, approximately [TEXT
REDACTED].170 For EU- and Japaneseowned firms, most R&D investments are
made in their home countries.171
Table 13: 2017 Global R&D Spending by Company Nationality
R&D for Automobile Parts Production
Billions
(~lo of Global Total)
20%
U.S.
16.2
40%
EU
32.2
Japan
24.5
30%
3%
Korea
2.4
6%
China
4.8
Source: PwC. 2017 Global Innovation 1000 Study.
$ Billions
$
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Table 14 below shows that, when
global R&D is measured in relation to
automobiles produced, Americanowned manufacturers outspent their EU
and Japanese counterparts ($1,543 by
American-owned firms compared to
$1,480 by EU firms, and $1,009 by
Japanese firms).172 However, this
increased R&D spending per-unit
highlights the impact of market share
168 American Automotive Policy Council, State of
the U.S. Automotive Industry 2018, Aug. 2018,
https://www.americanautocouncil.org/sites/
aapc2016/files/2018%20Economic%20Contribution
%20Report.pdf at 7.
169 PwC, 2017 Global Innovation 1000 Study,
2018, https://www.strategyand.pwc.com/innovation
1000#VisualTabs3.
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U.S.
EU
1.4
8.6
Japan
Korea
0.6
China
0.3
9.0
lost to automotive imports, namely that
American-owned firms need to have
higher per-unit R&D expenditures
relative to their foreign-owned
competitors in order to offset the
economic impacts of lost market share.
The reduced market share leads to a
vicious cycle, with smaller production
volumes reducing profits, which
reduces funds to support overall R&D,
170 U.S.
Producers’ Survey Responses, Question
10a.
171 Stefan Di Bitonto, The Automotive Industry in
Germany, Germany Trade & Invest, 2018, https://
www.gtai.de/GTAI/Content/EN/Invest/_
SharedDocs/Downloads/GTAI/Industry-overviews/
industry-overview-automotive-industry-en.pdf; see
Toyota Motor Company annual report, March 31,
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( 010 of Global Total)
7%
43%
45%
3%
2%
which reduces innovation and leads to
further losses of market share. China,
which has the lowest per-unit R&D
expenditure, often conducts R&D
through joint ventures with foreign
companies, lowering the amount of R&D
that needs to be performed by Chinese
companies. Additionally, Chinese
companies are able to amortize their
R&D costs over a large production base.
2018, https://www.toyota-global.com/pages/
contents/investors/ir_library/annual/pdf/2018/
annual_report_2018_fie.pdf at 46.
172 PwC, 2017 Global Innovation 1000 Study,
supra.
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T bl 14 2017R&DE
Countr~' of
Ownershi l
I
N .
Ii
I
dP d
b C
Global R&D Global Production R&D Ex1n·nditure
Expenditure
(Millions of
Per Automobile
(Billions of$)
Ye hides
Produced
di
United States
$16.2
10.5
$1,543
EU
$32.2
21.7
$1,480
Japan
$24.5
24.2
$1,009
$2.4
6.1
$403
South Korea
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China
$4.8
17.6
$270
Source: PwC, 2017 Global Innovation 1000 Study and Wards Intelligence InfoBank.
Automobile production only includes production by those companies identified in the PwC
study and includes medium and heavy duty trucks. In the case of a joint venture, the
ownership is attributed to the majority partner.
62072
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
The smaller production volume of
American-owned manufacturers relative
to global competitors hinders American
manufacturers’ ability to invest in R&D
to the same extent as their competitors.
Production must increase in order to
encourage additional R&D investments,
as [TEXT REDACTED].173
It is necessary and appropriate to
focus on increased American-owned
production because, with respect to the
specific automotive technologies that
are important for national security,
American-owned producers invest R&D
dollars domestically, whereas foreignowned producers tend to invest abroad.
To illustrate, in 2017 with respect to
spending in the United States, [TEXT
REDACTED].174 [TEXT REDACTED].175
[TEXT REDACTED].176 As shown in
Table 15 [TEXT REDACTED] are the
most common non-U.S. locations for
foreign-owned producers’ R&D
investments related to vehicle
autonomy, connectivity, electrification,
and lightweighting.177
Table 15: Fore· n-Owned U.S. Producers., R&D Activities in Non-U.S. Locations
Autonomy
[TEXT REDACTED]
Connectivity
[TEXT REDACTED]
Electrification
[TEXT REDACTED]
Lightweighting
[TEXT REDACTED]
Increasing the United States’ overall
share of global R&D investments is
essential to national security. Industry
analysts expect that by 2023 about $255
billion in R&D and capital expenditures
will have been spent globally on electric
vehicles.178 An additional $61 billion
will be spent on autonomous vehicle
technologies by the same year.179 As
advanced automotive technologies
become a battleground for the industry,
R&D budgets will determine how
effectively automobile producers can
compete and which nations will control
cutting-edge technologies for both
commercial and military
applications.180
The pressure for R&D spending is so
great that unprecedented sums of money
are being poured into electric and
autonomous vehicles years before those
technologies are fully cost-competitive
in the market.181 For American-owned
and foreign-owned producers in the
United States, U.S. R&D activities are
[TEXT REDACTED].182
PwC’s 2015 Global Innovation 1000
Automotive Industry Findings examined
in detail the regional locations where
automotive companies are conducting
R&D and concluded that the automotive
industry’s fastest-growing and most
competitive markets are now in the Asia
Pacific region, dominated by China as
the world’s largest automobile
market.183 Even more noteworthy, the
study, which examined R&D spending
by location rather than by where
companies were headquartered,
concluded that the Asia Pacific region is
increasingly where automotive
innovation is concentrated.184 From
2007 to 2015, expenditures on
automotive R&D conducted in Asia
increased by 70 percent, surpassing
North America and Europe to become
the largest regional hub of such
expenditures.185 During the same
period, North American automotive
R&D expenditures only increased by 23
percent.186
The PwC study also found that
China’s share of total automotive R&D
173 U.S. Producers’ Survey Responses, Questions
2b and 10.
174 U.S. Producers’ Survey Responses, Question
10a.
175 Id.
176 Id.
177 U.S. Producers’ Survey Responses, Question
10b.
178 Irwin, EV, AV Spending in Slowing Market
Points to ‘Pile Up,’ supra.
179 Id.
180 For example, Toyota recently announced that
it will invest a record 1.08 trillion Yen in 2018 to
expedite the development of autonomous driving
technology, connected cars and electric vehicles,
representing a 30% increase from five years earlier.
Toyota pours $22bn into R&D as Apple and Google
Close in, Nikkei Asian Review, May 10, 2018,
https://asia.nikkei.com/Business/Companies/
Toyota-pours-22bn-into-R-D-as-Apple-and-Googleclose-in. Ford also recently announced that it will
significantly increase its planned investments in
electric vehicles to $11 billion by 2022 and have 40
hybrid and fully electric vehicles in its model
lineup. The investment figure is sharply higher than
Ford’s previously announced target of $4.5 billion
by 2020 and is mostly derived from the costs of
developing dedicated electric vehicle architectures.
Ford Plans to Invest $11 Billion to Electrify Its ’Most
Iconic’ Vehicles, Fortune, Jan. 15, 2018, https://
fortune.com/2018/01/14/ford-11-billion-electric-carinvestment/. And, according to BMW’s 2017–18
annual report, the company planned to allocate
between 6.5 and 7 percent of its 2018 gross revenue
to R&D, above its usual range of 5 to 5.5 percent.
BMW to Spend Record Amount on R&D to Prepare
for Electric Cars, Self-Driving Cars, Assembly
Magazine, Mar. 23, 2018, https://
www.assemblymag.com/articles/94194-bmw-tospend-record-amount-on-rd-to-prepare-for-electriccars-self-driving-cars.
181 Irwin, EV, AV Spending in Slowing Market
Points to ‘Pile Up,’ supra.
182 U.S. Producers’ Survey Responses, Question
10.
183 PwC, 2015 Global Innovation 1000
Automotive Industry Findings, 2016, https://
www.strategyand.pwc.com/media/file/Innnovation1000-2015-Auto-industry-findings-infographic.pdf.
184 Id.
185 Id.
186 Id.
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Source: U.S. Producers' Survey Responses, Question lOb.
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
had jumped dramatically from 4 percent
in 2007 to 11 percent in 2015. During
that same period, the U.S. share of total
automotive R&D spending dropped from
29 percent to 27 percent.187 China also
replaced Germany as the second-largest
importer of automotive R&D during this
period.188 According to PwC, this data
reflects the shift happening in the
automotive industry’s center of
gravity.189 PwC’s 2017 Global
Innovation 1000 Study highlights the
impact of this trend, showing that of the
top 20 automobile producers ranked in
terms of R&D expenditures, 11 are
headquartered in Asia and six are
headquartered in Europe, while only 3
are headquartered in the United States
(GM, Ford, and Tesla).190
Further, none of the top 10
automobile parts suppliers in terms of
overall R&D expenditures is
headquartered in the United States,
while four are headquartered in Asia
and the remaining six are headquartered
in Europe.191 This is problematic for the
national security of the United States
because the automotive industry is
highly dependent on suppliers for
components as well as leading-edge
technological development. While U.S.
automobile companies direct billions of
dollars in R&D activities, this research is
increasingly conducted by partner
supplier companies. In fact, automobile
parts manufacturers conduct about
one-third of the annual $18 billion
investment by the automotive industry
in R&D in the United States.192 Most
automobile producers [TEXT
REDACTED].193
[TEXT REDACTED] 194 [TEXT
REDACTED].195 As noted, automobile
parts suppliers play a critical role in
developing the innovations 196 that
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187 Id.
188 Id. Imported R&D refers to R&D conducted in
China by companies headquartered abroad.
189 Id.
190 PwC, The 2017 Global Innovation 1000 Study,
supra.
191 Id.
192 MEMA Responds to Trump Administration
Announcement of Additional 301 Tariffs on China,
Motor & Equipment Manufacturers Association, Jul.
11, 2018, https://www.mema.org/mema-respondstrump-administration-announcement-additional301-tariffs-china.
193 U.S. Producers’ Survey Response, Question
12c.
194 Id.; Department of Commerce, Bureau of
Economic Analysis, 2012 Benchmark Input-Output
tables. As calculated by Department of Commerce.
2012 data are the latest available.
195 U.S. Producers’ Survey Responses, Question
10a.
196 The importance of automotive suppliers in the
automotive R&D landscape is also demonstrated in
future automotive technologies, and none more so
than autonomous vehicle technology. For example,
the Navigant Research Leaderboard, a respected and
often-cited ranking system, evaluates companies
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make the automotive industry hightech,197 and within the industry,
automobile parts suppliers employ
approximately 40 percent of all R&D
scientists and engineers, while
automobile manufacturers employ the
remaining 60 percent.198
While American-owned producers lag
behind their EU and Japanese
competitors in automobile R&D, South
Korean and Chinese companies are
ramping up R&D expenditures and
activities. Of course, there is a direct
correlation between innovation and
manufacturing. Japanese and EU firms
are leaders in automobile production,
and so their significant levels of R&D
expenditures should come as no
surprise. Yet, it is also important to
emphasize the correlation between R&D
expenditures and the low level of
import penetration in each foreign
country’s automobile industry.199 As
discussed in Appendix F, Japaneseowned automobile producers enjoy a
dominant position in their home
market, as they account for nearly 100
percent of domestic vehicle production
in Japan.200 [TEXT REDACTED].201
Similarly, German-owned automobile
producers account for 85 percent of
domestic vehicle production in
Germany,202 and also rank [TEXT
REDACTED].203 The Volkswagen
Group’s research is based in Wolfsburg,
Germany, and the company describes
this development center as ‘‘the
innovation hub’’ and the ‘‘nerve centre
of a global development network’’ for all
Volkswagen Group brands.204
Additionally, South Korean
automobile producers account for 77
percent of domestic vehicle production
developing automated driving systems. Several of
the identified leaders are suppliers, including
Bosch, Aptiv (formerly Delphi), Autoliv, Magna,
Valeo, and ZF Friedrichshafen AG. Navigant
Research Leaderboard: Automated Driving
Vehicles, https://www.navigantresearch.com/
reports/navigant-research-leaderboard-automateddriving-vehicles.
197 Kim Hill, Bernard Swiecki, Debra Maranger
Menk, and Joshua Cregger, Just How High-Tech is
the Automotive Industry?, Center for Automotive
Research, Jan. 2014, https://autoalliance.org/wpcontent/uploads/2017/01/CARReport_Just_How_
High_Tech_is_the_Automotive_Industry.pdf
198 Id.
199 David Autor, David Dorn, Gordon H. Hanson,
Gary Pisano, and Pian Shu, Foreign Competition
and Domestic Innovation: Evidence from U.S.
Patents, American Economic Review: Insights,
forthcoming, December 2017, https://www.nber.org/
papers/w22879.
200 Wards Intelligence InfoBank.
201 U.S. Producers’ Survey Responses, Question
10.
202 Wards Intelligence InfoBank.
203 U.S. Producers’ Survey Responses, Question
10.
204 Research and Development, Volkswagen,
https://www.volkswagen-karriere.de/en/unserebereiche/forschung-entwicklung.html.
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in Korea,205 and Korea ranks [TEXT
REDACTED].206
The R&D spending by the largest
foreign-owned automobile producers is
a direct reflection of the advantages the
firms enjoy in their protected home
markets, as described in Appendix F.
Volkswagen and Toyota have been
among the top 20 overall R&D spenders
every year since 2005,207 and in 2017
these companies ranked first and second
respectively in terms of global R&D
expenditures by vehicle producers, a
tremendous advantage in the highly
competitive and always evolving
automotive industry.208 China is also
increasing its investments in automotive
R&D, reaching $12 billion in 2015.209
Eighty-four automotive research and
design centers have opened in China in
the past 12 years, with the key focus of
activity in cutting-edge technologies
including connected vehicles and
electric drivetrains.210
The internationalization of
automotive R&D has focused primarily
on local product development, and core
research remains concentrated near the
home bases of lead firms.211 Offshoring
of automotive R&D is, in large part,
driven by the offshoring of
manufacturing capabilities. As
manufacturers seek to reduce
manufacturing costs, production
optimization compels the offshoring of
R&D that follows. Data show that a
country’s attractiveness to R&D centers
is also driven by the number of available
science and engineering experts in that
country.212 For automotive R&D
specifically, a 2008 PwC study and a
2012 study from the European
Commission on the automotive sector
both list access to talent pools and
physical proximity to customers as the
main factors driving R&D location
205 Wards
206 U.S.
Intelligence InfoBank.
Producers’ Survey Responses, Question
10.
207 PwC, The 2017 Global Innovation 1000 Study,
supra.
208 Id.
209 Rishabh Saraswat, Automotive R&D Ecosystem
in China: The Road Ahead, DRAUP, Dec. 14 2017,
https://draup.com/blog/automotive-rd-ecosystemin-china-the-road-ahead/.
210 Id.
211 Petr Pavlı
´nek, The Internationalization of
Corporate R&D and the Automotive Industry R&D
of East-Central Europe, Economic Geography, Apr.
25, 2012, https://www.researchgate.net/publication/
260186659_The_Internationalization_of_Corporate_
RD_and_the_Automotive_Industry_RD_of_EastCentral_Europe at 4.
212 Rajesh K. Chandy, Andreas B. Eisingerich,
Jaideep C. Prabhu, and Gerard J. Tellis, Patterns in
the Global Location of R&D Centres by the World’s
Largest Firms: The Role of India and China, January
2010, https://www.researchgate.net/publication/
265870303_Patterns_in_the_global_location_of_RD_
centres_by_the_world’s_Largest_firms_The_role_of_
India_and_China at 5.
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Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
decisions.213 Other factors included the
size of the country’s economy and
economic growth potential.
R&D decisions are also increasingly
driven by government-based initiatives
to attract investment away from other
automobile-producing nations. For
example, the Chinese Government has
increased automotive R&D in the
domestic market through various
incentives and restrictive investment
requirements. In 2006, the Government
set aside $184 million for automotive
R&D support under its National High
Tech R&D Program, a program designed
to accelerate R&D across a range of
sectors.214 Under China’s 13th Five-Year
Plan (2016–2020), 20 New Energy
Vehicle (‘‘NEV’’) projects were allotted
around $111 million pursuant to the
National Key Research and
Development Program of China, a
program focused on rapidly developing
new energy technologies.215
Other traditionally low-cost countries
with growing domestic markets, or
within close proximity to growing
markets, have also invested heavily in
attracting automotive R&D. Hungary cut
its corporate tax rate to 9 percent—the
lowest in the EU—and introduced
special tax incentives for companies
with R&D investments.216 Hungary
recently invested $15 million in a test
track for traditional and autonomous
vehicles that it intends will become a
magnet for future investment in
automobile development and testing.
Brazil is implementing a 14-year
incentive program that will offer up to
BR1.5 billion ($467.4 million) in annual
tax credits for automobile producers and
automobile parts manufacturers that
reach certain R&D investment targets.217
225 U.S.
Producers’ Survey Responses, Question 8.
of Labor Statistics, Total Employment
for Motor Vehicles and Motor Vehicle Parts, supra.;
Department of Commerce, Census Bureau.
227 Bureau of Economic Analysis, Foreign Direct
Investment in the United States, Data on Activities
of Multinational Enterprises; Bureau of Labor
Statistics, Current Employment Statistics.
228 U.S. automotive employment—and
consequently job losses—has been spread across the
United States. While Michigan continues to have
the largest share at 172,000 workers, many other
states are significant employers as well. Indiana
currently employs 111,500 automotive workers,
Ohio employs 95,300 workers, Kentucky employs
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226 Bureau
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Heavy investment in attracting R&D in
new automotive technologies is also a
strategy for mature automobile
producing countries. In order to target
new technologies and manufacturing,
the South Korean Government recently
agreed to invest about 2 billion Euros
into hydrogen mobility (including fuel
cells) over the next five years. Facilities
manufacturing fuel cell vehicles and
those performing related R&D will
receive funding in order to reach the
Government’s ambitious production
target of 15,000 fuel cell vehicles by
2022.218 Additionally, fearing that the
EU automobile industry could be left
behind in the race to build mass market
electric vehicles because of their
reliance on batteries from Asia, the EU
recently announced that it will offer
billions of Euros of funding to
companies willing to build giant battery
factories in the region.219 Individual EU
countries will fund 100 percent of
research.220
Government efforts worldwide to
divert automotive R&D and related
manufacturing abroad is particularly
dangerous for the American-owned
automotive industry. Data show that,
across all industries, the United States
heavily outsources R&D to other nations
and that the automotive industry is a
large driver of this R&D offshoring
trend.221 The offshoring of R&D
2018, https://www.wardsauto.com/industry/
brazilian-auto-industry-awaits-word-incentives.
218 South Korea to Invest Ö2BN into Fuel Cell
Vehicles, electrive.com, Jun. 25, 2018, https://
www.electrive.com/2018/06/25/south-korea-toinvest-e2bn-into-fuel-cell-vehicles/.
219 Rochelle Toplensky, EU to Offer Billions of
Funding for Electric Vehicle Plants, Financial
Times, Oct. 14, 2018, https://www.ft.com/content/
097ff758-cec3-11e8-a9f2-7574db66bcd5?
desktop=true.
220 Id. ‘‘The EU’s Horizon 2020 research fund has
set aside Ö200m for battery projects; Ö800m is
available to finance building demonstration
facilities; regions looking to promote the industry
can apply for the Ö22bn regional funds available;
and the European Fund for Strategic Investment is
available from the European Investment Bank to cofund the billions of euros needed to build an EU
equivalent of Tesla’s ‘gigafactory’ in the Nevada
desert.’’
221 J. John Wu, Why U.S. Business R&D Is Not as
Strong as It Appears, Information Technology &
Innovation Foundation, June 2018. https://
www2.itif.org/2018-us-business-rd.pdf at 10, 13, 14.
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activities (coupled with manufacturing)
jeopardizes the ability of the U.S.
automotive industry, and specifically
American-owned manufacturers, to
develop innovative products and deliver
high-tech products and skilled workers
to the industrial base, threatening
technological advancements necessary
for defense capabilities. Further, the
offshoring of R&D and manufacturing
will increasingly render the United
States reliant on imported products.
Conditions of competition must be
improved so that American-owned
automobile producers and automobile
parts manufacturers are able to increase
production in the United States, and
thereby augment R&D levels to develop
and capitalize on the latest technologies
domestically.
D. Decline in Employment in the U.S.
Automotive Industry
The deterioration in the competitive
position of the U.S. automobile and
automobile parts manufacturing
industry outlined above is further
evidenced by the decline in U.S.
automotive industry employment, and
in particular employment by Americanowned firms. The U.S. automobile and
automobile parts industry (Americanowned and foreign-owned firms)
employs approximately 798,300
workers, or approximately 6 percent of
the nation’s manufacturing
workforce.222 This is a significant drop
from the recent peak in 2000, when the
industry accounted for 291,400
automobile assembly jobs and 839,500
automobile parts manufacturing jobs.223
The decline amounts to a loss of
332,600 manufacturing jobs, which is
equivalent to approximately 7 percent of
the loss in all manufacturing jobs
between 2000 and 2017.224 Americanowned automobile manufacturing plants
account for [TEXT REDACTED] of the
overall workforce across all U.S. basedautomobile plants.225
BILLING CODE 3510–DR–P
222 Bureau of Labor Statistics, Total Employment
for Motor Vehicles and Motor Vehicle Parts, supra.
223 Id.
224 Id.
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62075
Figure 26: U.S. Employment in Automobile and Automobile Parts Production
900
l!OO
Mot.or Vehicle Parts
Production (NAICS 3363)
700
i
II
11\1
!tf
II
!'61
000
:'500
400
300
200
100
0-----------------------------~~,$'~~~,I>~~~~,.f'~~~,I',I',P,I',;I' ,I',I'~,,,f,~,f,❖~-0,,f,◊~~,f,~~{b~❖
Source: Bureau of Labor Statistics
225 U.S.
Producers’ Survey Responses, Question 8.
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automobile manufacturing jobs. This
steep 32 percent decline (equivalent to
54,400 jobs) coincided with the 282
percent increase in passenger vehicle
imports during this same period. Light
truck imports rose more than 150
percent over the same period,
contributing to job losses of two percent
overall in the United States (equivalent
to 1,400 jobs).226
226 Bureau of Labor Statistics, Total Employment
for Motor Vehicles and Motor Vehicle Parts, supra.;
Department of Commerce, Census Bureau.
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Further, as shown in Figure 27, the
sharp decline in passenger vehicle
manufacturing employment (sedans,
SUVs, CUVs, and vans) accounts for the
majority of the overall decline in
62076
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
Figure 27: Change in U.S. Automobile Manufacturing Employment, 1990-2017
light Tmc:ks & Utility Vehicles
-2%
Automobiles (NAICS 33611) includes Passenger Vehicles (NAICS 336111) and Light Trucks &
Utility Vehicles (NAICS 336112).
Figure 28 disaggregates job losses in
automobile parts manufacturing by
segment. Most of the decrease in
automobile parts manufacturing
employment is due to a 48 percent
reduction in the workforce for electrical
component manufacturing and a 23
percent reduction in engine and engine
parts manufacturing. Although jobs in
powertrain component manufacturing
have increased since 2009, the number
of lost jobs in that sector amount to
25,000 since 2000. Further, the skill
level involved in this sector is rapidly
eroding as imports of powertrain parts
have caused the U.S. transmission
227 Bureau of Economic Analysis, Foreign Direct
Investment in the United States, Data on Activities
of Multinational Enterprises; Bureau of Labor
Statistics, Current Employment Statistics.
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industry to shift to assembly rather than
product development and
manufacturing. Overall, for parts
manufacture, American-owned
producers account for approximately 50
percent of the U.S.-based workforce.227
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Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 / Notices
62077
Figure 28: Change in U.S. Automobile Parts Manufacturing Employment
160
1!190 1!19119921!193 1!194 1!195 19!161!1!171!19111!1!1!12000 200120022003 lOM 2005 2005 }Jlffl 2008 2009 lOlO 201120ll 2013 2014 2015 20162017
-Gasa!ineEngirle& Parts
-Eledric Equipment
- - - PowerTillin Companerm
Source: Bureau of Labor Statistics.
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The loss of manufacturing jobs
parallels the rate of closure of U.S.
automobile manufacturing plants, in
particular American-owned
manufacturing plants.228 In 1985,
American-owned producers operated 62
assembly plants in the United States
and produced 97 percent of the 11.4
million passenger vehicles and light
trucks produced in the United States.229
By 2000, American-owned producers
were operating only 44 plants and their
share of U.S. production had dropped
from 97 percent to 67 percent.230
Finally, by 2017, American-owned
producers were operating only 24
assembly plants in the United States
and producing only 42 percent of total
U.S. production, notwithstanding the
fact that overall demand for automobiles
in the United States increased by 11
percent during the 1985 to 2017
period.231 Moreover, GM recently
announced its intent to close five
additional plants and lay off
228 U.S. automotive employment—and
consequently job losses—has been spread across the
United States. While Michigan continues to have
the largest share at 172,000 workers, many other
states are significant employers as well. Indiana
currently employs 111,500 automotive workers,
Ohio employs 95,300 workers, Kentucky employs
60,500 workers, and Alabama employs 38,300
workers, along with smaller employment in
California, Missouri, Texas, New York, and
Mississippi. Bureau of Labor Statistics, Total
Employment for Motor Vehicles and Motor Vehicle
Parts, supra.
229 Wards Intelligence InfoBank.
230 Id.
231 Id.
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approximately 15,000 workers in
2019.232 In January 2019, Tesla
announced a planned seven percent
contraction of its workforce.233 By
contrast, foreign-owned automobile
manufacturers in the United States (EU,
Japanese and South Korean
manufacturers), have expanded
operations over the past three decades
and increased the number of facilities
operating in the United States from 3
facilities in 1985 to 22 in 2017.234 As
noted above, their expansion in the U.S.
market has come at the expense of
American-owned producers, who (as
detailed in Appendix F) do not have the
same market access in the EU, Japan and
South Korea as their foreign
counterparts do in the United States.
With the ongoing contraction of
automobile and automobile parts
production in the United States and
resulting plant closures by Americanowned firms, employment in the U.S.
automotive manufacturing industry will
shrink further. As noted, today’s
production of automobiles and
automobile parts is a complex and
technical process that demands a
trained, skilled workforce that in many
cases requires a decade or more of
experience. Given that the United States
needs to rely on American-owned
232 Eric Morath, GM Closings a Fresh Sign of
Worry for Economy, Wall Street Journal, Nov. 26,
2018, https://www.wsj.com/articles/gm-closings-afresh-sign-of-worry-for-economy-1543271097.
233 Tesla, Company Update, January 18, 2019,
https://www.tesla.com/blog/tesla-company-update.
234 Wards Intelligence InfoBank.
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facilities to develop cutting-edge
technologies with national defense
capabilities, it is imperative that a
robust and skilled workforce is available
to manufacture and operate those
technologies. For this reason, the loss of
skilled workers at American-owned
plants is detrimental to America’s
manufacturing and innovation
capabilities, and consequently
America’s ability to develop new and
emerging technologies for military
applications.
VII. Conclusion
Based on the findings in this report,
the Secretary concludes that the present
quantities and circumstances of imports
of automobiles and certain automobile
parts, specifically engines and engine
parts, transmissions and powertrain
parts, and electrical components as
defined in Section VIII, are ‘‘weakening
our internal economy’’ and threaten to
impair national security as set forth in
Section 232.
As discussed throughout this report,
the negative impact of imports and the
resulting displacement of production by
American-owned automobile and
automobile parts manufacturers are
significant, and are increasing given that
the U.S. automobile market is
experiencing a decline in demand. A
decline in demand is expected in the
next several years due to a number of
factors that impact the normal sales
cycle, and many indicators point to
market saturation. For example, the
ratio of automobiles to households is
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now 2:1, a record high. In addition,
while approximately one quarter of the
automobiles on the road are less than
four years old, the average age of
automobiles in the United States
increased from 8.4 years in 1995 to 11.6
years in 2016,235 and the tendency of
consumers to keep automobiles longer
has negatively impacted demand. (This
has caused the gap between new and
used automobile prices to reach record
highs.) Sales peaked in 2016 at 17.5
million units, but declined to 17.1
million units in 2017, and remained at
roughly the same level in 2018. A
further decline in demand is expected
in 2019, with interest rates projected to
rise and recent reports indicating that
$56.8 billion in auto loans are
delinquent.236 Equally as important,
exports to foreign markets are unlikely
to provide avenues for additional sales
and revenue as tariff and non-tariff
barriers to entry discourage U.S.
automotive exports and the U.S. dollar
remains strong relative to Europe, Japan,
and China. Finally, employment in the
automotive sector remains significantly
below the industry’s employment peak
in 2000, impacting the ability to
maintain a highly skilled workforce that
is essential for national security needs.
Defense purchases alone are not
sufficient to support a robust military
vehicle supply chain and R&D in key
automotive technologies (such as
autonomous driving, vehicle
lightweighting, electrification, and
connectivity) that are vital to meeting
the needs of national defense. To be
available to meet national defense
needs, American-owned automobile and
automobile parts manufacturers must
have a robust presence in the U.S.
commercial market. Moreover,
innovations generated by R&D
investments are necessary for
manufacturers to remain competitive in
both the commercial automotive sector
and the defense sector. It is that
innovation capability which is now at
serious risk as imports continue to
displace American-owned production.
An American-owned automotive
industry that is not competitive in the
latest technologies, nor has the ability to
retain a large skilled workforce and
attract the next-generation workforce,
will be unable to ensure that the United
235 U.S. Department of Transportation, Bureau of
Transportation Statistics, https://www.bts.gov/
content/average-age-automobiles-and-trucksoperation-united-states.
236 David Harrison, Auto Borrowing Rises as New
Mortgage Loans Sag, New York Fed Says, Wall
Street Journal, Feb. 12, 2019, https://www.wsj.com/
articles/auto-borrowing-rises-as-new-mortgageloans-sag-new-york-fed-says-11549988807?
mod=searchresults&page=1&pos=7.
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States maintains the ability to produce
cutting-edge technologies that are
essential to America’s national security.
The many factors listed in this report
form the basis for the Secretary’s
determination that the ‘‘displacement of
domestic products by excessive
imports’’—in particular the
displacement of automobiles and certain
automobile parts manufactured by
American-owned firms—is causing a
‘‘weakening of our internal economy’’
that ‘‘may impair the national security.’’
See 19 U.S.C. 1862(d). Therefore, the
Secretary recommends that the
President take corrective action. See 19
U.S.C. 1862(c).
VIII. Recommendation
The Secretary recommends the
following actions the President could
take as possible options to remove the
threatened impairment of the national
security:
1. Direct further discussions and
negotiations to obtain agreements that
address the threatened impairment of
national security. Since this
investigation was initiated, there have
been productive discussions that could
result in positive changes for the
automotive industry in the United
States, and the United States has signed
the USMCA. If these discussions and
the USMCA result in positive changes to
the U.S. automotive industry, the
President could determine whether
those actions address the threatened
impairment of the national security
found in this report.
As provided in section 232(c)(3), if
appropriate agreements have not been
reached in a timely manner or if a
negotiated agreement is not being
carried out, the President could
determine that further action under
section 232 is necessary.
Or
2. Impose tariffs of up to 25 percent
(in addition to any existing duties) on
imports of automobiles and certain
automobile parts (engines and parts,
transmissions and powertrain parts, and
electrical components) in order to
increase U.S. production of automobiles
and parts to a level sufficient to generate
additional revenue to increase R&D
investments by American-owned (as
well as foreign-owned) manufacturers in
the United States. Imports under
USMCA Side Letters would not be
subject to the tariffs.
Or
3. Impose tariffs of up to 35 percent
(in addition to any existing duties) on
imports of SUVs and CUVs, which will
increase domestic production and
generate additional revenue to increase
PO 00000
Frm 00052
Fmt 4701
Sfmt 4703
R&D investments by American-owned
(and foreign-owned) manufacturers in
the United States. The Department of
Commerce would work with the U.S.
Customs and Border Protection on the
most appropriate means to implement
this option if selected. Imports under
USMCA Side Letters would not be
subject to the tariffs.
Exemptions
The President may wish to consider
agreements that the United States has
renegotiated recently in determining
whether specific countries should be
exempted from the proposed tariffs
based on an overriding national security
interest of the United States. For
example, the President should consider
the Republic of South Korea for an
exemption based on the recently
improved agreement and strong national
security relationship. The Secretary
recommends that any determination to
exempt a specific country should be
made at the outset and a corresponding
adjustment be made to the final tariffs
imposed on the remaining countries.
Any country exempted should be placed
under a quota to ensure that producers
in that country do not increase exports
to the United States and to prevent
transshipment through that country of
automobiles and automobile parts
seeking to avoid tariffs. This would
ensure that overall imports of
automobiles and automobile parts to the
United States remain at or below the
level needed to enable American-owned
producers to reach levels of production
sufficient to increase R&D for
technologies that are important to
national defense.
Automobiles and Automobile Parts
Subject to Tariffs Described Above
Electrical Components & Parts:
8414308030; 8414596040;
8414596540; 8414598040;
8415830040; 8507100060;
8507304000; 8507404000;
8507600010; 8507904000;
8511200000; 8511300040;
8511300080; 8511400000;
8511500000; 8511802000;
8512202040; 8512204000;
8512204040; 8512300020;
8512300030; 8512404000;
8525201500; 8525206020;
8525209020; 8525601010;
8527211015; 8527211020;
8527211025; 8527211030;
8527211500; 8527212510;
8527212525; 8527214000;
8527214040; 8527214080;
8527214800; 8527290020;
8527290040; 8527290060;
8527294000; 8527298000;
8527298020; 8527298060;
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8531800038; 8531808038;
8531809031; 8531809038;
8536410005; 8539100040;
9029108000; 9104004510;
8536906000; 8539100010;
8539100020; 8539100050;
8539212040; 8544300000;
9029104000; 9029204080;
9029902000; 9029908040;
9029908080; 9104002510;
9104004000
Engines & Parts: 4010101020;
4016931010; 4016931020;
4016931050; 4016931090;
8407341400; 8407341540;
8407341580; 8407341800;
8407342040; 8407342080;
8407344400; 8407344540;
8407344580; 8407344800;
8408202000; 8409913000;
8409915080; 8409915081;
8409155085; 8409919110;
8409919190; 8409919910;
8409991040; 8409999110;
8409999190; 8413301000;
8413309060; 8414593000;
8414800500
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Transmission, Powertrain & Parts:
8708401000; 8708401110;
8708401150; 8708402000;
8708405000; 8708407550;
8708407000; 8708407570;
8708407580; 8708935000;
8708936000; 8708937500
Passenger Vehicles & Light Trucks
8703220000; 8703230015;
8703230022; 8703230024;
8703230026; 8703230028;
8703230030; 8703230032;
8703230034; 8703230036;
8703230038; 8703230042;
8703230044; 8703230045;
8703230046; 8703230048;
8703230052; 8703230060;
8703230062; 8703230064;
8703230066; 8703230068;
8703230072; 8703230074;
8703230075; 8703230076;
8703230078; 8703240032;
8703240034; 8703240036;
8703240038; 8703240042;
8703240050; 8703240052;
8703240054; 8703240056;
8703240058; 8703240060;
PO 00000
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Sfmt 9990
62079
8703240062; 8703240064;
8703240066; 8703240068;
8703240075; 8703310000;
8703320010; 8703330045;
8703330060; 8703900000;
8703220100; 8703230120;
8703230130; 8703230140;
8703230160; 8703230170;
8703240140; 8703240150;
8703240160; 8703310100;
8703320110; 8703330145;
8703330185; 8703400010;
8703400020; 8703400030;
8703400040; 8703400070;
8703600020; 8703600030;
8703600080; 8703700030;
8703700070; 8703800000;
8703900100; 8704210000;
8704310020; 8704310040
Dated: November 1, 2021.
Anne Driscoll,
Acting Assistant Secretary for Industry and
Analysis.
[FR Doc. 2021–24162 Filed 11–5–21; 8:45 am]
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[Federal Register Volume 86, Number 213 (Monday, November 8, 2021)]
[Notices]
[Pages 62028-62079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-24162]
[[Page 62027]]
Vol. 86
Monday,
No. 213
November 8, 2021
Part III
Department of Commerce
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Publication of a Report on the Effect of Imports of Automobiles and
Automobile Parts on the National Security: An Investigation Conducted
Under Section 232 of the Trade Expansion Act of 1962, as Amended;
Notice
Federal Register / Vol. 86, No. 213 / Monday, November 8, 2021 /
Notices
[[Page 62028]]
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DEPARTMENT OF COMMERCE
Publication of a Report on the Effect of Imports of Automobiles
and Automobile Parts on the National Security: An Investigation
Conducted Under Section 232 of the Trade Expansion Act of 1962, as
Amended
AGENCY: Department of Commerce.
ACTION: Publication of a report.
-----------------------------------------------------------------------
SUMMARY: The Department of Commerce in this notice is publishing the
Report on the Effect of Imports of Automobiles and Automobile Parts on
the National Security. The report documents the findings of the
Department of Commerce's investigation to determine the effects on the
national security of imports of automobiles, including cars, SUVs, vans
and light trucks, and automotive parts. This investigation was carried
out under Section 232 of the Trade Expansion Act of 1962, as amended.
All classified and business confidential information in the report was
redacted before the release. This report was completed on February 17,
2019 and posted on the Bureau of Industry and Security (BIS) website on
July 6, 2021. The Department of Commerce has not published the
appendices to the report in this notification of report findings, but
they are available online at the BIS website, along with the rest of
the report (see the ADDRESSES section).
DATES: The report was completed on February 17, 2019. The report was
posted on the BIS website on July 6, 2021.
ADDRESSES: The full report, including the appendices to the report, are
available online at https://www.bis.doc.gov/index.php/other-areas/office-of-technology-evaluation-ote/section-232-investigations.
FOR FURTHER INFORMATION CONTACT: Brittany Caplin, Office of Public
Affairs, U.S. Department of Commerce at (202) 482-4883. For more
information about the section 232 program, including the regulations
and the text of previous investigations, see www.bis.doc.gov/232.
SUPPLEMENTARY INFORMATION:
The Effect of Imports of Automobiles and Automobile Parts on the
National Security
An Investigation Conducted Under Section 232 of the Trade Expansion Act
of 1962, as Amended
U.S. Department of Commerce
February 17, 2019
Table of Contents
I. Executive Summary
Findings
1. A Healthy U.S. Automobile and Automobile Parts Manufacturing
Industry Is Necessary for U.S. Defense and National Security
2. Imports of Automobiles and Automobile Parts Are Impairing the
Ability of the Domestic Industry To Meet National Defense
Requirements
3. Decline in U.S. R&D for Important Automotive Technologies
Threatens To Impair U.S. National Security
Conclusion and Recommendations
II. Legal Framework
A. Section 232 Requirements
B. Discussion
III. Investigation Process
A. Initiation of Investigation
B. Public Comments
C. Public Hearing
D. Interagency Consultation
E. U.S. Producers' Survey Responses
IV. Product Scope of the Investigation
V. Background on the Industry
A. Global Competitiveness of U.S. Automobile Producers
B. U.S. Automobile Producers' Transition From Vertical
Integration to Outsourcing Automobile Parts Production
C. NAFTA and the Rise of Automobile and Automobile Parts
Production in Mexico Instead of the United States
1. The Rise of Automobile Assembly in Mexico and Offshoring of
Automobile Plants
2. Offshoring of Automobile Parts
VI. Analysis
A. Present Import Quantities of Automobiles Have Weakened the
American-Owned Automotive Industry
1. U.S. Automobile Production Volume Has Eroded Over Three
Decades Due to Imports
2. Market Penetration by Automobile Imports Is Significant
3. Low Priced Foreign-Owned Automobile Production and Imports
Have Caused Significant Market Penetration in the United States and
Have Suppressed U.S. Producers' Prices
B. Imports of Automobile Parts in Such Quantities as Are
Presently Found Threaten the Viability of the U.S. Automobile Parts
Industry
1. Imports of Automobile Parts Have Displaced U.S. Production,
and the United States Has Become Dependent on Imported Automobile
Parts that Are Critical to Defense Applications and National
Security
2. U.S. Producers of Automobile Parts Are Facing Downward
Pressure on Prices Due to Low U.S. Automobile Prices
C. Domestic Manufacturing and Domestic R&D in Technologies for
Engines, Transmissions, and Electrical Components Are Necessary for
National Security
1. The U.S. Military Relies on the Domestic Automotive Sector
for Technological Advancements
2. Growth of American-Owned R&D for Critical Automobile Parts Is
Essential to Strengthen U.S. National Security
D. Decline in Employment in the U.S. Automotive Industry
VII. Conclusion
VIII. Recommendation
Appendix A: Section 232 Investigation Notification Letter From
Secretary of Commerce Wilbur Ross to Secretary of Defense James
Mattis, and Letter from Secretary of Defense James Mattis to
Secretary of Commerce Wilbur Ross Regarding U.S. Defense and
National Security
Appendix B: Federal Register--Notice Request for Public Comments and
Public Hearing on Section 232 National Security Investigation of
Imports of Automobiles and Automobile Parts
Appendix C: Public Hearing Transcript
Appendix D: Details on U.S. Harmonized Tariff System (HS) Statistics
1. Automobile Parts HS-10 Codes
2. Automobile Parts Schedule B Codes
3. Passenger Vehicle HS-10 Codes
4. Passenger Vehicle Schedule B Codes
Appendix E: Technical Appendix--Detailed Economic Impact, R&D
Expenditure Estimates, and Methodology
1. Impact of Tariffs on Automobiles & Automobile Parts,
Recommendation Option 2
2. Methodology
Appendix F: Foreign Market Barriers Prevent U.S. Automobile
Producers' Growth
1. The European Union
2. China
3. Japan
4. South Korea
Appendix G: Recent Trade Negotiations With Canada and Mexico That
Impact the Recommendation
Appendix H: Risks to the U.S. Automotive Industry and U.S. National
Security if U.S. Sales of Automobiles Decline Further
I. Executive Summary
This report summarizes the findings of an investigation conducted
by the U.S. Department of Commerce (``Department'') pursuant to Section
232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862)
(``Section 232''), into the effects of imports of automobiles \1\ and
automobile parts on the national security of the United States. In
conducting this investigation, the Secretary of Commerce
(``Secretary'') noted the Department's prior investigations under
Section 232.\2\ Consistent with those investigations, the Secretary in
this investigation again determined that ``national security'' for
purposes of Section 232 includes the ``general security and welfare of
certain industries, beyond those necessary to
[[Page 62029]]
satisfy national defense requirements, that are critical to the minimum
operations of the economy and government.'' \3\
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\1\ For purposes of this investigation, automobiles include:
Passenger vehicles, including sedans, sport utility vehicles
(``SUVs''), crossover utility vehicles (``CUVs''), vans (including
minivans and cargo vans), and light trucks.
\2\ See, e.g., Department of Commerce, Bureau of Industry and
Security, The Effect of Imports of Steel on the National Security,
Jan. 2018 (``2018 Steel Report''); Department of Commerce, Bureau of
Industry and Security, The Effect of Imports of Aluminum on the
National Security, Jan. 2018 (``2018 Aluminum Report'').
\3\ Department of Commerce, Bureau of Export Administration, The
Effect of Imports of Iron Ore and Semi-Finished Steel on the
National Security, Oct. 2001 (``2001 Report'') at 5.
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On the basis of the facts considered in this investigation, the
Secretary finds that the impact of excessive imports on the domestic
automobile and automobile parts industry and the serious effects
resulting from the consequent displacement of production in the United
States is causing a ``weakening of our internal economy [that] may
impair the national security'' as set forth in section 232.\4\ In
making this determination, the Secretary examined the increase in
volume of subject imports and their effects on domestic prices,
domestic production, and research and development (``R&D'') relevant to
technological advancements for defense capabilities. As required by
section 232(d), the Secretary also considered the impact of foreign
competition on the economic welfare of the automobile and automobile
parts industry in the United States. He also considered other relevant
factors bearing on the state of the industry. As also required by
statute, the Secretary examined the effect of imports on national
defense requirements, including: U.S. production needed for such
requirements; existing and anticipated availabilities of the human
resources, products, raw materials, and other supplies and services
essential to the national defense; the requirements for growth of such
industries and such supplies and services including the investment,
exploration, and development necessary to assure such growth; and the
importation of goods in terms of their quantities, availabilities,
characters, and use as those affect such industries and the capacity of
the United States to meet national security requirements.
---------------------------------------------------------------------------
\4\ 19 U.S.C. 1862(d).
---------------------------------------------------------------------------
As also required by section 232(d), the Secretary recognized the
close relation of the economic welfare of the United States to its
national security; the impact of foreign competition on the economic
welfare of individual domestic industries; and any substantial
unemployment, decrease in revenues of government, loss of skills, or
any other serious effects resulting from the displacement of any
domestic products by excessive imports, without excluding other
factors, in determining whether a weakening of the U.S. economy by such
imports may impair national security. In particular, this report
assesses whether automobiles and certain automobile parts are being
imported ``in such quantities or under such circumstances as to
threaten to impair the national security.'' \5\ This report summarizes
the findings of the Secretary.
---------------------------------------------------------------------------
\5\ 19 U.S.C. 1862(b)(3)(A).
---------------------------------------------------------------------------
For purposes of this report, ``U.S. producers'' and ``domestic
producers'' of automobiles and automobile parts refer to both American-
owned and foreign-owned producers operating in the United States.\6\
Otherwise, specific reference is made to American-owned or foreign-
owned producers, as appropriate.
---------------------------------------------------------------------------
\6\ For the purposes of this report, American-owned producers
are General Motors, Ford, and Tesla, as well as Chrysler for years
prior to 1998 and American Motors for 1985-1987. ``Producers'' and
``manufacturers'' are used interchangeably in this report.
---------------------------------------------------------------------------
Findings
The automotive industry has traditionally been a great engine of
economic growth throughout history and, for decades, the strength of
the United States' automotive manufacturing sector has directly
contributed to the industrial base that provides the economic strength
and technological innovation that enables our armed forces to project
military power and maintain our status as a world power. Many of the
most important innovations and technological advancements over the past
100 years have come from the automotive sector, and the strength of
this sector drives technological advancements in the defense sector.
Today, the defense sector is heavily interconnected and reliant on the
automotive industry for R&D to meet current and future military
requirements such as vehicle electrification, autonomous driving,
hydrogen fuel cell products, advanced semiconductor utilization, radar,
laser and sonar ranging, global positioning system (``GPS'')
navigation, anti-lock brakes, reduction in vehicle weight
(``lightweighting''), and fuel efficiency efforts. Product development
in partnership between U.S. automotive manufacturers and defense
agencies results in technological advancements in military aircraft,
space aircraft, unmanned aerial systems, missiles, and submarines.
However, the United States' automobile industry's technological
leadership in innovation is quickly diminishing. In conducting this
investigation, the Secretary has found that significant import
penetration over the course of the past three decades has severely
weakened the U.S. automotive industry, as American-owned production of
automobiles and automobile parts has been reduced by imports and the
domestic manufacturing base has weakened. Overall, the share of global
R&D investments in the automotive sector attributable to the United
States has significantly declined and, today, the share of R&D
conducted by American-owned companies is a fraction of the share
conducted by foreign competitors. If production volumes continue to
decline domestically, the United States' contribution to automotive R&D
will further weaken and will impede the automobile industry's ability
to invest in the development of technologies that are imperative to
maintaining a leading edge in U.S. military capabilities.
This is especially significant for American-owned manufacturers.
The Secretary notes that, in the procurement of military equipment,
including military vehicles, automobiles, and automobile parts, the
United States' Department of Defense (``DOD'') relies predominantly on
suppliers located in the United States, both American-owned and
foreign-owned. However, because in a time of national emergency,
foreign-owned suppliers operating in the United States may not be
reliable sources of equipment, the DOD must be able to rely on a
sufficient presence of American-owned manufacturers for its military
needs. In addition, due to the high cost of technological innovation in
the automotive sector (and the significant revenue potential from
innovative developments), manufacturers fiercely protect their
technology and trade secrets in order to stay competitive, which means
that American-owned firms do not have access to technology and trade
secrets developed by foreign-owned firms and that, in time of war, when
foreign-owned firms may decline to share their R&D with the DOD, the
United States Government will not have access to all the latest
developments in the industry.\7\ With respect to highly-advanced
technologies that have significant, cutting-edge military applications,
moreover, firms tend to conduct R&D in their home countries where the
potential for intellectual property spillover and theft is reduced.
Thus, the U.S. military cannot depend on foreign-owned firms in the
United States to access to new technologies. For
[[Page 62030]]
these reasons, the Secretary determines that the United States cannot
rely on the presence of foreign-owned manufacturers in the United
States to help meet U.S. defense requirements.
---------------------------------------------------------------------------
\7\ As much as 30 percent of industry revenue potential is
attributable to new services and emerging technologies in the
automotive sector. Jeff Desjardins, The Future of Automotive
Innovation, Feb. 15, 2018, https://www.visualcapitalist.com/future-automobile-innovation/.
---------------------------------------------------------------------------
As set forth in this report, imports of automobiles and certain
automobile parts are impairing the strength of American-owned firms in
the automotive sector--in terms of both production and revenue needed
for R&D investments--and improving the conditions for such firms is
necessary to enable the development of technologies needed for our
national security requirements. In conducting this investigation, the
Secretary has made the following findings:
1. A Healthy U.S. Automobile and Automobile Parts Manufacturing
Industry Is Necessary for U.S. Defense and National Security
The rapid application of commercial breakthroughs in automobile and
automobile parts technologies is key to gaining competitive military
advantages and meeting defense requirements. From new engine and
powertrain technology, to lightweighting and advanced connectivity, the
DOD is actively working to incorporate technologies that have been the
subject of years of effort and billions of dollars of R&D by the U.S.
commercial automotive industry.\8\
---------------------------------------------------------------------------
\8\ Appendix A--Letter from Secretary of Defense James Mattis to
Secretary of Commerce Wilbur Ross.
---------------------------------------------------------------------------
While the U.S. defense industrial base is dependent on the
American-owned automotive sector for the development of high-tech
products and capabilities, the U.S. commercial automotive industry is
unable to survive solely by supplying the DOD. To this point, in 2017,
17.1 million automobiles were sold in the United States versus [TEXT
REDACTED] wheeled armored vehicles. According to the DOD, it is
commercial sales that generate the production volumes needed for
manufacturing efficiency, the revenues needed for R&D, and the profits
needed to sustain domestic automotive businesses.\9\ Armored vehicles
require highly sophisticated automobile parts, and it is commercial
scale that allows the DOD to benefit from reduced unit costs for
production of armored vehicles and cost effective access to new
technology. In other words, a strong presence of American-owned
companies in the United States industry allows for the development and
production of highly technologically-advanced products that are
essential to modern military applications for U.S. national defense.
---------------------------------------------------------------------------
\9\ Consultations between Department of Commerce and Department
of Defense in August 2018.
---------------------------------------------------------------------------
2. Imports of Automobiles and Automobile Parts Are Impairing the
Ability of the Domestic Industry To Meet National Defense Requirements
Production of automobiles in the United States has significantly
weakened over the past several decades as domestic production has been
replaced by an influx of low-priced imports from countries where
automotive markets are protected from foreign competition. These
conditions enable foreign producers to expand production in their home
markets, achieve significant economies of scale and reduce prices,
produce in excess of the needs of their domestic demand, export that
excess production to the United States, and capture a dominant and
growing share of the U.S. market.
Further, the imports of the types of automobile parts that are
critical to U.S. defense needs--namely engines and engine parts,
transmissions and powertrain parts, and electrical components--have
significantly displaced parts manufactured in the United States and
have weakened the domestic manufacturing base, including American-owned
automobile parts producers, such that the automotive industry in the
United States has become increasingly reliant on imported parts.
The contraction of the American-owned automotive industry, if
continued, will significantly impede the United States' ability to
develop technologically advanced products that are essential to our
ability to maintain technological superiority to meet defense
requirements and cost effective global power projection, as well as
provide the necessary R&D and manufacturing base in the event of a
national emergency.
3. Decline in U.S. R&D for Important Automotive Technologies Threatens
To Impair U.S. National Security
This report establishes that a strong and robust American-owned R&D
and manufacturing base for automobiles and automobile parts is vital to
national security. However, the increase in imports of automobiles and
automobile parts over three decades has put American-owned producers at
a competitive disadvantage vis-[agrave]-vis their foreign-owned
competitors in R&D expenditures. In 2017, R&D by American-owned
manufacturers amounted to only 20 percent of global R&D spending in
automobile production and only 7 percent of global R&D spending in
automobile parts, lagging behind European Union (``EU'') and Japanese
competitors, which together controlled 70 percent of global R&D
spending in vehicle production and nearly 90 percent in automobile
parts R&D. Additionally, the Asia Pacific region is now emerging as a
favored destination for R&D investments. Protected foreign markets,
which discriminate heavily against imports, have precluded American-
owned manufacturers from offsetting their decline in the U.S. market,
and thereby building R&D revenue by expanding sales through exports
abroad.
Because R&D expenditures are integral to promoting long-term
technological advancements in automation, electrification, and
connectivity that enable cost effective power projection and maintain
technological superiority for U.S. national defense, the lag in R&D
expenditures by American-owned manufacturers is weakening U.S.
innovation and, accordingly, the capacity of the United States to meet
national security requirements. Indeed, as the U.S. military relies
heavily on and adopts innovations from the commercial automotive
industry, a significant decline in American-owned automotive industry
investment and development also jeopardizes U.S. military leadership
and its ability to fulfill America's defense requirements. Domestic
conditions of competition must be improved by reducing imports so that
American-owned producers are able to increase R&D expenditures and
investment to assure the growth necessary to meet national defense
requirements, particularly in a time of national emergency.
Conclusion and Recommendations
Based on the findings in this report, the Secretary concludes that
the present quantities and circumstances of imports of automobiles and
certain automobile parts, specifically engines and engine parts,
transmissions and powertrain parts, and electrical components as
defined in Section VIII, are ``weakening our internal economy'' and
threaten to impair national security as set forth in Section 232.
As discussed throughout this report, the negative impact of imports
and the resulting displacement of production for the American-owned
automobile and automobile parts manufacturers are significant, and are
increasing given that the U.S. automobile market is experiencing a
decline in demand and contracting due to excessive imports. Defense
purchases alone are not sufficient to support a robust military vehicle
supply chain and R&D in key
[[Page 62031]]
automotive technologies (such as autonomous driving, vehicle
lightweighting, electrification, and connectivity) vital to meeting the
needs of national defense. Hence, American-owned automobile and
automobile parts manufacturers must have a robust presence in the U.S.
commercial market. Moreover, innovations generated by R&D investments
are necessary for manufacturers to remain competitive in both the
commercial automotive sector and the defense sector. It is that
innovation capability which is now at serious risk as imports continue
to displace American-owned production. An American-owned automotive
industry that is not competitive in the latest technologies, nor has
the ability to retain a large skilled workforce and attract the next-
generation workforce, will be unable to remain globally competitive and
ensure that the United States maintains the ability to produce cutting-
edge technologies that are essential to America's national security.
The foregoing factors explain the basis for the Secretary's
determination that the ``displacement of domestic products by excessive
imports''--in particular the displacement of automobiles and certain
automobile parts manufactured by American-owned firms--is causing a
``weakening of our internal economy'' that ``may impair the national
security.'' See 19 U.S.C. 1862(d). Therefore, the Secretary recommends
that the President take corrective action. See 19 U.S.C. Sec. 1862(c).
The Secretary recommends the following actions the President could
take as possible options to remove the threatened impairment of the
national security:
1. Direct further discussions and negotiations to obtain agreements
that address the threatened impairment of national security. Since this
investigation was initiated, there have been productive discussions
that could result in positive changes for the automotive industry in
the United States, and the United States has signed the USMCA. If these
discussions and the USMCA result in positive changes to the U.S.
automotive industry, the President could determine whether those
actions address the threatened impairment of the national security
found in this report.
As provided in section 232(c)(3), if appropriate agreements have
not been reached in a timely manner or if a negotiated agreement is not
being carried out, the President could determine that further action
under section 232 is necessary.
OR
2. Impose tariffs of up to 25 percent (in addition to any existing
duties) on imports of automobiles and certain automobile parts (engines
and parts, transmissions and powertrain parts, and electrical
components) in order to increase U.S. production of automobiles and
parts to a level sufficient to generate additional revenue to increase
R&D investments by American-owned (as well as foreign-owned)
manufacturers in the United States. Imports under USMCA Side Letters
would not be subject to the tariffs.
OR
3. Impose tariffs of up to 35 percent (in addition to any existing
duties) on imports of SUVs and CUVs, which will increase domestic
production and generate additional revenue to increase R&D investments
by American-owned (and foreign-owned) manufacturers in the United
States. The Department of Commerce would work with the U.S. Customs and
Border Protection on the most appropriate means to implement this
option if selected. Imports under USMCA Side Letters would not be
subject to the tariffs.
Exemptions
The President may wish to consider agreements that the United
States has renegotiated recently in determining whether specific
countries should be exempted from the proposed tariffs based on an
overriding national security interest of the United States. For
example, the President should consider the Republic of South Korea for
an exemption based on the recently improved agreement and strong
national security relationship. The Secretary recommends that any
determination to exempt a specific country should be made at the outset
and a corresponding adjustment be made to the final tariffs imposed on
the remaining countries. Any country exempted should be placed under a
quota to ensure that producers in that country do not increase exports
to the United States and to prevent transshipment through that country
of automobiles and automobile parts seeking to avoid tariffs. This
would ensure that overall imports of automobiles and automobile parts
to the United States remain at or below the level needed to enable
American-owned producers to reach levels of production sufficient to
increase R&D for technologies that are important to national defense.
II. Legal Framework
A. Section 232 Requirements
Section 232 provides the Secretary with the authority to conduct
investigations to determine the effect of imports of any article on the
national security of the United States. It authorizes the Secretary to
conduct an investigation if requested by the head of any department or
agency, upon application of an interested party, or upon his own
motion. See 19 U.S.C. 1862(b)(1)(A).
Section 232 directs the Secretary to submit to the President a
report with recommendations for ``action or inaction under this
section'' and requires the Secretary to advise the President if an
article that is the subject of the investigation ``is being imported
into the United States in such quantities or under such circumstances
as to threaten to impair the national security.'' See 19 U.S.C.
1862(b)(3)(A).
Section 232(d) directs the Secretary and the President to, ``in
light of the requirements of national security and without excluding
other relevant factors, give consideration to domestic production
needed for projected national defense requirements; the capacity of
domestic industries to meet such requirements; existing and anticipated
availabilities of the human resources, products, raw materials, and
other supplies and services essential to the national defense; the
requirements of growth of such industries and such supplies and
services including the investment, exploration, and development
necessary to assure such growth; and the importation of goods in terms
of their quantities, availabilities, character, and use as those affect
such industries and the capacity of the United States to meet national
security requirements.'' See 19 U.S.C. Sec. 1862(d).
Section 232(d) also directs the Secretary and the President in the
administration of this section to ``further recognize the close
relation of the economic welfare of the Nation to our national
security, and . . . take into consideration the impact of foreign
competition on the economic welfare of individual domestic industries''
and ``any substantial unemployment, decrease in revenues of government,
loss of skills or investment, or other serious effects resulting from
the displacement of any domestic products by excessive imports . . .
[or] other factors in determining whether such weakening of our
internal economy may impair the national security.'' See 19 U.S.C.
Sec. 1862(d).
Once an investigation has been initiated, Section 232 mandates that
the
[[Page 62032]]
Secretary provide notice to the Secretary of Defense that such an
investigation has been initiated. Section 232 (b)(2)(A) also requires
the Secretary to do the following:
(1) ``consult with the Secretary of Defense regarding the
methodological and policy questions raised in [the] investigation'';
(2) ``seek information and advice from, and consult with,
appropriate officers of the United States''; and
(3) ``if it is appropriate and after reasonable notice, hold
public hearings or otherwise afford interested parties an
opportunity to present information and advice relevant to such
investigation.'' \10\
---------------------------------------------------------------------------
\10\ See 19 U.S.C. 1862(b)(2)(A). Department regulations (i) set
forth additional authority and specific procedures for such input
from interested parties, see 15 CFR Sec. Sec. 705.7-705.8, and (ii)
provide that the Secretary may vary or dispense with those
procedures ``[i]n emergency situations, or when in the judgment of
the Department, national security interests require it.'' Id. at
Sec. 705.9.
As detailed in Part III of this report, each of the legal
requirements set forth above has been satisfied.
In conducting the investigation, Section 232 permits the Secretary
to request that the Secretary of Defense provide an assessment of the
defense requirements of the article that is the subject of the
investigation. See 19 U.S.C. 1862(b)(2)(B).
Upon completion of a Section 232 investigation, the Secretary is
required to submit a report to the President no later than 270 days
after the date on which the investigation was initiated. See 19 U.S.C.
1862(b)(3)(A). The required report must:
(1) Set forth ``the findings of such investigation with respect
to the effect of the importation of such article in such quantities
or under such circumstances upon the national security'';
(2) set forth, ``based on such findings, the recommendations of
the Secretary for action or inaction under this section''; and
(3) ``[i]f the Secretary finds that such article is being
imported into the United States in such quantities or under such
circumstances as to threaten to impair the national security . . .
so advise the President . . .''
Id.
Department regulations require that an executive summary of the
report, excluding any classified or proprietary information, be
published in the Federal Register. Copies of the full report, excluding
any classified or proprietary information, must be available for public
inspection and copying. See 15 CFR 705.10.
Within 90 days after receiving a report in which the Secretary
finds that an article is being imported into the United States in such
quantities or under such circumstances as to threaten to impair the
national security, the President shall:
(1) ``determine whether the President concurs with the finding
of the Secretary;'' and
(2) ``if the President concurs, determine the nature and
duration of the action that, in the judgment of the President, must
be taken to adjust the imports of the article and its derivatives so
that such imports will not threaten to impair the national
security.'' See 19 U.S.C. 1862(c)(1)(A).
B. Discussion
Section 232 does not contain a definition of ``national security.''
However, both Section 232 and its implementing regulations at 15 CFR
part 705 contain non-exclusive lists of factors that the Secretary must
consider in evaluating the effect of imports on the national security.
Congress in Section 232 explicitly provides that ``national security''
includes, but is not limited to, ``national defense'' requirements. See
19 U.S.C. 1862(d). In the 2001 Report, the Department determined that
``national defense'' includes both defense of the United States
directly and the ``ability to project military capabilities globally.''
\11\
---------------------------------------------------------------------------
\11\ 2001 Report at 5 (supra n. 3). See also 2018 Steel Report
at 13; 2018 Aluminum Report at 12-13.
---------------------------------------------------------------------------
The Department also concluded in the 2001 Report that ``in addition
to the satisfaction of national defense requirements, the term
`national security' can be interpreted more broadly to include the
general security and welfare of certain industries, beyond those
necessary to satisfy national defense requirements that are critical to
the minimum operations of the economy and government.'' \12\ This
report, like the 2018 Steel Report and 2018 Aluminum Report, uses these
reasonable interpretations of ``national defense'' and ``national
security.'' \13\
---------------------------------------------------------------------------
\12\ Id.
\13\ See 2018 Steel Report at 13-14; 2018 Aluminum Report at 13.
---------------------------------------------------------------------------
Section 232 directs the Secretary to determine whether imports of
any article are being made ``in such quantities or under such
circumstances'' that those imports ``threaten to impair the national
security.'' See 19 U.S.C. 1862(b)(3)(A). The statutory construction
makes clear that either the quantities or the circumstances, standing
alone, may be sufficient to support an affirmative finding. They may
also be considered together, particularly where the circumstances act
to prolong or magnify the impact of the quantities being imported.
The statute does not define a threshold for when ``such
quantities'' of imports are sufficient to threaten to impair the
national security, nor does it define the ``circumstances'' that might
qualify. Likewise, the statute does not require a finding that the
quantities or circumstances are currently impairing the national
security. Instead, the threshold question under Section 232 is whether
the importation of such article in ``such quantities or under such
circumstances'' ``threaten to impair the national security.'' See 19
U.S.C. 1862(b)(3)(A) (emphasis added). This formulation strongly
suggests that Congress expected that an affirmative finding under
Section 232 would occur before there is actual impairment of the
national security.
Additionally, in Section 232 Congress explicitly directed the
Secretary to consider the ``impact of foreign competition'' and ``the
displacement of any domestic products by excessive imports'' in
determining whether the ``weakening of our internal economy may impair
the national security,'' but made no reference to an assessment of the
sources of imports. Therefore, it appears likely that Congress
recognized adverse impacts might be caused by imports from allies or
other reliable sources. As a result, the fact that some or all of the
imports causing the harm are from reliable sources does not compel a
finding that those imports do not threaten to impair national security.
Indeed, as this report finds, the imports that threaten to impair the
national security largely come from allies of the United States.
However, as discussed further in Section VI.C, the United States cannot
be certain of its ability to access intellectual property needed to
maintain technological superiority and assure the ability to cost-
effectively project U.S. military power when that intellectual property
is under foreign ownership and control.
Section 232(d) contains a considerable list of factors for the
Secretary to consider in determining if imports ``threaten to impair
the national security'' \14\ of the United States, and this list is
mirrored in the implementing regulations. See 19 U.S.C. 1862(d) and 15
CFR 705.4. Congress was careful to note twice in Section 232(d) that
the list it provided, while mandatory, is not exclusive.\15\
---------------------------------------------------------------------------
\14\ 19 U.S.C. 1862(b)(3)(A).
\15\ See 19 U.S.C. 1862(d) (``The Secretary and the President
shall, in light of the requirements of national security and without
excluding other relevant factors . . .'' This section also provides
that ``other serious effects resulting from the displacement of any
domestic products by excessive imports shall be considered, without
excluding other factors. . .'') (emphasis added).
---------------------------------------------------------------------------
Congress broke the list of factors into two parts using two
separate sentences.
[[Page 62033]]
The first sentence focuses directly on ``national defense''
requirements, thus making clear that ``national defense'' is a subset
of the broader term ``national security.'' The second sentence focuses
on the broader economy, and expressly directs that in the
administration of this section the Secretary and the President ``shall
further recognize the close relation of the economic welfare of the
Nation to our national security.'' See 19 U.S.C. 1862(d).\16\
---------------------------------------------------------------------------
\16\ See also 50 U.S.C. 4502(a)(7), in which Congress explicitly
recognized ``much of the industrial capacity that is relied upon by
the United States Government for military production and other
national defense purposes is deeply and directly influenced by (A)
the overall competitiveness of the industrial economy of the United
States; and (B) the ability of industries in the United States, in
general, to produce internationally competitive products and operate
profitably while maintaining adequate research and development to
preserve competitiveness with respect to military and civilian
production . . .''
---------------------------------------------------------------------------
The first sentence directs the Secretary to ``give consideration to
domestic production needed for projected national defense requirements,
[and] the capacity of domestic industries to meet such requirements . .
.'' See 19 U.S.C. 1862(d). The report explains that projected national
defense requirements include a viable American-owned automobile and
automobile parts manufacturing industry because military vehicles rely
on commercial R&D for important innovations and on domestic
manufacturers for parts and production facilities. The report takes
into consideration the threat of American-owned producers exiting the
U.S. economy and how a reduction in domestic production impacts the
ability to meet national defense requirements.
The first sentence further directs the Secretary to consider
``existing and anticipated availabilities of . . . supplies and
services essential to the national defense . . .'' See 19 U.S.C.
1862(d). The report discusses the declining market shares of American-
owned automobile producers in the United States. The report considers
that imports continue to displace automobiles produced by American-
owned firms in the United States, as well as automobile parts produced
in the United States, and the resulting impact on R&D spending in the
United States. In a time of national emergency where the United States
might be dependent solely on resources within its own borders--
including manufacturing, a skilled workforce, and R&D--it is essential
to strengthen such capabilities in the United States so that they are
fully deployable when demanded for national security.\17\
---------------------------------------------------------------------------
\17\ See also 50 U.S.C. 4502(a)(8) recognizing that ``the
inability of industries in the United States, especially smaller
subcontractors and suppliers, to provide vital parts and components
and other materials would impair the ability to sustain the Armed
Forces of the United States in combat for longer than a short
period.''
---------------------------------------------------------------------------
Lastly, the first sentence directs the Secretary to consider, ``the
requirements of growth of such industries and such supplies and
services including the investment, exploration, and development
necessary to assure such growth, and the importation of goods in terms
of their quantities, availabilities, character, and use as those affect
such industries and the capacity of the United States to meeting
national security requirements.'' See 19 U.S.C. 1862(d). The report
details the interdependence between R&D in the automotive sector and
U.S. national security.
The factors listed in the second sentence of Section 232(d) are
also relevant for this investigation. Under the second sentence, the
Secretary and the President are required to ``recognize the close
relation of the economic welfare of the Nation to our national
security, and shall take into consideration the impact of foreign
competition on the economic welfare of individual domestic industries,
and any substantial unemployment, decrease in revenues of government,
loss of skills or investment, or other serious effects resulting from
the displacement of any domestic products by excessive imports.'' The
report takes into consideration the impact of excessive imports of
automobiles and certain automobile parts on the American-owned
automotive industry by reducing employment, weakening R&D, and causing
a loss of vital skills and technological know-how in the workforce, all
factors that must be considered when assessing threats to the national
security from excessive imports. See 19 U.S.C. 1862(d).
It is these factors that the report considers which have resulted
in a decline in American-owned manufacturing needed to support the
research and development of technologies that maintain America's
ability to cost-effectively project military power worldwide. This
decline threatens the national security. The Secretary finds that this
``weakening of our internal economy,'' by a continued decline of the
American-owned automobile and automobile parts manufacturing base and
related R&D, ``may impair the national security.'' See 19 U.S.C.
1862(d).
Thus, the Secretary determines that the products listed in Section
VIII are being imported into the United States in such quantities or
under such circumstances as to threaten to impair the national
security. See 19 U.S.C. 1862(b)(3)(A).
III. Investigation Process
A. Initiation of Investigation
On May 23, 2018, Secretary of Commerce, Wilbur Ross initiated an
investigation to determine the effect of imported automobiles and
automobile parts on national security under Section 232 of the Trade
Expansion Act of 1962, as amended (19 U.S.C. 1862).
Pursuant to Section 232(b)(1)(B), the Department notified the U.S.
Department of Defense with a May 23, 2018 letter from Secretary Ross to
the Secretary of Defense, James Mattis.\18\
---------------------------------------------------------------------------
\18\ 19 U.S.C. 1862(b)(1)(B). See Appendix A: Section 232
Investigation Notification Letter to Secretary of Defense James
Mattis, (May 23, 2018).
---------------------------------------------------------------------------
On May 30, 2018, the Department published in the Federal Register a
notice announcing the initiation of this investigation to determine the
effect of imports of automobiles and automobile parts on the national
security. The notice also announced the opening of the public comment
period as well as a public hearing to be held on July 19 and July 20,
2018.\19\
---------------------------------------------------------------------------
\19\ See Appendix B for Department of Commerce, ``Notice of
Request for Public Comments and Public Hearing on Section 232
National Security Investigation of Imports of Automobiles, including
Cars, SUVs, Vans and Light Trucks, and Automotive Parts,'' 83 FR
24,736-24,737 (May 30, 2018). Also included in Appendix B is the
subsequent Department of Commerce Notice, ``Public Hearing on
Section 232 National Security Investigation of Imports of
Automobiles, Including Cars, SUVs, Vans and Light Trucks, and
Automotive Parts; Change of Date for the Public Hearing,'' 83 FR
32,833 (Jul. 16, 2018).
---------------------------------------------------------------------------
B. Public Comments
On May 30, 2018, the Department invited interested parties to
submit written comments, opinions, data, information, or advice
relevant to the criteria listed in Section 705.4 of the National
Security Industrial Base Regulations (15 CFR 705.4) as they affect the
requirements of national security, including the following:
a. The quantity and nature of imports of automobiles, including
cars, SUVs, vans and light trucks, and automotive parts and other
circumstances related to the importation of automobiles and
automotive parts;
b. Domestic production needed for projected national defense
requirements;
c. Domestic production and productive capacity needed for
automobiles and automotive parts to meet projected national defense
requirements;
d. The existing and anticipated availability of human resources,
products, raw materials,
[[Page 62034]]
production equipment, and facilities to produce automobiles and
automotive parts;
e. The growth requirements of the automobiles and automotive
parts industry to meet national defense requirements and/or
requirements to assure such growth, particularly with respect to
investment and research and development;
f. The impact of foreign competition on the economic welfare of
the U.S. automobiles and automotive parts industry;
g. The displacement of any domestic automobiles and automotive
parts causing substantial unemployment, decrease in the revenues of
government, loss of investment or specialized skills and productive
capacity, or other serious effects;
h. Relevant factors that are causing or will cause a weakening
of our national economy;
i. The extent to which innovation in new automotive technologies
is necessary to meet projected national defense requirements;
j. Whether and, if so, how the analysis of the above factors
changes when U.S. production by majority U.S.-owned firms is
considered separately from U.S. production by majority foreign-owned
firms; and
k. Any other relevant factors.\20\
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\20\ Id. In response to requests from interested parties, the
Department issued a Notice of Request for Public Comments and Public
Hearing; Extension of Comment Period, 83 FR 28801 (Jun. 21, 2018),
extending the due date for comments to June 29, 2018 and rebuttal
comments to July 13, 2018.
The public comment period ended on June 29, 2018, and public
rebuttal comment period ended on July 13, 2018. The Department received
2,356 written public comment submissions concerning this investigation.
All public comments were carefully reviewed and factored into the
investigation process. A listing of all public comments is available at
the U.S. Government's Regulations.gov website specific to this
investigation: https://www.regulations.gov/docket?D=DOC-2018-0002.
C. Public Hearing
The Department held a public hearing to collect additional
information concerning this investigation in Washington, DC on July 19,
2018. The second day of the hearing, originally scheduled for July 20,
was cancelled because all parties who wished to participate could be
accommodated in one day. The Department heard testimony from 44
witnesses at the hearing. The complete hearing transcript is included
in Appendix C.
D. Interagency Consultation
In addition to the required notification provided by the May 23,
2018 letter from Secretary Ross to Secretary Mattis,\21\ the Department
carried out the consultations required under Section 232(b)(2).\22\
Department staff consulted with counterparts at the DOD and U.S.
Customs and Border Protection regarding any methodological and policy
questions that arose during the investigation.\23\
---------------------------------------------------------------------------
\21\ See Appendix A.
\22\ 19 U.S.C. 1862(b)(2).
\23\ Id.
---------------------------------------------------------------------------
Secretary Mattis also communicated the views of the DOD in a
November 15, 2018 letter to Secretary Ross.\24\ In that letter,
Secretary Mattis noted that the Department of Commerce had consulted
with the DOD and stressed the importance of the automobile sector and
related technologies to U.S. defense requirements and national security
needs. Specifically, Secretary Mattis stated:
---------------------------------------------------------------------------
\24\ See Appendix A: Letter from Secretary of Defense James
Mattis to Secretary Ross conveying DOD views on Section 232
investigation on imports of automobiles and automobile parts, Nov.
15, 2018.
A healthy U.S. automotive sector supports the manufacturing
ecosystem vital to our national defense industrial base. As noted in
the National Defense Strategy, ``new commercial technology will
change society and, ultimately, the character of war.'' Therefore,
U.S. automotive sector leadership in emerging technologies, like
autonomous systems, is also critical for continued Department of
Defense modernization.\25\
---------------------------------------------------------------------------
\25\ Id.
---------------------------------------------------------------------------
E. U.S. Producers' Survey Responses
On June 29, 2018 and on July 25, 2018, respectively, the Department
issued industry surveys to U.S. automobile producers and U.S. armored
vehicle producers pursuant to 50 U.S.C. 4555. Information sought
included, inter alia, facilities and production data, joint venture
data, trade flows, supply chain data, sales and demand data, employment
information, conditions of competition, R&D information, and government
and defense activities. The principal goal of the survey was to assist
the Department in determining whether automobiles and automobile parts
are being imported into the United States in such quantities or under
such circumstances as to threaten to impair national security. The
resulting aggregate data have given the Department detailed industry
information that is otherwise not publicly available and was needed to
effectively conduct its analysis for this investigation.
Response to the Department's survey is required by law (50 U.S.C.
4555). Information furnished in the survey responses has been deemed
confidential and will not be published or disclosed except in
accordance with Section 705 of the Defense Production Act of 1950, as
amended (50 U.S.C. 4555). Section 705 prohibits the publication or
disclosure of this information unless the President determines that the
withholding of such information is contrary to the interest of the
national defense. Information will not be shared with any non-
government entity other than in aggregate form. The information is
protected pursuant to the appropriate exemptions from disclosure under
the Freedom of Information Act (``FOIA''), should it be the subject of
a FOIA request.
From June 29, 2018 to September 7, 2018, the following [TEXT
REDACTED] companies responded to the Department's questionnaires:
[TEXT REDACTED]
IV. Product Scope of the Investigation
The scope of this investigation includes passenger vehicles,
including sedans, sport utility vehicles (``SUVs''), crossover utility
vehicles (``CUVs''), and vans (including minivans and cargo vans);
light trucks (collectively ``automobiles''); and wheeled armored and
tactical vehicles used for U.S. military applications. The scope also
includes all categories of automobile parts used in automobiles and
armored vehicles, which are defined at multiple points throughout the
U.S. Harmonized System (``HS''). A complete listing of automobile and
automobile parts codes included in this investigation is provided in
Appendix D. As detailed in this report, the Secretary finds that
imports of automobiles and imports of engines, engine parts,
transmissions, powertrain parts, and electrical components have
displaced and threaten further displacement of domestic production and
thereby threaten to impair the national security as set out in Section
232. For the purposes of this report, American-owned automobile
producers are General Motors (``GM''), Ford, and Tesla. Prior to 1998,
Chrysler was also American-owned. During 1985-1987, American Motors was
American-owned.
V. Background on the Industry
A. Global Competitiveness of U.S. Automobile Producers
The U.S. automotive industry has been one of the most powerful
forces driving the U.S. economy. Automobile manufacturing and
associated services industries employed 4.2 million workers in 2017,
amounting to 3 percent of total private sector employment. Of these
jobs, 953,000 were in automobile, automotive body, and automobile parts
manufacturing and an additional 3.3 million in service industries such
as
[[Page 62035]]
dealerships, repair shops, and automobile parts stores.\26\
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\26\ Department of Labor, Bureau of Labor Statistics, Automotive
Industry: Employment, Earnings, and Hours, https://www.bls.gov/iag/tgs/iagauto.htm.
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Global competition has greatly changed the industry over the years.
In the 1960s and 1970s, U.S. automobile producers enjoyed a dominant
position globally, as 48 percent of global automobile production
occurred in the United States, and all of those producers were
American-owned firms.\27\ The United States' competitive position in
the global marketplace did not last, however, as foreign competitors
aggressively penetrated the global market and captured a significant
portion of global market share. By 1985, automobile production in the
United States as a percentage of global automobile production declined
to 26 percent, then to 18 percent in 2005, and to 12 percent in 2017 as
shown in Figure 1A.\28\ In 2017, American-owned manufacturers within
the United States and abroad held only 12 percent of the global market
which, as shown in Figure 1B, represents a significant decline from the
36 percent of global market share held by American-owned manufacturers
in 1995. The decline in global market share reflects the rise of
foreign-owned producers and the weakening of the U.S. automotive
manufacturing base.
---------------------------------------------------------------------------
\27\ Wards Intelligence InfoBank.
\28\ Id. (These figures include foreign-owned manufacturers in
the United States.)
---------------------------------------------------------------------------
The 2008-2009 worldwide economic downturn exacerbated the
contraction of U.S. market share in the global automotive sector, and
in 2009 U.S. automobile production in the aggregate (by American-owned
and foreign-owned firms) declined to 5.7 million units, which is just
nine percent of global production.\29\ Although global production
rebounded from 72.8 million units in 2007 to 96.2 million units in
2017,\30\ the rise in production volume was largely attributed to
China's dramatic rise, growing from less than 8.9 million units in 2007
to 29.0 million units in 2017.\31\ China became the number one
automobile producing country in 2009, and in 2017 produced over 25
percent of the world's supply of automobiles.\32\ The EU, Japan, South
Korea, Canada, and Mexico are also major producers of automobiles, and
are the top sources of automobile imports into the United States.
Manufacturers in the United States, Japan, and the EU moved some
automobile production for the North and South American markets to
Mexico, leading to an increase in production there. Despite significant
automobile production in Canada and Mexico, there are no Canadian- or
Mexican-owned automobile producers in those counties.
---------------------------------------------------------------------------
\29\ Id.
\30\ Id.
\31\ Id.
\32\ Id.
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[[Page 62036]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.024
BILLING CODE 3510-DR-C
Globally, the four largest automobile producers in 2017 were GM,
Toyota, Volkswagen, and Ford, and each manufacturer produces and sells
a significant percentage of its automobiles in its home country.
Further, because global automobile production is regionally focused,
the world's leading manufacturers also produce automobiles in foreign
markets to supply local customers. As summarized in Table 1 below, 23
percent and 39 percent of automobiles produced by American-owned
manufacturers GM and Ford, respectively, in 2017 were made in the
United States. Similarly, 35 percent of automobiles produced by Toyota
and 18 percent produced by Volkswagen were made in their home markets.
BILLING CODE 3510-DR-P
[GRAPHIC] [TIFF OMITTED] TN08NO21.025
[[Page 62037]]
The automobile industry in the United States consists of 14 major
manufacturers: American-owned GM, Ford, and Tesla, and 11
``transplant'' manufacturers, i.e., manufacturing facilities that are
ultimately owned by corporations headquartered abroad.\33\
---------------------------------------------------------------------------
\33\ Wards Intelligence InfoBank. Volvo began production at its
Charleston, South Carolina plant in October 2018 and is therefore
not included in Figure 2.
[GRAPHIC] [TIFF OMITTED] TN08NO21.026
BILLING CODE 3510-DR-C
Three major trends in automobile manufacturing are (1) continuing
efforts to cut costs to remain globally competitive, (2) improving
technological advancements in design and materials used to decrease
vehicle weight (``lightweighting'') and enhance fuel efficiency, and
(3) developing advanced technologies needed for increased vehicle
connectivity, electrification and autonomous driving. Manufacturers are
increasingly cutting costs through automation and by relocating
production to less expensive regions. The tariff reductions achieved in
1994 through the North American Free Trade Agreement (``NAFTA'')
incentivized offshoring of automobile and automobile parts production
to Mexico where input costs, particularly labor, were significantly
cheaper.\34\
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\34\ See Section V, Part C.
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B. U.S. Automobile Producers' Transition From Vertical Integration to
Outsourcing Automobile Parts Production
The automotive industry responded to declining profits and
structural and technological changes in the late 1980s by switching
from a vertically-integrated supply structure to a model that
increasingly sourced automobile parts from independent suppliers
serving multiple customers. This global shift was especially dramatic
in the United States, where automobile producers were under tremendous
pressure to become more efficient and reduce costs to compete with
imports. Producers opted to purchase large modules and subassembly
systems ready for installation on their assembly lines, rather than
assemble thousands of individual parts as before. In the United States,
union wages were lower for component companies than for original
equipment manufacturers (``OEMs''). Over time, U.S. automobile
producers also shifted to negotiating large long-term contracts with a
select group of tier-1 suppliers.\35\ As parts suppliers became
separate entities from the automobile producers, the parts suppliers
were forced to assume more responsibility for R&D and the design of
innovative modules and systems and they began to maintain large
inventories of various automobile parts.\36\ The percentage of parts
that independent suppliers contribute to a vehicle has grown from 40-50
percent in the early 1990s to over 70 percent today.\37\
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\35\ A tier-1 supplier provides components directly to the OEM.
\36\ Thomas Klier and James Rubenstein, Who Really Made Your
Car, The Federal Reserve Bank of Chicago, Chicago Fed Letter, No.
255a, Oct. 2008, https://www.chicagofed.org/~/media/publications/
chicago-fed-letter/2008/cfloctober2008-255a-pdf.pdf.
\37\ Patrick McGee, Carmakers Face Threat from New Drivers of
Profit, Financial Times, Aug. 8, 2017, https://www.ft.com/content/40065b50-715e-11e7-93ff-99f383b09ff9.
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[[Page 62038]]
The shift away from the vertical integration of automobile and
automobile parts production is also essential to understanding the
nature of automotive industry employment. The automotive supply chain
has become the backbone of the automobile assembly industry, employing
more people than the automobile producers. In 1990, 271,400 automobile
manufacturing employees and 653,000 automobile parts employees produced
9.5 million vehicles in the United States. After a decade of record
high automobile production, beginning in 2001 automobile manufacturing
employment declined each year to a low of 146,400 workers in 2009. For
automobile parts manufacturing, employees increased by 29 percent to a
high of 839,500 in 2000 before falling to a low of 413,700 workers in
2009. While employment overall rebounded somewhat after 2009, in 2017
workers in both the automobile sector (212,000 employees) and
automobile parts sector (586,300 employees) remain 29 percent below
their 2000 levels, despite record demand.\38\ Many of these jobs moved
offshore as a result of import competition in the United States and
lower labor costs available abroad.\39\
---------------------------------------------------------------------------
\38\ Department of Labor, Bureau of Labor Statistics, Employees
for Motor Vehicles (NAICS 3361) and Motor Vehicle Parts (3363)
industries, https://www.bls.gov/iag/tgs/iagauto.htm.
\39\ Thomas H. Klier and James M. Rubenstein, Imports of
Intermediate Parts in the Auto Industry--A Case Study, November 6-7,
2009, https://upjohn.org/measurement/klier-rubenstein-final.pdf at
4.
---------------------------------------------------------------------------
C. NAFTA and the Rise of Automobile and Automobile Parts Production in
Mexico Instead of the United States
The contraction of the U.S. automotive industry has been ongoing
for decades, but the contraction became more dramatic after NAFTA went
into effect and caused a significant portion of the U.S. industry to
shift production to Mexico. Prior to NAFTA, Mexico had in place a
restrictive decree that limited automotive trade. NAFTA, however,
expanded to Mexico the existing integration of the U.S. and Canadian
automotive manufacturing supply chain created under the Canada-United
States Automotive Products Agreement (signed in 1965) and the U.S./
Canada Free Trade Agreement (signed in 1989). NAFTA's elimination of
customs tariffs allowed automobile producers and automobile parts
suppliers to optimize operational structures by relocating assembly
operations and supply chain manufacturing to Mexico the most cost
competitive location within North America. The results of the shift in
supply chain are dramatic. Since NAFTA's entry into force, the value of
U.S. imports of automobile parts from Mexico increased by 652 percent,
and the value of automobile imports from Mexico increased by over 1,000
percent.\40\
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\40\ Department of Commerce, Census Bureau, International Trade
Management Division. Retrieved from Trade Policy Information System
(TPIS) Database: USHS IMPORTS, Revised Statistics for 1989-2017.
---------------------------------------------------------------------------
1. The Rise of Automobile Assembly in Mexico and Offshoring of
Automobile Plants
Mexico's ability to compete for new North American automotive
investments under NAFTA stemmed primarily from the country's relatively
lower labor costs. Automobile assembly compensation had been
approximately 80 percent lower in Mexico than in the United States, and
labor represented a sizeable share of the production cost for
automobiles.\41\ For example, from 2008 to 2013, the average hourly
wage in Mexico was $5.89 ($US, nominal) for the automobile sector.
These wages were slightly more than one-seventh of the comparable wage
in the United States.\42\ In 2016, the hourly wage for workers in the
automobile sector was $4.65 in Mexico compared to $40.17 in the United
States.\43\ In Mexico, dollar equivalent wages decreased because the
currency depreciated sharply in comparison to the U.S. dollar.\44\ This
large disparity in wages resulted in significant cost savings to
manufacturers. One analysis estimated that assembling an automobile in
Mexico resulted in an average cost savings of $1,200 for an automobile
sold in the United States and $4,300 for an automobile sold in
Europe.\45\ Lower Mexican wages, coupled with labor productivity that
is comparable to workers in the United States, influenced corporate
decisions to increase automobile assembly in Mexico.
---------------------------------------------------------------------------
\41\ Bernard Swiecki and Debbie Maranger Menk, The Growing Role
of Mexico in the North American Automotive Industry, Center for
Automotive Research, July 2016, https://www.cargroup.org/wp-content/uploads/2017/02/The-Growing-Role-of-Mexico-in-the-North-American-Automotive-Industry-Trends-Drivers-and-Forecasts.pdf.
\42\ International Labor Comparisons, The Conference Board,
https://www.conference-board.org/ilcprogram.
\43\ Id. These data are calculated by the Conference Board's
International Labor Comparisons (ILC) program using the same
concepts and methodology as those developed by the Bureau of Labor
and Statistics. Compensation costs relate to all employees in
manufacturing and include (1) direct pay and (2) employer social
insurance expenditures and labor-related taxes.
\44\ Board of Governors of the Federal Reserve System, Foreign
Exchange Rates--G.5A Annual
\45\ Swiecki and Menk, The Growing Role of Mexico in the North
American Automotive Industry, supra.
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In fact, between 2011 and 2016, nine of the 11 announced new
automobile assembly plants in North America were built in Mexico,\46\
while the number of facilities in the United States declined. The large
rise in Mexican assembly investment is relevant because 80 percent of
Mexican vehicle production is exported to the United States.\47\ As
shown in Table 2, in 1985, there were 65 automobile assembly plants in
the United States and 12 plants in Canada, but only nine in Mexico. As
of 2017, the number of automobile assembly plants in the United States
declined by 30 percent to 46 plants, while the number of Mexican
automobile assembly plants doubled to 18. The number of Canadian
automobile assembly plants declined only modestly from 12 assembly
plants to 11 during the same period.\48\
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\46\ Id.
\47\ Id.
\48\ Wards Intelligence InfoBank.
[GRAPHIC] [TIFF OMITTED] TN08NO21.027
[[Page 62039]]
In addition to low production costs, low tariffs on Mexican
automobile exports due to the broad reach of Mexico's numerous Free
Trade Agreements (``FTAs'') made it possible for the country to emerge
as a prime manufacturing and export base not only within North America,
but globally as well. Exports from Mexico to 46 countries are exempt
from automobile tariffs, including the 10 percent tariff the EU applies
to imported passenger vehicles.\49\ The domestic Mexican market for new
automobiles is relatively small, less than 10 percent the size of the
U.S. automobile market, and the growth of automobile production in
Mexico correspondingly includes a large share of automobiles
manufactured for export.\50\ Between 1990 and 2017, the percentage of
automobiles manufactured in Mexico for export increased from 34 percent
to 84 percent.\51\ Since 2010, moreover, automobile manufacturers
announced more than $24 billion in investments in Mexico, including
more than $6.5 billion in investments from Japanese firms, more than
$5.7 billion in investments from German firms, and more than $1.1
billion from South Korean firms.\52\
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\49\ World Trade Organization, Tariff Download Facility, https://tariffdata.wto.org/.
\50\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank.
\51\ Swiecki and Menk, The Growing Role of Mexico in the North
American Automotive Industry, supra.
\52\ Id.
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The rise of Mexico as a major automobile producer has contributed
to the gradual decline of U.S. automobile production, as the U.S.-made
share of automobile production in North America, which was 78 percent
in 1990, dropped to 64 percent in 2017, as shown in Table 3.\53\ Some
analysts expect the share of production in the United States to drop to
below 60 percent by 2020 under the existing NAFTA rules.\54\
---------------------------------------------------------------------------
\53\ Wards Intelligence InfoBank.
\54\ Swiecki and Menk, The Growing Role of Mexico in the North
American Automotive Industry, supra.
---------------------------------------------------------------------------
Although Canada's share of North American production remained
relatively stable, going from 14 percent in 1985 to 13 percent in
2017,\55\ Canada's production volume is expected to rise in the near-
term as a result of Canada's 2016 Comprehensive Economic and Trade
Agreement (``CETA'') with the EU, which immediately eliminated the EU's
tariffs on Canada-made automobile parts (which had ranged up to 4.5
percent) and phases out tariffs on automobiles over seven years.\56\
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\55\ Wards Intelligence InfoBank.
\56\ Sara Lewis, Canadian, EU Auto Industries Welcome Trade
Pact, WardsAuto, Feb. 24, 2017, https://www.wardsauto.com/industry/canadian-eu-auto-industries-welcome-trade-pact.
[GRAPHIC] [TIFF OMITTED] TN08NO21.028
2. Offshoring of Automobile Parts
With the transition away from vertical integration in the global
automotive industry, automobile parts manufacturers have been under
systematic pressure from automobile producers to lower prices. In
response, suppliers explored different ways to cut costs and, soon
after NAFTA's implementation, they began supplementing and eventually
replacing significant domestic production with ``near shore''
production in Mexico. Consequently, U.S. imports of automobile parts
from Mexico increased rapidly. In 1990, U.S. imports of automobile
parts from Mexico were valued at $4.5 billion, accounting for 14
percent of total U.S. automobile parts imports. By 2004 (a decade into
NAFTA) U.S. imports of automobile parts from Mexico rose to $23.4
billion, accounting for almost 30 percent of total automobile parts
imports.\57\ And in 2017, U.S. imports of automobile parts from Mexico
reached $55.3 billion in total, accounting for 37 percent of overall
U.S. imports of automobile parts. Eleven percent of U.S. automobile
parts imports in 2017 came from Canada, and imports from Canada and
Mexico together accounted for 48 percent of total U.S. imports in 2017.
Of the remaining 52 percent of U.S. automobile parts imports in 2017,
13 percent originated from the EU and 36 percent were imported from
Asia, including Japan, South Korea, and China.\58\
---------------------------------------------------------------------------
\57\ Department of Commerce, Census Bureau.
\58\ Id.
---------------------------------------------------------------------------
According to ProMexico, an export promotion division of the
Government of Mexico, close to 90 of the global 100 tier-1 parts
suppliers have operations in Mexico.\59\ Although some of the
investments are for low value, labor-intensive goods like wire
harnesses, Mexico has also attracted automotive supplier investments
for higher value goods. For example, Mexico has expanded its powertrain
production numbers over the past several years and, from 2012 through
2015 alone, engine production in Mexico has increased by over 31
percent, from 2.8 million to 3.7 million engines, and is estimated to
have grown to 4.2 million units in 2018.\60\
---------------------------------------------------------------------------
\59\ Swiecki and Menk, The Growing Role of Mexico in the North
American Automotive Industry, supra.
\60\ Id.
---------------------------------------------------------------------------
Furthermore, automotive producers have increasingly chosen Mexico
as a place to locate R&D centers.\61\ GM, Ford, Toyota, Volkswagen,
Nissan, and numerous automobile parts companies already conduct
significant R&D activity in Mexico. U.S. industry considers university
graduates in Mexico to be just as skilled for R&D work as graduates in
the United States.\62\ With the tendency of automobile producers to
locate R&D facilities near assembly plants, Mexico is expected to
become a growing market for engineering jobs and an alternative market
to the United States. As R&D and its related skilled workforce shifts
from the United States to Mexico, the loss of specialized skills and
production know-how within the United States impedes the ability of
American-owned manufacturers to access a skilled workforce and advance
technologies that are critical for maintaining America's ability to
project power globally and respond in a national emergency.
---------------------------------------------------------------------------
\61\ Id.
\62\ Id.
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[[Page 62040]]
VI. Analysis
A. Present Import Quantities of Automobiles Have Weakened the American-
Owned Automotive Industry
In the U.S. automobile sector, there is substantial evidence that
imports have weakened the domestic industry and are causing the
American-owned segment of the industry to contract. Foreign-owned
automobile producers in the United States are able to offset the
economic effects of a contraction in the U.S. market by maintaining
significant sales volumes in their protected home markets. However, as
explained in Appendix F, under the present trade regime, American-owned
manufacturers are unable to meaningfully penetrate those same protected
foreign markets to offset their shrinking sales in the United States.
In fact, as shown in Figure 1B above, from 1995 to 2017 American-owned
automobile producers' share of the global automotive market contracted
by 24 percentage points, from 36 percent to 12 percent, while EU
automobile producers' share grew from 20 percent to 23 percent and
Japanese automobile producers' share stayed relatively steady at 26
percent and 24 percent during the same period. Clearly, American-owned
manufacturers are trailing behind their foreign-owned competitors in
the global market, which impacts their sales revenue and, hence, R&D
investments in technologies that are integral to maintaining America's
technological advantage in military applications. Consequently,
America's ability to cost-effectively project power globally is also
trailing behind. As set forth in Section VI.C, the U.S. military
depends heavily on innovation in the commercial automotive sector, and
in particular will depend on American-owned manufacturers' innovation
capabilities in time of war. The following sections analyze the impact
of imports on the U.S. automotive market, the weakened competitive
position of American-owned producers, and the consequent threat to the
impairment of national security.\63\
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\63\ See 19 U.S.C. 1862(b) and (d).
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1. U.S. Automobile Production Volume Has Eroded Over Three Decades Due
to Imports
The strength of the U.S. automotive industry has weakened since
1985. Evidence establishes that purchasers have increasingly shifted
away from domestically-produced automobiles to imported vehicles, and
data provided in Figure 3 show that from 1985 to 2017 demand for
automobiles in the U.S. market grew by 11 percent, but total domestic
production by both American- and foreign-owned firms declined by 4
percent. More specifically, U.S. demand for automobiles grew from 15.4
million units in 1985 to 17.1 million units in 2017, while production
by domestic automobile producers declined from 11.4 million units in
1985 to 10.9 million units in 2017.\64\ Over the same period, U.S.
imports of automobiles nearly doubled from 4.6 million units to 8.3
million units.\65\ Expressed as a percentage of market share (an
indicator of competitive strength), domestic producers' share of the
U.S. market declined over this 32-year period from 70 percent of
overall U.S. demand in 1985 to 52 percent in 2017.\66\ Production by
domestic manufacturers of automobiles held steady in 2018.\67\
---------------------------------------------------------------------------
\64\ According to Wards Intelligence InfoBank, U.S. automobile
production peaked at 12.6 million units in 1999, but subsequently
plummeted to 5.6 million units in 2009 as a result of the economic
recession. Although production ultimately recovered to 11.9 million
units in 2016, by 2017 production again slipped to 10.9 million
units.
\65\ Department of Commerce, Census Bureau.
\66\ Wards Intelligence InfoBank and Department of Commerce,
Census Bureau. Domestic producers' market share is calculated as
(domestic sales minus imports) divided by domestic sales.
\67\ Wards Intelligence InfoBank.
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BILLING CODE 3510-DR-P
[[Page 62041]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.029
When disaggregated into passenger vehicles (sedans, SUVs, CUVs, and
vans) and light trucks, it becomes clear that the decline in U.S.
production has been concentrated in the passenger vehicle segment.
Figure 4 demonstrates that, for passenger vehicles overall, U.S. demand
increased by 13 percent, from 12.8 million passenger vehicles in 1985
to 14.4 million passenger vehicles in 2017, while U.S. production
decreased by 12.9 percent over the same period, from 9.6 million
passenger vehicles to 8.4 million passenger vehicles. Of the 8.4
million passenger vehicles produced in the United States in 2017,
approximately 6.8 million were sold in the United States in 2017.\68\
Expressed as a percentage of market share, domestic producers' share of
U.S. passenger vehicle sales declined from 72 percent in 1985 to 48
percent in 2017.\69\ Section VI.A.3 explains that this contraction is
due, in large part, to displacement by passenger vehicle imports.
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\68\ Wards Intelligence InfoBank and Department of Commerce,
Census Bureau.
\69\ Wards Intelligence InfoBank.
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[[Page 62042]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.030
For light trucks, Figure 5 illustrates that U.S. demand held
constant at 2.7 million light trucks in both 1985 and 2017, while U.S.
production increased from 1.8 million light trucks to 2.6 million light
trucks during the same period. Of this 2.6 million, approximately 2.0
million trucks were sold in the United States in 2017.\70\ During the
same period, imports of light trucks decreased by 24 percent, from 1.1
million to 833,000.\71\
---------------------------------------------------------------------------
\70\ Wards Intelligence InfoBank and Department of Commerce,
Census Bureau.
\71\ Department of Commerce, Census Bureau. The United States
has imposed a 25 percent tariff on imports of light trucks since
1964 pursuant to Presidential Proclamation 3564 in 1964. U.S.
Presidential Proclamation No. 3564, Proclamation Increasing Rates of
Duty on Specified Articles, December 4, 1963, 77 Stat. 1035-1036,
https://www.govinfo.gov/content/pkg/STATUTE-77/pdf/STATUTE-77-Pg1035.pdf.
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[[Page 62043]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.031
Notably, the domestic performance of American-owned automobile
manufacturers (GM, Ford and Tesla) underpins the dramatic contraction
of production volumes in the United States. As shown in Figure 6, in
1985, American-owned automobile facilities in the United States
manufactured 11.0 million automobiles, representing 97 percent of
overall domestic (American- and foreign-owned) production of
automobiles. By 2017, American-owned production fell to 4.6 million
automobiles, amounting to 42 percent of domestic automobile production
(i.e., a decline of 6.3 million units), and production by American-
owned firms accounted for only 22 percent of total U.S. sales.\72\
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\72\ Figure 6 accounts for the fact that Chrysler became
foreign-owned in 1998. See supra note 6.
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[[Page 62044]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.032
Figure 7 illustrates a similar trend for American-owned producers
in the passenger vehicle segment over the course of the past 32 years.
In 1985, American-owned U.S. manufacturers produced 9.3 million
passenger vehicles (sedans, SUVs, CUVs, and vans), representing 97
percent of domestic (American- and foreign-owned) production. By 2017,
American-owned production fell to 2.8 million passenger vehicles,
representing just 34 percent of domestic production and 17 percent of
domestic sales. As set forth in Section VI.C, this decline in
production depicts the loss of American-owned producers' competitive
position in the U.S. market (and globally, as described above), with
the consequence that declining sales revenue has weakened the United
States' ability to maintain a leadership position in R&D investments
needed to develop technologies that are critical to national defense.
[[Page 62045]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.033
For light trucks, American-owned U.S. manufacturers have also
experienced a declining share of U.S. production over the past three
decades. They accounted for 94 percent of domestic production in 1985
(1.67 million units), a share that decreased to 68 percent (1.75
million units) in 2017.\73\ This relatively narrower decline is
attributed to U.S. consumers' preferences for American-made brands and
models of light trucks, and the 25 percent tariff imposed by the United
States on imports of light trucks since 1964.
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\73\ Wards Intelligence InfoBank.
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[[Page 62046]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.034
Even accounting for the strong presence of American-owned producers
in the light truck segment, the overall competitive position of
American-owned automobile producers has been weakening over time, as
American-owned production volumes overall have steadily declined.
Expressed as a percentage of overall U.S. demand for automobiles, the
market share held by American-owned automobile manufacturers has
contracted sharply from 67 percent in 1985 (10.5 million units produced
and sold in the United States) to 22 percent in 2017 (3.7 million units
produced and sold in the United States) as illustrated in Figure 9,
with increases in demand and lost American-owned market share captured
by both imports and foreign-owned manufacturers in the United
States.\74\ [TEXT REDACTED].\75\ In other words, the share of the U.S.
market captured by imports plus vehicles produced in the United States
by foreign-owned firms increased from 33 percent in 1985 to 78 percent
in 2017.\76\
---------------------------------------------------------------------------
\74\ Wards Intelligence InfoBank; Department of Commerce, Census
Bureau.
\75\ U.S. Producers' Survey Responses, Question 2b. In 2017,
American-owned firms produced and sold in the U.S. market [TEXT
REDACTED].
\76\ Wards Intelligence InfoBank; Department of Commerce, Census
Bureau.
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[[Page 62047]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.035
For passenger vehicle sales where head-to-head competition with
foreign producers is greatest, Figure 10 shows that from 1985 to 2017
the market share held by American-owned firms' domestic production
declined from 70 percent to 16 percent.\77\ Also significant is the
fact that the market share claimed by light trucks produced in the
United States by American-owned manufacturers declined by eight percent
over the same period, as shown in Figure 11. American-owned
manufacturers now hold less than half (i.e., 47.7 percent) of the U.S.
market for light trucks. Section VI.A.3 below explains that imports of
both passenger vehicles and light trucks have displaced American-owned
U.S. production and threaten the ability of American-owned producers to
invest in the R&D that is critical to maintaining technological
innovation that enables America to maintain global military
superiority.
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\77\ Wards Intelligence InfoBank.
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[[Page 62048]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.036
[[Page 62049]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.037
2. Market Penetration by Automobile Imports Is Significant
Automobile producers continuously strive to increase production
scale to maximize profits. Indeed, scale is important because the
enormous startup costs associated with the launch of a new production
line must be amortized over substantial production and sales volumes in
order to maximize revenue and minimize unit costs. As set forth in
Appendix F, because automobile producers headquartered in the EU,
Japan, South Korea, and China are protected from import competition in
their respective home markets, these foreign producers are able to
utilize significant sales profits in those home markets to heighten
production to levels in excess of volumes needed to supply their
respective domestic markets. Those firms consequently become
increasingly export focused. Because the United States has the second
largest automobile demand market in the world,\78\ imposes a low 2.5
percent tariff on imports of passenger vehicles, and has a strong
economy that allows manufacturers to maximize profits, foreign
automobile producers take advantage of the open U.S. market to unload
excess production at significant financial gain. Figure 12 illustrates
this point using the United States' trade deficit in automobiles with
Germany, Japan, and the rest of the world.\79\
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\78\ According to Wards Intelligence InfoBank, China is the
largest consumer market for automobiles.
\79\ This represents nominal figures, which do not take into
account inflationary and foreign exchange changes over time.
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[[Page 62050]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.038
BILLING CODE 3510-DR-C
This trade deficit underscores the significant disadvantage that
U.S. automobile producers have internationally as a result of protected
markets abroad. In 2017, manufacturers in the United States exported
2.0 million units ($56.9 billion U.S. dollars) compared to imports of
automobiles from abroad of 8.3 million units ($191.7 billion U.S.
dollars).\80\
---------------------------------------------------------------------------
\80\ Department of Commerce, Census Bureau.
---------------------------------------------------------------------------
From 1985 to 2017, overall imports of automobiles from all
countries almost doubled from 4.6 million units to 8.3 million units,
representing an increase from 30 percent of U.S. market share in 1985
to 48 percent in 2017 as shown in Figure 13.\81\ As noted above, of the
remaining 52 percent of U.S. market share, foreign-owned U.S.
manufacturing operations account for 30 percent and American-owned U.S.
manufacturing operations account for the remaining 22 percent. The fact
that imports and foreign-owned production of automobiles in the United
States accounted for 32 percent of the U.S. market share in 1985 but
now hold 78 percent of the U.S. market, and the fact that American-
owned automobile production in the United States declined by 6.3
million units over the same period (from 11.0 million units to 4.6
million units), underscores the displacement of American-owned
production in the United States by imports and by foreign-owned
manufacturers' U.S. production.\82\
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\81\ Wards Intelligence InfoBank; Department of Commerce, Census
Bureau.
\82\ Id.
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BILLING CODE 3510-DR-P
[[Page 62051]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.039
By both volume and value, Mexico, Canada, Japan, South Korea and
the EU account for nearly 98 percent of automobiles imported into the
United States, although China is planning to rapidly grow exports to
the United States as well.\83\ Table 4 below lists the top sources of
automobile imports into the United States.
---------------------------------------------------------------------------
\83\ China's intentions to dominate production of advanced
technologies such as electric vehicles is detailed in the Section
301 Report on China prepared by the United States Trade
Representative. A 2009 Chinese Central Government ``Opinion''
targets a 10 percent share of global automobile parts exports for
Chinese automobile producers by 2020. Several provinces including
Anhui, Chongqing, and Zhejiang have issued 5-year plans (their 13th)
seeking increased automotive exports in response to these
directives. See Findings of the Investigation Into China's Acts,
Policies, and Practices Related to Technology Transfer, Intellectual
Property, and Innovation Under Section 301 of the Trade Act of 1974,
Office of the United States Trade Representative, Executive Office
of the President, March 22, 2018, https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF at 139. See also Shai Oster, Excess
auto capacity in China could leave dents in car makers, Wall Street
Journal, November 17, 2005, https://www.wsj.com/articles/SB113218114486399413.
[GRAPHIC] [TIFF OMITTED] TN08NO21.040
U.S. imports of light trucks are subject to a 25 percent tariff
rate, except where the tariff is removed by an FTA such as NAFTA.\84\
Consequently, there is a notable lack of import competition from non-
FTA regions but significant import
[[Page 62052]]
penetration from Mexico where light trucks are largely produced for the
U.S. market. In 2017, imports from Mexico represented over 96 percent
of the overall volume and value of light truck imports into the United
States.
---------------------------------------------------------------------------
\84\ International Trade Commission, Official Harmonized Tariff
Schedule, https://www.usitc.gov/tata/hts/index.htm.
[GRAPHIC] [TIFF OMITTED] TN08NO21.041
In contrast, because U.S. imports of passenger vehicles are subject
to a low 2.5 percent tariff, or zero tariff from FTA countries,\85\
there is significant import penetration in this segment. By both volume
and value, Mexico, Canada, Japan, South Korea and the EU account for
over 97 percent of the overall U.S. import volume of passenger
vehicles.
---------------------------------------------------------------------------
\85\ Id.
[GRAPHIC] [TIFF OMITTED] TN08NO21.042
For every automobile market segment, moreover, the U.S. market has
witnessed an acceleration in imports over the past five years. [TEXT
REDACTED].\86\ In 2017, imports of automobiles by foreign-owned
manufacturers in the United States accounted for [TEXT REDACTED] of
total import volume, whereas imports by American-owned manufacturers
accounted for [TEXT REDACTED] of the import volume.\87\
---------------------------------------------------------------------------
\86\ U.S. Producers' Survey Responses, Question 4b.
\87\ Id.
[GRAPHIC] [TIFF OMITTED] TN08NO21.043
[[Page 62053]]
Table 8A further shows that, by market segment, imports were
largely sourced from producers in [TEXT REDACTED]. [TEXT REDACTED].
Whereas American-owned producers' imports in 2017 from North America
totaled [TEXT REDACTED] of their overall imports, foreign-owned
automobile producers' imports from regions outside North America
accounted for [TEXT REDACTED] of their overall imports. In other words,
while American-owned automobile producers expanded operations to [TEXT
REDACTED] to remain competitive in the U.S. market, foreign-owned
producers not only took advantage of the [TEXT REDACTED] integrated
North American supply chain to reap competitive gains in the U.S.
market, [TEXT REDACTED] to displace U.S. production by American-owned
firms. In fact, [TEXT REDACTED] of foreign-owned producers' [TEXT
REDACTED]. More specifically, EU automobile producers in the United
States [TEXT REDACTED] of their automobile [TEXT REDACTED], Japanese
producers in the United States [TEXT REDACTED] of their automobile
[TEXT REDACTED], and South Korean producers in the United States [TEXT
REDACTED] of their automobile [TEXT REDACTED].\88\
---------------------------------------------------------------------------
\88\ Id.
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BILLING CODE 3510-DR-P
[GRAPHIC] [TIFF OMITTED] TN08NO21.044
[GRAPHIC] [TIFF OMITTED] TN08NO21.045
[[Page 62054]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.046
Significantly, imports now exceed American-owned production in the
United States. As Table 9 demonstrates, in 2017 the United States
imported passenger vehicles and light trucks equal to 263 percent of
American-owned passenger vehicle production and 48 percent of domestic
light truck production, respectively. American-owned producers were not
operating at full capacity in 2017 and, thus, had the ability to
produce more vehicles.\89\
---------------------------------------------------------------------------
\89\ Board of Governors of the Federal Reserve System (US),
G.17. Capacity Utilization: Durable Manufacturing: Automobiles and
parts, https://www.federalreserve.gov/releases/g17/current/.
[GRAPHIC] [TIFF OMITTED] TN08NO21.047
3. Low Priced Foreign-Owned Automobile Production and Imports Have
Caused Significant Market Penetration in the United States and Have
Suppressed U.S. Producers' Prices
Imported and domestically-produced automobiles compete head-to-head
in the same geographic markets based primarily on price, brand, and
quality, with price being a significant factor driving consumers'
purchasing decisions.\90\ From 2005 to 2017, the average unit value
(``AUV'') on retail sales of automobiles in the United States increased
by 13.0 percent,\91\ which is well below the 28.3 percent increase in
consumer prices over this period. \92\ Further, for both passenger
vehicles and light trucks each year during the 2013 to 2017 period,
Tables 10A, 10B, and 10C show that [TEXT REDACTED] and hence
contributed to the suppression of automobile prices in the United
States market.
---------------------------------------------------------------------------
\90\ Christian Wardlaw, 10 Top Reasons Why People Buy Specific
Cars, New York Daily News, Mar. 4, 2016, https://www.nydailynews.com/autos/buyers-guide/10-top-reasons-people-buy-specific-cars-article-1.2552707.
\91\ Wards Intelligence InfoBank.
\92\ Department of Labor, Bureau of Labor Statistics, Consumer
Price Index, https://www.bls.gov/cpi/ (accessed January 24, 2019).
---------------------------------------------------------------------------
[[Page 62055]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.048
[GRAPHIC] [TIFF OMITTED] TN08NO21.049
[GRAPHIC] [TIFF OMITTED] TN08NO21.050
Figure 14 moreover shows that, between 2005 and 2017, the producer
price index for automobiles increased by 15 percent while the producer
price index for all manufactured goods increased by 27 percent.\93\
---------------------------------------------------------------------------
\93\ Department of Labor, Bureau of Labor Statistics, Producer
Price Index (PPI) for Automobiles.
---------------------------------------------------------------------------
[[Page 62056]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.051
The slow growth of U.S. prices for automobiles is also attributable
to the low prices of foreign imports. As shown in Figure 15, since
2005, the average price of a domestically produced automobile in the
United States increased by 14 percent compared to a 5 percent increase
in the average price of imported automobiles.\94\ These data
demonstrate that low vehicle import prices permitted imports to capture
significant market share from U.S. producers.
---------------------------------------------------------------------------
\94\ Id.
---------------------------------------------------------------------------
[[Page 62057]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.052
BILLING CODE 3510-DR-C
When this analysis is disaggregated by passenger vehicles and light
trucks for a more recent comparison period, [TEXT REDACTED], as shown
in Figures 16 and 17 below. With respect to passenger vehicles, [TEXT
REDACTED]. For light trucks, [TEXT REDACTED].\95\
---------------------------------------------------------------------------
\95\ U.S. Producers' Survey Responses, Questions 2b; Department
of Commerce, Census Bureau.
---------------------------------------------------------------------------
Figure 16: AUVs of Passenger Vehicles: Domestic Production vs. Imports
[TEXT REDACTED]
Figure 17: AUVs of Light Trucks: Domestic Production vs. Imports
[TEXT REDACTED]
A more detailed examination of import prices reveals that
differences in prices have been most significant with respect to
imports from [TEXT REDACTED]. [TEXT REDACTED].\96\
---------------------------------------------------------------------------
\96\ U.S. Producers' Survey Responses, Question 2b; see also
Mike Monticello, Are Pickup Trucks Becoming the New Family Cars?,
Consumer Reports, Feb. 22, 2013, https://www.consumerreports.org/pickup-trucks/are-pickup-trucks-becoming-the-new-family-car/.
---------------------------------------------------------------------------
Figure 18: AUVs of Passenger Vehicles: Domestic Production vs. Imports
[TEXT REDACTED]
Figure 19: AUVs of Light Trucks: Domestic Production vs. Imports
[TEXT REDACTED]
Low-priced imports have placed significant competitive pressure on
U.S. producers throughout the market by preventing the price increases
that would otherwise have occurred. As explained below, from 2013 to
2017, [TEXT REDACTED], while during this period, the industry's total
cost of goods sold (``COGS'') [TEXT REDACTED] (from [TEXT
REDACTED].\97\ Accordingly, the [TEXT REDACTED].\98\
---------------------------------------------------------------------------
\97\ U.S. Producers' Survey Responses, Questions 2b and 3.
\98\ U.S. Producers' Survey Responses, Question 3.
---------------------------------------------------------------------------
In short, imported automobiles have prevented American-owned
automobile producers from increasing sales prices [TEXT REDACTED] in
producers' costs for producing vehicles in the United States. As
explained in Section VI.B and VI.C, this has negatively impacted
American-owned producers' ability to invest in technological
advancements that are critical to U.S. national security needs.
B. Imports of Automobile Parts in Such Quantities as Are Presently
Found Threaten the Viability of the U.S. Automobile Parts Industry
The automobile parts industry is experiencing a significant
revolution in technological advancements. In the area of intelligent
mobility technology, over the past decade, the electrical components
industry has made significant strides in advanced sensor systems,
vehicle automation, and vehicle connectivity. All major international
automobile producers are heavily investing in technology, and
advancements in electronic components are expected to accelerate over
the course of the next decade as automobiles transition to full
automation capabilities. In the area of light duty vehicle propulsion,
automobile engine and transmission technologies have rapidly progressed
because manufacturers, in response to
[[Page 62058]]
increasingly stringent emission and fuel economy regulations, have
invested in a broad portfolio of different lightweighting propulsion
technologies, including internal combustion engines, plug-in hybrid
vehicles, and fuel cell technologies. As set forth in Section VI.C.,
these innovations are integral to advancements in military vehicle
capabilities and, hence, U.S. defense requirements.
1. Imports of Automobile Parts Have Displaced U.S. Production, and the
United States Has Become Dependent on Imported Automobile Parts That
Are Critical to Defense Applications and National Security
In consultation with the DOD, the Secretary has specifically
determined that automobile engines and parts, transmissions and
powertrain parts, and electrical components are essential to national
security, and [TEXT REDACTED].\99\ [TEXT REDACTED].\100\ Further, U.S.
automobile producers are now more than ever relying on imports of such
automobile parts to satisfy their production needs.
---------------------------------------------------------------------------
\99\ U.S. Producers' Survey Responses, Questions 10a and 10b.
\100\ U.S. Producers' Survey Responses, Question 10b.
---------------------------------------------------------------------------
In fact, every U.S. producer of passenger vehicles--whether
American-owned or foreign-owned--imports a significant volume of
automobile parts for its vehicle production operations in the United
States. [TEXT REDACTED].\101\ As shown in Table 11A, American-owned
automobile producers have, on average, [TEXT REDACTED] \102\ Further,
both American-owned and foreign-owned producers reported [TEXT
REDACTED] [TEXT REDACTED].\103\ Table 11B below lists the major
countries from which U.S. automobile producers (whether American- or
foreign-owned) sourced automobile parts in 2017.
---------------------------------------------------------------------------
\101\ U.S. Producers' Survey Responses, Question 2b. [Although
average imported content was 35 percent, individual producers
reported imported content shares as high as 70 percent for some
market segments].
\102\ Id.
\103\ Id.
[GRAPHIC] [TIFF OMITTED] TN08NO21.053
[GRAPHIC] [TIFF OMITTED] TN08NO21.054
Substantial evidence demonstrates the extent to which import
penetration has significantly weakened U.S. production. With respect to
automobile engines, the United States has been a significant importer
of completed engines since 1989 when it imported 3.0 million engines,
or 29 percent of U.S. demand, for domestic automobile production.\104\
Between 1989 and 2017, production of automobiles in the United States
increased by 3 percent (from 10.6 million units to 10.9 million units),
while imports of automobile engines increased by 32 percent (from 3.0
million units to 4.0 million units).\105\ The 4.0 million units
imported in 2017 represents 37 percent of U.S. demand. Over this
period, imports of automobile engines from Mexico expanded by 1.1
million units (to 1.8 million units in 2017) and imports from Germany
grew by 190,000 units (to 450,000 units in 2017).\106\ By engine type,
American-owned producers sourced [TEXT REDACTED] of engines
domestically in the United States and foreign-owned producers sourced
[TEXT REDACTED] of engines in the United States in 2015.\107\
---------------------------------------------------------------------------
\104\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank. (Data prior to 1989 would not be directly comparable with
data for 1989 forward due to classification changes.
\105\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank.
\106\ Department of Commerce, Census Bureau.
\107\ U.S. Producers' Survey Responses, Question 6. (2015 is the
most recent year for which data were available.)
---------------------------------------------------------------------------
Furthermore, U.S. automobile producers have become increasingly
reliant on foreign suppliers for engine parts. In particular, from 1989
to 1999, the United States imported an average of $346 in parts per
engine produced, which grew from 2010 to 2017 to an import average of
$1,178 in parts per engine produced.\108\ As illustrated by
[[Page 62059]]
Figure 20, U.S. engine manufacturers have, in large part, transitioned
to assembly operations and away from manufacturing and innovation.\109\
---------------------------------------------------------------------------
\108\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank. (This represents nominal figures, which do not take into
account inflationary and foreign exchange changes over time.
Appropriate ``real'' figures are not publicly available.)
\109\ Id. Although the value and complexity of automobile
engines has increased over this period, the relative rate of growth
of the average unit value of imported engines (up 179 percent from
1989 to 2017) and imported parts per domestically-produced engine
(370 percent from 1989 to 2017) indicates that there is an increased
reliance on imported parts by U.S. engine manufacturers.
---------------------------------------------------------------------------
BILLING CODE 3510-DR-P
[GRAPHIC] [TIFF OMITTED] TN08NO21.055
With respect to automobile transmissions, the United States has
long been a significant importer of completed transmissions. From 1989
to 2017, the United States imported, on average, 50 percent of
transmissions used in domestic automobile manufacturing.\110\ In 2017,
automobile manufacturers in the United States imported 5.1 million
completed transmissions representing 47 percent of domestic demand
while domestic production captured the remaining 53 percent.\111\ As
with engines, American-owned producers sourced [TEXT REDACTED] of
transmissions domestically in the United States whereas foreign-owned
producers sourced [TEXT REDACTED] of their transmissions in the United
States in 2015.\112\
---------------------------------------------------------------------------
\110\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank. Department of Commerce calculations.
\111\ Id.
\112\ U.S. Producers' Survey Responses, Question 6. (2015 is the
most recent year for which data were available.)
---------------------------------------------------------------------------
In addition to import penetration by transmissions displacing
domestic production, transmission producers in the United States have
increasingly shifted to foreign suppliers for the parts needed to build
transmissions. As shown in Figure 21, in 2000 the United States
imported $457 in parts per transmission produced domestically. By 2017
imports had increased to $1,226 in parts per transmission produced
domestically.\113\ U.S. transmission producers are increasingly
becoming assemblers; they are not developing emerging technologies
associated with next-generation transmissions, and thereby are reducing
the availability of the skills, equipment, and R&D needed to maintain
global leadership in this important component of automotive production
and defense mobility.
---------------------------------------------------------------------------
\113\ Department of Commerce, Census Bureau; Wards Intelligence
InfoBank. This represents nominal figures, which do not take into
account inflationary and foreign exchange changes over time.
Appropriate ``real'' figures are not publicly available. Includes
HS-10 codes 8708996700, 8708996790, and 8708996890 in addition to
the transmission parts listed in Section VIII to create a more
consistent time series.
---------------------------------------------------------------------------
[[Page 62060]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.056
Finally, with respect to U.S. producers of electrical components,
domestic production has also been displaced by imports, as shown in
Figure 22. From 1999 to 2016 (latest available data), U.S. production
of electrical components declined by 4 percent while U.S. demand grew
steadily, with the result that imports captured all of the growth in
overall U.S. demand.\114\ In 1999, imports of electrical components
represented 29 percent of U.S. demand by value, \115\ and by 2016,
imports grew to 56 percent of U.S. demand by value. \116\ Further,
American-owned producers sourced [TEXT REDACTED] of electrical
components in the United States and foreign-owned producers sourced
[TEXT REDACTED] of electrical components in the United States in 2015
(latest available data).\117\
---------------------------------------------------------------------------
\114\ Bureau of Labor Statistics, Industry Productivity & Costs
Database, https://www.bls.gov/lpc/; Department of Commerce, Census
Bureau.
\115\ Demand is approximated to be U.S. production plus net
imports (imports less exports).
\116\ This refers to nominal value figures. However, over the
same period, an output index estimating the change in real
production shows a similar trend; U.S. output in the automobile
electrical and electronic equipment sector in 2016 was 5 percent
lower than output in 1999. Source: Bureau of Labor Statistics,
Industry Productivity & Costs Database, https://www.bls.gov/lpc/.
\117\ U.S. Producers' Survey Responses, Question 6.
---------------------------------------------------------------------------
[[Page 62061]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.057
Tables 12A and 12B below illustrate the sourcing patterns of
American-owned and foreign-owned automobile producers in the United
States, [TEXT REDACTED].\118\ Excessive imports have weakened the U.S.
automobile parts manufacturing base, as these imported parts could have
been produced domestically.
---------------------------------------------------------------------------
\118\ U.S. Producers' Survey Responses, Question 6.
---------------------------------------------------------------------------
[[Page 62062]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.058
[GRAPHIC] [TIFF OMITTED] TN08NO21.059
BILLING CODE 3510(-DR-C
U.S. trade deficit data in Figures 23 and 24 further illustrate the
dramatic extent to which domestic production of automobiles has become
dependent on foreign-sourced parts. Although the United States has
consistently incurred a trade deficit in automobile parts over the past
30 years, this deficit has increased to record levels within the past
three years, reaching over $60 billion in 2017.\119\
---------------------------------------------------------------------------
\119\ Department of Commerce, Census Bureau. This represents
nominal figures, which do not take into account inflationary and
foreign exchange changes over time. Appropriate ``real'' figures are
not publicly available.
---------------------------------------------------------------------------
[[Page 62063]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.060
Disaggregated by component type, the trade deficit in automobile
engines and parts, transmissions and powertrain parts, and electrical
components is equally as significant. Figure 24 shows that the trade
deficit in engines and engine parts grew from a deficit of $0.7 billion
in 1985 to a deficit of $15.2 billion in 2017, the deficit in
electrical components grew from a deficit of $211 million in 1985 to a
deficit of $12.7 billion in 2017, and the deficit in transmission and
powertrain parts grew from a deficit of $60 million in 1985 to a
deficit of $3.9 billion in 2017.\120\
---------------------------------------------------------------------------
\120\ Ibid.
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[[Page 62064]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.061
Further, a comparison of the increase in U.S. imports of overall
automobile parts to the decline in U.S. automobile production, as shown
in Figure 25, confirms that U.S. automobile producers have become
increasingly reliant on foreign-produced parts. As technological
innovations in engines, transmissions and electrical components are
critical for U.S. defense capabilities as set forth in Section VI.C,
the United States' increasing dependence on imports--and thereby loss
of the manufacturing base and related worker skills and technological
know-how for cutting-edge innovations with significant military
applications--poses a significant threat to national security.
[[Page 62065]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.062
2. U.S. Producers of Automobile Parts Are Facing Downward Pressure on
Prices Due to Low U.S. Automobile Prices
As U.S. production of engines and parts, transmissions and
powertrain parts, and electrical components has been negatively
impacted by imports, producers--especially American-owned producers--in
the U.S. market are finding it difficult to stay competitive due to
escalating costs associated with technological advancements. Cost
increases have been driven, in large part, by advancements in vehicle
electronics, connectivity systems, safety features, advanced driver-
assistance systems, and autonomous vehicle technologies.\121\ To
illustrate, a McKinsey study of North American automobile parts
suppliers found that the aggregate average real cost of automobile
parts (indexed to 2010 dollars and adjusted to compensate for
inflation, productivity changes, and other macroeconomic forces) for
passenger vehicles was approximately $13,400 in 2010, and is expected
to rise to $15,900 by 2020, an increase of almost 20 percent. These
estimates also indicate that parts costs increased to approximately
$14,100 in 2013 and $15,100 in 2017 (with an overall 13 percent
increase from 2010).\122\ This presents a significant problem to
automobile parts suppliers, as they have been unable to increase prices
to help compensate for higher costs. Indeed, during the same 2010 to
2017 period, the average sales price of a new automobile in the United
States increased from $24,063 in 2010, to $24,454 in 2013, and to
$25,366 in 2017 (a five percent increase).\123\ That is to say, over
the same seven-year period, the average price of a vehicle increased
far less than the price increase associated with components. As
acknowledged by the McKinsey study, ``OEMs were unable to raise prices
for mass-market cars. In turn, [they] used their purchasing power to
limit suppliers' abilities to increase prices, even in the face of
higher input costs,'' thereby eroding automobile parts producers'
profitability.\124\
---------------------------------------------------------------------------
\121\ Jim Irwin, EV, AV Spending in Slowing Market Points to
`Pile Up,' WardsAuto, July 30, 2018, https://www.wardsauto.com/alternative-propulsion/ev-av-spending-slowing-market-points-pile?NL=WAW-04&Issue=WAW-04_20180730_WAW-04_297&sfvc4enews=42&cl=article_1_b&utm_rid=CPENT000004033195&utm_campaign=19649&utm_medium=email&elq2=017d7eb1c3c741dba293777515e91e6a.
\122\ McKinsey & Company, The Future of the North American
Automotive Supply Industry, March 2012, https://www.mckinsey.com/~/
media/mckinsey/dotcom/client_service/automotive%20and%20assembly/
pdfs/the_future_of_the_north_american_automotive_supplier.ashx;
Department of Commerce calculations.
\123\ Wards Intelligence InfoBank.
\124\ McKinsey & Company, The Future of the North American
Automotive Supplier Industry, supra.
---------------------------------------------------------------------------
Further, for automobile producers' U.S. operations, [TEXT REDACTED]
from 2013 to 2017, while the average revenue earned per vehicle [TEXT
REDACTED].\125\ For American-owned automobile producers in particular,
[TEXT REDACTED].\126\ During the 2013 to 2017 period, American-owned
[[Page 62066]]
producer's [TEXT REDACTED]. As a result, the COGS-to-revenue ratio per
vehicle [TEXT REDACTED].\127\ That the average unit COGS for automobile
producers in the United States [TEXT REDACTED] makes clear that
American-owned producers of automobiles [TEXT REDACTED] in costs to
their U.S. customers, [TEXT REDACTED].
---------------------------------------------------------------------------
\125\ U.S. Producers' Survey Responses, Question 2a and Question
3.
\126\ Id.
\127\ Id.
---------------------------------------------------------------------------
Foreign-owned automobile producers operating in the U.S. market,
where a significant volume of automobile parts are sourced abroad [TEXT
REDACTED], have not experienced [TEXT REDACTED].\128\ From 2013 to
2017, foreign-owned producers' average per-vehicle COGS [TEXT
REDACTED], while their [TEXT REDACTED].\129\ This led to an overall
average COGS-to-revenue ratio [TEXT REDACTED], which means that
foreign-owned producers [TEXT REDACTED].\130\ Further, during the 2013
to 2017 period, foreign-owned automobile producers' [TEXT
REDACTED].\131\ Import prices, moreover, were [TEXT REDACTED], as noted
above.
---------------------------------------------------------------------------
\128\ Id.
\129\ Id.
\130\ Id.
\131\ Id..
---------------------------------------------------------------------------
In short, [TEXT REDACTED] given that low-priced imports have
prevented U.S. producers from increasing their automobile prices by a
sufficient margin to offset increases in costs. Additionally, as noted,
U.S. automobile producers often used their purchasing power to limit
price increases (or compel price decreases) by their parts
suppliers.\132\
---------------------------------------------------------------------------
\132\ See McKinsey & Company, The Future of the North American
Automotive Supplier Industry, supra.
---------------------------------------------------------------------------
Consequently, automobile parts are now being increasingly produced
in foreign countries. As previously shown in Figures 20 through 25,
automobile producers have become increasingly reliant on automobile
parts imported from foreign suppliers. Furthermore, the number of
automobile parts manufacturing establishments in the United States have
fallen, decreasing from 5,624 in 2005 to 4,948 in 2016.\133\ [TEXT
REDACTED].\134\ Domestic demand for automobile parts clearly exists,
but the contraction of the automotive parts manufacturing base in the
United States has impeded the growth of related R&D investments by
American-owned firms in technological advancements that are essential
for U.S. defense capabilities.\135\
---------------------------------------------------------------------------
\133\ U.S. Census Bureau, Business Patterns, NAICS code 3363.
\134\ U.S. Producers' Survey Responses, Questions 4-6.
\135\ John Moavenzadeh, Offshoring Automotive Engineering:
Globalization and Footprint Strategy in the Motor Vehicle Industry,
Dec. 1, 2006, https://www.nae.edu/File.aspx?id=10284&v=79e01bce. The
erosion of the U.S. automobile parts supplier base has been a
decades-long trend. In 1998 the New York Times reported that from
1978-1998 GM's Delphi division had built over 50 manufacturing
plants in Mexico. A major factor listed for the shift of parts
assembly was lower costs (derived from lower labor costs), with some
U.S. workers earning $22 an hour in 1998 being replaced by Mexican
workers earning $1 to $2 an hour. Sam Dillon, A 20-Year G.M. Parts
Migration To Mexico, New York Times, Jun. 24, 1998, https://www.nytimes.com/1998/06/24/business/international-business-a-20-year-gm-parts-migration-to-mexico.html. In 2006, Delphi announced
the closing or sale of 21 out of 29 of its U.S. automobile parts
plants, with new operations being announced in Mexico and China.
Kate Lithicum, A tale of two cities: What happened when factory jobs
moved from Warren, Ohio, to Juarez, Mexico, Los Angeles Times, Feb.
17, 2017, https://www.latimes.com/world/mexico-americas/la-fg-mexico-us-factories-20170217-htmlstory.html. In 2007, TRW's Chief
Operations Officer discussed in an interview the firm's ongoing
plans to shift production to low-cost countries. At that time 37-38
percent of the firm's operations were in low cost countries, but TRW
had a five-year plan to move to 50 percent sourcing from those
countries. Douglas Bolduc, TRW Plan: Buy More Parts from Low-Cost
Countries, Automotive News, May 21, 2007, https://www.autonews.com/article/20070521/SUB/70516021/trw-plan%3A-buy-more-parts-from-low-cost-countries. By 2013, Automotive News reported seven of the
largest North American automobile parts suppliers were expanding
their operations in Mexico. China was also listed by the large
supplier companies as a key destination for new operations. David
Sedgewick, Global Industry Craves Megasuppliers, Automotive News,
Jun. 17, 2013, https://www.autonews.com/assets/PDF/CA89220617.PDF.
---------------------------------------------------------------------------
C. Domestic Manufacturing and Domestic R&D in Technologies for Engines,
Transmissions, and Electrical Components Are Necessary for National
Security
As previously noted, the automotive industry is a key driver of
innovation for the U.S. military and develops state-of-the-art
technologies, from autonomous vehicles equipped with navigation systems
that enable them to maneuver over dangerous terrain to lighter and more
powerful fuel-efficient vehicles. Given that many of the technological
advancements in military vehicle connectivity, electrification,
lightweighting, and autonomous driving are first developed through R&D
in the commercial automotive sector in the United States, it is
imperative that related R&D remain within the United States, be
conducted by American-owned firms, and that the United States
Government take measures to secure the long-term viability of domestic
R&D in the automotive sector.
As a general matter, it is well understood that globalization of
the automobile sector has decentralized production such that decoupling
R&D from manufacturing has become possible, allowing producers to seek
manufacturing investments in areas where production costs are lowest
and to focus R&D investments in locations where specific technological
progress is being made.\136\ To the extent R&D is removed from
manufacturing, it occurs in areas where technology has matured, the
value of integrating product design with manufacturing is low, and the
product has little bearing on national security. On the other hand,
manufacturers tend to locate R&D in close proximity to manufacturing
facilities when the technology is emerging or product-specific.\137\
---------------------------------------------------------------------------
\136\ Global Location Strategy for Automotive Suppliers, KPMG
International, Feb. 21, 2009, https://www.kpmg.de/docs/Global_Location.pdf.
\137\ See Gary P. Pisano and Willy C. Shih, Does America Really
Need Manufacturing, Harvard Business Review, March 2012, https://hbr.org/2012/03/does-america-really-need-manufacturing; The
Proximity of Manufacturing Increases the Rate of R&D Efficiencies,
Aalto University, Mar. 15, 2017, https://phys.org/news/2017-03-proximity-efficiencies.html.
---------------------------------------------------------------------------
Further, where technology is important to product innovation and
R&D directly impacts national security capabilities, it is essential
that R&D remain in each producer's home country, so as to minimize
knowledge and innovation outflows that could undermine a nation's
competitive advantage.\138\ In the automotive sector, co-locating the
manufacture of automobiles and automobile parts with related R&D
increases the rate of efficiency in the adoption of technological
gains. Advancements in vehicle lightweighting, connectivity,
electrification and autonomous driving require highly specialized and
innovative manufacturing processes, such that R&D is optimized when
located in close proximity to manufacturing facilities.\139\ As
complexities in product design increase and the market demands faster
innovation, R&D proximity facilitates the rapid development of product
life cycles and gives manufacturers sufficient flexibility to capture
R&D breakthroughs.\140\ For technologically advanced products, ``even
minor changes in the [manufacturing] process can have a huge impact on
the product, the value of closely integrating manufacturing and R&D is
high, and the
[[Page 62067]]
risks of separating them are enormous.'' \141\
---------------------------------------------------------------------------
\138\ Id.; Juan Alcacer and Minyuan Zhao, Local R&D Strategies
and Multi-Location Firms: The Role of Internal Linkages, Harvard
Business School Working Paper, 2010, https://www.hbs.edu/faculty/Publication%20Files/10-064.pdf.
\139\ Supra n. 137.
\140\ European Commission, Study on the Relationship Between the
Localisation of production, R&D and Innovation Activities, Final
Report ENTR/90/PP/2011/FC, Sep. 2014, https://ec.europa.eu/DocsRoom/documents/6958/attachments/1/translations/en/renditions/native at
30, 50.
\141\ Supra n. 137.
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Moreover, it is important that R&D be conducted by American-owned
firms in the United States, given the national security implications of
advanced vehicle technologies with military applications. Indeed, all
major automobile-producing countries utilize export control laws to
restrict the transfer of military technologies to foreign entities,
whether within or outside their domestic borders, which means that the
United States may not be able to rely on technologies developed in
allied countries to give its military a competitive edge. Even for R&D
conducted in the United States, it is important that the R&D be
conducted by American-owned firms to reduce reliance on foreign-owned
companies' domestic R&D investments and ensure access in time of
national emergency to the necessary intellectual property (``IP'').
Although the DOD utilizes R&D conducted by U.S. operations of foreign-
owned firms, this R&D may not be available in a time of national
crisis. Indeed, foreign-owned manufacturers are unlikely to share
cutting-edge IP with their American competitors, especially
technologies in which they have invested billions of dollars for
commercial reasons. Further, in a time of war (or other crisis) their
home governments may also prevent them from providing DOD with access
to innovative technologies.
The interdependence between domestic manufacturing and American-
owned R&D explains precisely why imports of automobile parts pose a
threat to U.S. national security. Dependence on imports over time leads
to the loss of domestic manufacturing competence and related R&D, and
therefore the deterioration of the ability to lead advancements in
innovation that are important for military needs.
1. The U.S. Military Relies on the Domestic Automotive Sector for
Technological Advancements
According to the DOD, technological advancements in U.S. military
automotive programs are driven by domestic innovations in engine,
transmission and electrical component technologies, and the U.S.
military relies on rapid application of U.S. commercial breakthroughs
to gain competitive military advantages.\142\ For example, the National
Advanced Mobility Consortium (NAMC) recently awarded a $47 million
contract to Cummins and Achates Power to develop a supercharged turbo
diesel engine for the Bradley and Next Generation Combat Vehicle under
the Advanced Combat Engine (``ACE'') program.\143\ This program builds
on the 60 years of experience that Cummins Diesel has manufacturing
commercial turbo diesel engines.\144\ It also provides an opportunity
for the commercial supplier to incorporate technologies that focus on
military specifications such as engine thermal management, power
density, and fuel efficiency into commercial automobiles.
---------------------------------------------------------------------------
\142\ The Department of Commerce's consultations with Department
of Defense.
\143\ Kylie Veleta, Cummins to Design Combat Engines That Elude
the Enemy, Inside Indiana Business with Gerry Dick, Feb. 15, 2018,
https://www.insideindianabusiness.com/story/37513588/cummins-to-design-combat-engines-that-elude-the-enemy.
\144\ Cummins, ``Holset Turbo Technologies, Innovative
Engineering, Absolute Reliability,'' https://www.cummins.com/components/holset-turbo-technologies.
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Likewise, the U.S. military is exploring power options such as
hybrid electric engines and hydrogen fuel cells, finding that quiet new
engine designs promise additional military benefits beyond
breakthroughs in fuel consumption, range and reliability. The U.S.
military has long sought to reduce its dependence on fossil fuels to
lower costs and the risks associated with producing and transporting
combustible fuels through war zones.\145\ Accordingly, the U.S.
military has been exploring hybrid electric drive systems that combine
an electric drive with a combustion engine for greater efficiency.
These technologies have been the subject of years of effort and
billions of dollars of research by the passenger vehicle industry.
Engines, both gas and electric, and the drivetrain parts required to
integrate them into an efficient combination, are all critical
automobile parts technologies that must be retained for both R&D and
production in the United States.
---------------------------------------------------------------------------
\145\ The Department of Commerce's consultations with Department
of Defense.
---------------------------------------------------------------------------
In fuel cells, General Motors Global Fuel Cells Activities Division
is working with the U.S. Army Tank Automotive Research, Development and
Engineering Center (``TARDEC'') \146\ to develop a hydrogen fuel cell-
powered light-duty utility truck (``ZH2''). This vehicle, based on a
Chevy Colorado light truck design, is powered by a fuel cell and a
battery that has near silent operation, gives off less heat, and
provides water as a by-product for use in the field. This work builds
on GM's fuel cell experience via their Project Driveway, a 119-vehicle
fleet driven by more than 5,000 people in a multi-year fuel cell
experience program accumulating 3.1 million miles of hydrogen fuel cell
testing. The Army is in the process of evaluating the truck for
potential use in military operations.\147\
---------------------------------------------------------------------------
\146\ The U.S. Army Tank Automotive Research, Development and
Engineering Center's (TARDEC) mission is to ``develop, integrate and
sustain the right technology solutions for all manned and unmanned
Department of Defense (DoD) ground systems and combat support
systems to improve Current Force effectiveness and provide superior
capabilities for the Future Force,'' https://tardec.army.mil/#content/4.
\147\ Mission-Ready Chevrolet Colorado ZH2 Fuel Cell Vehicle
Breaks Cover at U.S. Army Show, Modified Midsize Pickup Goes into
Extreme Military Field Testing in 2017, GM Corporate Newsroom, Oct.
3, 2016, https://media.gm.com/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2016/oct/1003-zh2.html.
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Along with engines, transmission technology is also critical to
military vehicles. For example, the Advanced Vehicle Power and
Technology Alliance (``AVPT''), which aligns experts from the U.S.
Department of Energy and the Department of the Army, has specifically
identified advanced combustion engines and transmissions as products of
special interest for collaboration.\148\ The U.S. military has found it
challenging to source transmissions with sufficient performance
capabilities for the extreme demands and conditions under which
military vehicles must operate.\149\ Transmissions for modern military
vehicles must be engineered to adapt and operate efficiently, offering
peak performance in wheeled military applications. Military
transmissions must reliably deliver precise propulsion control, high
productivity and efficiency, and reliable operation. The U.S.
commercial automotive industry has made significant progress in these
performance capabilities, and adaptation of advancements in automotive
transmission technology for military applications is common. Indeed,
the U.S. automotive industry's move away from manual to automatic
transmissions has been closely followed by the military, with automatic
transmissions now routinely incorporated in military tactical vehicles.
---------------------------------------------------------------------------
\148\ Chris Williams, DoE, Army Alliance Underlines Achieving
Energy Security, Tank Automotive Research, Development and
Engineering Center, Aug. 1, 2011, https://www.army.mil/article/62727/doe_army_alliance_underlines_achieving_energy_security.
\149\ John Tasdemir, Ground Vehicle Systems Engineering and
Technology Symposium, GVPM Powertrain Overview, Aug. 11, 2011,
https://www.dtic.mil/dtic/tr/fulltext/u2/a547261.pdf.
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Similarly, the DOD's TARDEC has evaluated various suppliers
including
[[Page 62068]]
Allison, L3, and SAPA \150\ to provide steering transmissions to
support the next generation Bradley Fighting Vehicle.\151\ The goal of
the Advanced Powertrain Initiative is to test the performance of a 32-
speed transmission. Although defense is the dominant market for these
steering transmissions, the next generation transmission depends on
innovation developed in standard transmissions and steering
transmissions used in the commercial sector. Many suppliers supporting
defense applications in this segment participate in commercial
activity, including:
---------------------------------------------------------------------------
\150\ Allison, L3, and SAPA are leading global suppliers of
transmissions, other automobile parts and defense technologies.
\151\ Ashley Tressel, Race to replace Bradley transmissions
stirs up defense industrial base issues, Inside Defense, June 22,
2018, https://insidedefense.com/share/196943. A foreign-owned
supplier won this competition, indicating the needs to better
support the competitiveness of American-owned manufacturers.
First tier suppliers: Allison, L3, Twin Disc, General
Engine Products
Sub-tier commercial suppliers for transmissions and
transmission components: ZF Friedrichshafen AG*, Valeo SA*, BorgWarner,
Inc., GKN Driveline*, JATCO*, Linamar Corp.*, Schaeffler Group USA
Inc.*, Brose North America, Inc.*, Powertech America, Inc.*, NSK
Americas*, Johnson Electrics*
* The supplier is a U.S. affiliate of a foreign-owned parent.
Similarly, electrical equipment is critical for military vehicles.
There is a large overlap in the commercial automobile control/
electronics systems and the connectivity systems that are being
incorporated into military vehicles. Network technology is now embedded
in every new civilian vehicle, and military vehicles are increasingly
becoming more network intensive. Military vehicles now routinely
utilize the Controller Area Network (``CAN'') technology developed for
the commercial vehicle world, which allows remote monitoring of the
vehicle's performance and need for maintenance. Military vehicles are
also connected to operational or mission networks that link vehicle
computers, data links, radios, vision, and navigation systems directly
involved in missions. These networks are similar in nature to advanced
connected networks that are now routinely available in new passenger
cars and trucks.\152\
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\152\ Richard Wilson, Military Vehicles in High Speed Data
Connection,'' ElectronicsWeekly.com, May 21, 2013, https://www.electronicsweekly.com/market-sectors/military-aerospace-electronics/military-vehicles-in-high-speed-data-connection-2013-05/.
---------------------------------------------------------------------------
Further, semiconductors are vital to U.S. national security as they
power many of the high-tech systems used by the U.S. military,\153\
including field communications, transportation systems, and various
weapon systems and platforms.\154\ Specific and unique U.S. military
semiconductor requirements include radiation-hardened semiconductors
for satellites and space operations, high performance converters for
radio frequency communication systems, special processors for radar
systems, and advanced imagers.\155\ As with the transmission sector,
there are many suppliers that overlap with the commercial sector,
including:
---------------------------------------------------------------------------
\153\ Michaela D. Platzer and John F. Sargent Jr., U.S.
Semiconductor Manufacturing: Industry Trends, Global Competition,
Federal Policy, Congressional research Service, Jun. 27, 2016,
https://fas.org/sgp/crs/misc/R44544.pdf at 21; Brig. Gen. John
Adams, America's Semiconductors Supply Chain Faces Big Cybersecurity
Risks, Alliance for American Manufacturing Blog, Mar. 23, 2017,
https://www.americanmanufacturing.org/blog/entry/americas-semiconductors-supply-chain-faces-big-cybersecurity-risks. See also
Falan Yinug, How U.S. Semiconductor Technology Strengthens Our
Military on the Battlefield, Semiconductor Industry Association
Blog, Jan. 26, 2016, https://blog.semiconductors.org/blog/how-us-semiconductor-technology-strengthens-our-military-on-the-battlefield.
\154\ Dave Chesebrough, Trusted Microelectronics: A Critical
Defense Need, National Defense, Oct. 31, 2017, https://www.nationaldefensemagazine.org/articles/2017/10/31/trusted-microelectronics-a-critical-defense-need.
\155\ For example, semiconductors are key to the land-based
weapons system that the United States uses to defend airspace
against aircraft, cruise missiles, drones, and ballistic missiles.
Joe Pappalardo, How Patriot Missiles Will Stay a Step Ahead of the
Enemy, Popular Mechanics, Aug. 27, 2015, https://www.popularmechanics.com/military/research/a17100/patriot-missiles-radar-gallium-nitride/; NDIA Trusted Microelectronics Joint Working
Group, Future Needs & System Impact of Microelectronics
Technologies, Jul. 2017, https://www.intrinsix.com/hubfs/Premium_Content/trusted-asic-design/Future_Needs_and_System_Impact_of_Microelectronics_Technologies.pdf.
First tier suppliers: Harris, Telephonics Corporation,
DRS*, Rockwell Collins.
General suppliers of semiconductors: Intel, Micron,
Qualcomm, AMD, Applied Materials, Cadence, Synopsys.\156\
---------------------------------------------------------------------------
\156\ Electronic systems for automotive purposes account for 9
percent of total global electronic system production (2017
estimate), after communications, computer, industrial/medical/other,
and consumer purposes. This is significant for semiconductor
suppliers, as their products are required for many of these
automotive systems. Automotive Electronic Systems Growth Strongest
Through 2021, IC Insights, Nov. 8, 2017, https://www.icinsights.com/news/bulletins/Automotive-Electronic-Systems-Growth-Strongest-Through-2021/.
---------------------------------------------------------------------------
Sub-tier commercial suppliers for communication systems/
components to North America: Denso International America Inc.*
Sub-tier commercial suppliers for navigation system/
components to North America: Panasonic Automotive Systems Co. of
America*, Mitsubishi Electric Automotive America Inc.*, Alpine
Electronics of America Inc.*, Pioneer Automotive Technologies Inc.*
Sub-tier commercial suppliers for sensors to North
America: Panasonic Automotive Systems Co. of America*, Valeo Inc.*,
Flex Ltd.*, Infineon Technologies North America Corp.*, Stoneridge Inc.
Sub-tier commercial suppliers for electronics to North
America: Continental Automotive Systems U.S. Inc. (safety and
powertrain)*, Robert Bosch (electrical devices, electronics & steering
systems)*, Aisin World Corp. of America (electronics)*, Hyundai Mobis
(electronics)*, Autoliv North America (safety electronics)*, Sumitomo
Electric Wiring Systems Inc. (electronics systems)*, Yanfeng Automotive
Interiors (electronics)*, Brose North America Inc. (electronics)*,
Magneti Marelli Holding USA (electronics)*, Eberspaecher North America
Inc. (electronics)*.
* The supplier is a U.S. affiliate of a foreign-owned parent.
In addition to providing unique product development and performance
enhancements for key products such as engines, transmissions and
electrical components, the U.S. defense sector relies on the automotive
industry more broadly. The automotive sector provides unique innovation
to the defense sector in various areas, including manufacturing
processes, R&D, and use of new materials.
Importantly, the defense industrial base is also dependent on the
commercial scale of the automotive sector for critical commodities and
capabilities.\157\ Yet, the continued offshoring of key automotive
manufacturing and resulting loss of scale to support U.S. operations
leaves the military at risk of not having supply chains in the United
States for critical equipment. Additionally, the military relies not
only on technology and innovations from the U.S. automobile industry,
but also on the technical skills and know-how of its workforce as the
commercial sector is a key recruiting ground for defense industry
manufacturers.\158\
---------------------------------------------------------------------------
\157\ The Department of Commerce's consultations with Department
of Defense.
\158\ Id.
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The broad-scale overlap between commercial and defense R&D
activities underscores the interdependence between the commercial
automobile industry and the military sector:
[[Page 62069]]
The DOD partners with the commercial automotive sector to
conduct pre-competitive research in areas that ultimately prove to have
commercial and defense applications. For example, the DOD is a partner
in LIFT (Lightweight Innovations for Tomorrow, an industry-led,
government-funded consortium), along with General Dynamics and the
Original Equipment Supplier Association, which represents commercial
automobile parts suppliers. LIFT is ``part of a national network of
research institutions and industrial companies geared toward advancing
America's leadership in manufacturing technology.'' \159\
---------------------------------------------------------------------------
\159\ LIFT, Manufacturing USA, https://lift.technology/manufacturingusa/.
---------------------------------------------------------------------------
University Centers of Excellence (``COEs'') seek to expand
the frontiers of knowledge in research areas where the Army has
enduring needs. COEs couple state-of-the-art research programs at
academic institutions with broad-based graduate education programs to
help increase the supply of scientists and engineers in automotive and
rotary wing technology.\160\
---------------------------------------------------------------------------
\160\ John F. Sargent Jr., Defense Science and Technology
Funding, Library of Congress, Congressional Research Service,
R45110, Feb. 21, 2018, https://crsreports.congress.gov/product/pdf/R/R45110.
---------------------------------------------------------------------------
DOD's TARDEC \161\ and GM have enjoyed a successful fuel
cell-focused collaborative research relationship for years, beginning
with a Cooperative Research and Development Agreement to test fuel cell
stacks. This relationship grew through the development of the Chevrolet
Colorado ZH2 light truck, which debuted in 2016 and was tested and
demonstrated by the U.S. Army over the next year. GM presented SURUS (a
hydrogen fuel cell vehicle) in 2017 at the annual meeting of the
Association of the United States Army.\162\
---------------------------------------------------------------------------
\161\ TARDEC, https://tardec.army.mil/.
\162\ Douglas Halleaux, TARDEC, GM bring SURUS to Smithsonian
and SOFIC, Defense Visual Information Distribution Service, U.S.
Army Tank Automotive Research Development & Engineering Center,
https://www.dvidshub.net/news/277762/tardec-gm-bring-surus-smithsonian-and-sofic.
---------------------------------------------------------------------------
The Automotive Research Center, a U.S. Army Center of
Excellence for Modeling and Simulation of Ground Vehicles led by the
University of Michigan, partners with the following government and
private sector entities for R&D advancements:\163\
---------------------------------------------------------------------------
\163\ Automotive Research Center, Industry Partners, https://arc.engin.umich.edu/about/industry-partners.html.
------------------------------------------------------------------------
------------------------------------------------------------------------
Ansys, Inc.................. *AVL North America, BAE Systems.
Inc.
* Ballard Power Systems, Inc * BETA CAE Systems Boeing Research and
USA. Technology.
* Robert Bosch.............. Caterpillar......... * Daimler.
Detroit Diesel Corporation.. * FEV Group......... * Fiat Chrysler.
Ford Motor Company.......... General Dynamics GE Global Research.
Land Systems.
General Motors Corporation.. * HBM nCode......... * Henkel North
America.
Quantum Signal LLC.......... RAMDO Solutions..... * Rolls-Royce North
America.
Soar Technology............. * Ultra AMI......... * Yokohama Rubber,
Inc.
Argonne National Lab........ Army Research Lab... Cold Regions Test
Center.
Environmental Protection National Aeronautics National Institute
Agency (EPA). and Space of Standards and
Administration Technology, U.S.
(NASA) Jet Department of
Propulsion Lab. Commerce.
National Renewable Energy Oak Ridge National
Lab. Lab.
------------------------------------------------------------------------
* The supplier is a U.S. affiliate of a foreign-owned parent.
These examples illustrate the intense level of cooperation between
the commercial and military vehicle sectors and the importance of
commercial R&D spending in the United States that supports U.S.
military leadership.
Finally, while the U.S. military presently benefits from R&D
investments by both American-owned and foreign-owned companies in the
United States, it is important to underscore that, in the time of
national emergency, foreign-owned subsidiaries may not be willing or
able to continue their R&D collaboration with the U.S. Government. Nor
would it be logical to expect foreign R&D enterprises in the United
States to share their research and patented technology with American-
owned competitors. It is for this reason that innovation by American-
owned firms is essential to U.S. national security and, as explained in
the following section, the overall weakening of the United States'
automotive industry adversely impacts American-owned firm's ability to
invest in R&D in order to maintain leadership in technologies that have
important military applications.
2. Growth of American-Owned R&D for Critical Automobile Parts Is
Essential To Strengthen U.S. National Security
The 2018 U.S. National Defense Strategy explicitly states that
``[n]ew commercial technology will change . . . the character of war''
and that ``many technological developments will come from the
commercial sector.'' \164\ In describing necessary tactics to solidify
the U.S. military's competitive advantage, the National Defense
Strategy emphasizes that the DOD must invest broadly in the ``rapid
application'' of commercial breakthroughs.\165\ Comparing the [TEXT
REDACTED] establishes the importance of maintaining a robust automotive
R&D presence in the United States. In 2017, foreign- and American-owned
automobile producers spent [TEXT REDACTED] on R&D in the United States,
with American-owned producers accounting for [TEXT REDACTED] of that
total, compared to [TEXT REDACTED] spent on R&D by armored vehicle
producers.\166\ [TEXT REDACTED].\167\ Therefore, U.S. armored vehicle
producers, and by extension the U.S. military, depend on the continued
U.S. leadership and innovation of the commercial automotive sector.
---------------------------------------------------------------------------
\164\ Department of Defense, Summary of the 2018 National
Defense Strategy of the United States of America, Jan. 2018, https://dod.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf at 3.
\165\ Id. at 7.
\166\ U.S. Producers' Survey Responses, Question 10a.
\167\ Id.
---------------------------------------------------------------------------
Given the importance of automobile engines, transmissions and
electrical systems to technological advancements in military
transportation vehicles, and given the importance of co-locating R&D
and manufacturing for these technologies, it is imperative that the
United States maintain and grow a robust commercial automobile and
automobile parts industry. Designing and producing automobile parts is
a massive engineering challenge, which is why automobile producers
globally continue to increase spending on R&D. An automobile purchased
today is the product of years of R&D investments. Typically, it takes
five years or more for
[[Page 62070]]
a technology or a new vehicle model to go from design to testing to
production and sale. Today's high-tech vehicle is comprised of as many
as 15,000 parts all performing specialized functions in carefully
designed ways.\168\ The stakes for keeping pace on the development of
technologically advanced and efficient engines, advanced powertrains,
and better sensors are intense, and the advent of new technologies is
forcing companies to augment R&D spending to remain competitive. The
long lead-times for bringing technology to market and a reliance on
imported automobile parts increases the vulnerability of the United
States.
---------------------------------------------------------------------------
\168\ American Automotive Policy Council, State of the U.S.
Automotive Industry 2018, Aug. 2018, https://www.americanautocouncil.org/sites/aapc2016/files/2018%20Economic%20Contribution%20Report.pdf at 7.
---------------------------------------------------------------------------
As most automotive R&D is focused on new vehicle design and
testing, significant money is spent on the development of engines,
transmissions, and electrical equipment technologies that have national
security applications. Yet American-owned automobile producers have
lagged behind their foreign counterparts in automotive R&D spending.
Table 13 shows that, in 2017, American-owned producers represented 20
percent of global R&D spending in automobile production and seven
percent of global R&D spending in automobile parts, trailing behind the
EU and Japanese producers, which together controlled approximately 70
percent of global R&D spending in automobile production and nearly 90
percent in automobile parts R&D.\169\ For American-owned firms,
approximately [TEXT REDACTED].\170\ For EU- and Japanese-owned firms,
most R&D investments are made in their home countries.\171\
---------------------------------------------------------------------------
\169\ PwC, 2017 Global Innovation 1000 Study, 2018, https://www.strategyand.pwc.com/innovation1000#VisualTabs3.
\170\ U.S. Producers' Survey Responses, Question 10a.
\171\ Stefan Di Bitonto, The Automotive Industry in Germany,
Germany Trade & Invest, 2018, https://www.gtai.de/GTAI/Content/EN/Invest/_SharedDocs/Downloads/GTAI/Industry-overviews/industry-overview-automotive-industry-en.pdf; see Toyota Motor Company annual
report, March 31, 2018, https://www.toyota-global.com/pages/contents/investors/ir_library/annual/pdf/2018/annual_report_2018_fie.pdf at 46.
[GRAPHIC] [TIFF OMITTED] TN08NO21.063
Table 14 below shows that, when global R&D is measured in relation
to automobiles produced, American-owned manufacturers outspent their EU
and Japanese counterparts ($1,543 by American-owned firms compared to
$1,480 by EU firms, and $1,009 by Japanese firms).\172\ However, this
increased R&D spending per-unit highlights the impact of market share
lost to automotive imports, namely that American-owned firms need to
have higher per-unit R&D expenditures relative to their foreign-owned
competitors in order to offset the economic impacts of lost market
share. The reduced market share leads to a vicious cycle, with smaller
production volumes reducing profits, which reduces funds to support
overall R&D, which reduces innovation and leads to further losses of
market share. China, which has the lowest per-unit R&D expenditure,
often conducts R&D through joint ventures with foreign companies,
lowering the amount of R&D that needs to be performed by Chinese
companies. Additionally, Chinese companies are able to amortize their
R&D costs over a large production base.
---------------------------------------------------------------------------
\172\ PwC, 2017 Global Innovation 1000 Study, supra.
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[[Page 62071]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.064
[[Page 62072]]
The smaller production volume of American-owned manufacturers
relative to global competitors hinders American manufacturers' ability
to invest in R&D to the same extent as their competitors. Production
must increase in order to encourage additional R&D investments, as
[TEXT REDACTED].\173\
---------------------------------------------------------------------------
\173\ U.S. Producers' Survey Responses, Questions 2b and 10.
---------------------------------------------------------------------------
It is necessary and appropriate to focus on increased American-
owned production because, with respect to the specific automotive
technologies that are important for national security, American-owned
producers invest R&D dollars domestically, whereas foreign-owned
producers tend to invest abroad. To illustrate, in 2017 with respect to
spending in the United States, [TEXT REDACTED].\174\ [TEXT
REDACTED].\175\ [TEXT REDACTED].\176\ As shown in Table 15 [TEXT
REDACTED] are the most common non-U.S. locations for foreign-owned
producers' R&D investments related to vehicle autonomy, connectivity,
electrification, and lightweighting.\177\
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\174\ U.S. Producers' Survey Responses, Question 10a.
\175\ Id.
\176\ Id.
\177\ U.S. Producers' Survey Responses, Question 10b.
[GRAPHIC] [TIFF OMITTED] TN08NO21.065
Increasing the United States' overall share of global R&D
investments is essential to national security. Industry analysts expect
that by 2023 about $255 billion in R&D and capital expenditures will
have been spent globally on electric vehicles.\178\ An additional $61
billion will be spent on autonomous vehicle technologies by the same
year.\179\ As advanced automotive technologies become a battleground
for the industry, R&D budgets will determine how effectively automobile
producers can compete and which nations will control cutting-edge
technologies for both commercial and military applications.\180\
---------------------------------------------------------------------------
\178\ Irwin, EV, AV Spending in Slowing Market Points to `Pile
Up,' supra.
\179\ Id.
\180\ For example, Toyota recently announced that it will invest
a record 1.08 trillion Yen in 2018 to expedite the development of
autonomous driving technology, connected cars and electric vehicles,
representing a 30% increase from five years earlier. Toyota pours
$22bn into R&D as Apple and Google Close in, Nikkei Asian Review,
May 10, 2018, https://asia.nikkei.com/Business/Companies/Toyota-pours-22bn-into-R-D-as-Apple-and-Google-close-in. Ford also recently
announced that it will significantly increase its planned
investments in electric vehicles to $11 billion by 2022 and have 40
hybrid and fully electric vehicles in its model lineup. The
investment figure is sharply higher than Ford's previously announced
target of $4.5 billion by 2020 and is mostly derived from the costs
of developing dedicated electric vehicle architectures. Ford Plans
to Invest $11 Billion to Electrify Its 'Most Iconic' Vehicles,
Fortune, Jan. 15, 2018, https://fortune.com/2018/01/14/ford-11-billion-electric-car-investment/. And, according to BMW's 2017-18
annual report, the company planned to allocate between 6.5 and 7
percent of its 2018 gross revenue to R&D, above its usual range of 5
to 5.5 percent. BMW to Spend Record Amount on R&D to Prepare for
Electric Cars, Self-Driving Cars, Assembly Magazine, Mar. 23, 2018,
https://www.assemblymag.com/articles/94194-bmw-to-spend-record-amount-on-rd-to-prepare-for-electric-cars-self-driving-cars.
---------------------------------------------------------------------------
The pressure for R&D spending is so great that unprecedented sums
of money are being poured into electric and autonomous vehicles years
before those technologies are fully cost-competitive in the
market.\181\ For American-owned and foreign-owned producers in the
United States, U.S. R&D activities are [TEXT REDACTED].\182\
---------------------------------------------------------------------------
\181\ Irwin, EV, AV Spending in Slowing Market Points to `Pile
Up,' supra.
\182\ U.S. Producers' Survey Responses, Question 10.
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PwC's 2015 Global Innovation 1000 Automotive Industry Findings
examined in detail the regional locations where automotive companies
are conducting R&D and concluded that the automotive industry's
fastest-growing and most competitive markets are now in the Asia
Pacific region, dominated by China as the world's largest automobile
market.\183\ Even more noteworthy, the study, which examined R&D
spending by location rather than by where companies were headquartered,
concluded that the Asia Pacific region is increasingly where automotive
innovation is concentrated.\184\ From 2007 to 2015, expenditures on
automotive R&D conducted in Asia increased by 70 percent, surpassing
North America and Europe to become the largest regional hub of such
expenditures.\185\ During the same period, North American automotive
R&D expenditures only increased by 23 percent.\186\
---------------------------------------------------------------------------
\183\ PwC, 2015 Global Innovation 1000 Automotive Industry
Findings, 2016, https://www.strategyand.pwc.com/media/file/Innnovation-1000-2015-Auto-industry-findings-infographic.pdf.
\184\ Id.
\185\ Id.
\186\ Id.
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The PwC study also found that China's share of total automotive R&D
[[Page 62073]]
had jumped dramatically from 4 percent in 2007 to 11 percent in 2015.
During that same period, the U.S. share of total automotive R&D
spending dropped from 29 percent to 27 percent.\187\ China also
replaced Germany as the second-largest importer of automotive R&D
during this period.\188\ According to PwC, this data reflects the shift
happening in the automotive industry's center of gravity.\189\ PwC's
2017 Global Innovation 1000 Study highlights the impact of this trend,
showing that of the top 20 automobile producers ranked in terms of R&D
expenditures, 11 are headquartered in Asia and six are headquartered in
Europe, while only 3 are headquartered in the United States (GM, Ford,
and Tesla).\190\
---------------------------------------------------------------------------
\187\ Id.
\188\ Id. Imported R&D refers to R&D conducted in China by
companies headquartered abroad.
\189\ Id.
\190\ PwC, The 2017 Global Innovation 1000 Study, supra.
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Further, none of the top 10 automobile parts suppliers in terms of
overall R&D expenditures is headquartered in the United States, while
four are headquartered in Asia and the remaining six are headquartered
in Europe.\191\ This is problematic for the national security of the
United States because the automotive industry is highly dependent on
suppliers for components as well as leading-edge technological
development. While U.S. automobile companies direct billions of dollars
in R&D activities, this research is increasingly conducted by partner
supplier companies. In fact, automobile parts manufacturers conduct
about one[hyphen]third of the annual $18 billion investment by the
automotive industry in R&D in the United States.\192\ Most automobile
producers [TEXT REDACTED].\193\
---------------------------------------------------------------------------
\191\ Id.
\192\ MEMA Responds to Trump Administration Announcement of
Additional 301 Tariffs on China, Motor & Equipment Manufacturers
Association, Jul. 11, 2018, https://www.mema.org/mema-responds-trump-administration-announcement-additional-301-tariffs-china.
\193\ U.S. Producers' Survey Response, Question 12c.
---------------------------------------------------------------------------
[TEXT REDACTED] \194\ [TEXT REDACTED].\195\ As noted, automobile
parts suppliers play a critical role in developing the innovations
\196\ that make the automotive industry high-tech,\197\ and within the
industry, automobile parts suppliers employ approximately 40 percent of
all R&D scientists and engineers, while automobile manufacturers employ
the remaining 60 percent.\198\
---------------------------------------------------------------------------
\194\ Id.; Department of Commerce, Bureau of Economic Analysis,
2012 Benchmark Input-Output tables. As calculated by Department of
Commerce. 2012 data are the latest available.
\195\ U.S. Producers' Survey Responses, Question 10a.
\196\ The importance of automotive suppliers in the automotive
R&D landscape is also demonstrated in future automotive
technologies, and none more so than autonomous vehicle technology.
For example, the Navigant Research Leaderboard, a respected and
often-cited ranking system, evaluates companies developing automated
driving systems. Several of the identified leaders are suppliers,
including Bosch, Aptiv (formerly Delphi), Autoliv, Magna, Valeo, and
ZF Friedrichshafen AG. Navigant Research Leaderboard: Automated
Driving Vehicles, https://www.navigantresearch.com/reports/navigant-research-leaderboard-automated-driving-vehicles.
\197\ Kim Hill, Bernard Swiecki, Debra Maranger Menk, and Joshua
Cregger, Just How High-Tech is the Automotive Industry?, Center for
Automotive Research, Jan. 2014, https://autoalliance.org/wp-content/uploads/2017/01/CARReport_Just_How_High_Tech_is_the_Automotive_Industry.pdf
\198\ Id.
---------------------------------------------------------------------------
While American-owned producers lag behind their EU and Japanese
competitors in automobile R&D, South Korean and Chinese companies are
ramping up R&D expenditures and activities. Of course, there is a
direct correlation between innovation and manufacturing. Japanese and
EU firms are leaders in automobile production, and so their significant
levels of R&D expenditures should come as no surprise. Yet, it is also
important to emphasize the correlation between R&D expenditures and the
low level of import penetration in each foreign country's automobile
industry.\199\ As discussed in Appendix F, Japanese-owned automobile
producers enjoy a dominant position in their home market, as they
account for nearly 100 percent of domestic vehicle production in
Japan.\200\ [TEXT REDACTED].\201\
---------------------------------------------------------------------------
\199\ David Autor, David Dorn, Gordon H. Hanson, Gary Pisano,
and Pian Shu, Foreign Competition and Domestic Innovation: Evidence
from U.S. Patents, American Economic Review: Insights, forthcoming,
December 2017, https://www.nber.org/papers/w22879.
\200\ Wards Intelligence InfoBank.
\201\ U.S. Producers' Survey Responses, Question 10.
---------------------------------------------------------------------------
Similarly, German-owned automobile producers account for 85 percent
of domestic vehicle production in Germany,\202\ and also rank [TEXT
REDACTED].\203\ The Volkswagen Group's research is based in Wolfsburg,
Germany, and the company describes this development center as ``the
innovation hub'' and the ``nerve centre of a global development
network'' for all Volkswagen Group brands.\204\
---------------------------------------------------------------------------
\202\ Wards Intelligence InfoBank.
\203\ U.S. Producers' Survey Responses, Question 10.
\204\ Research and Development, Volkswagen, https://www.volkswagen-karriere.de/en/unsere-bereiche/forschung-entwicklung.html.
---------------------------------------------------------------------------
Additionally, South Korean automobile producers account for 77
percent of domestic vehicle production in Korea,\205\ and Korea ranks
[TEXT REDACTED].\206\
---------------------------------------------------------------------------
\205\ Wards Intelligence InfoBank.
\206\ U.S. Producers' Survey Responses, Question 10.
---------------------------------------------------------------------------
The R&D spending by the largest foreign-owned automobile producers
is a direct reflection of the advantages the firms enjoy in their
protected home markets, as described in Appendix F. Volkswagen and
Toyota have been among the top 20 overall R&D spenders every year since
2005,\207\ and in 2017 these companies ranked first and second
respectively in terms of global R&D expenditures by vehicle producers,
a tremendous advantage in the highly competitive and always evolving
automotive industry.\208\ China is also increasing its investments in
automotive R&D, reaching $12 billion in 2015.\209\ Eighty-four
automotive research and design centers have opened in China in the past
12 years, with the key focus of activity in cutting-edge technologies
including connected vehicles and electric drivetrains.\210\
---------------------------------------------------------------------------
\207\ PwC, The 2017 Global Innovation 1000 Study, supra.
\208\ Id.
\209\ Rishabh Saraswat, Automotive R&D Ecosystem in China: The
Road Ahead, DRAUP, Dec. 14 2017, https://draup.com/blog/automotive-rd-ecosystem-in-china-the-road-ahead/.
\210\ Id.
---------------------------------------------------------------------------
The internationalization of automotive R&D has focused primarily on
local product development, and core research remains concentrated near
the home bases of lead firms.\211\ Offshoring of automotive R&D is, in
large part, driven by the offshoring of manufacturing capabilities. As
manufacturers seek to reduce manufacturing costs, production
optimization compels the offshoring of R&D that follows. Data show that
a country's attractiveness to R&D centers is also driven by the number
of available science and engineering experts in that country.\212\ For
automotive R&D specifically, a 2008 PwC study and a 2012 study from the
European Commission on the automotive sector both list access to talent
pools and physical proximity to customers as the main factors driving
R&D location
[[Page 62074]]
decisions.\213\ Other factors included the size of the country's
economy and economic growth potential.
---------------------------------------------------------------------------
\211\ Petr Pavl[iacute]nek, The Internationalization of
Corporate R&D and the Automotive Industry R&D of East-Central
Europe, Economic Geography, Apr. 25, 2012, https://www.researchgate.net/publication/260186659_The_Internationalization_of_Corporate_RD_and_the_Automotive_Industry_RD_of_East-Central_Europe at 4.
\212\ Rajesh K. Chandy, Andreas B. Eisingerich, Jaideep C.
Prabhu, and Gerard J. Tellis, Patterns in the Global Location of R&D
Centres by the World's Largest Firms: The Role of India and China,
January 2010, https://www.researchgate.net/publication/265870303_Patterns_in_the_global_location_of_RD_centres_by_the_world'
s_Largest_firms_The_role_of_India_and_China at 5.
\213\ Duncan Kay, Adarsh Varma, Carlos Martinez, Stephanie
Cesbron, Gena Gibson, and Dr. Peter Wells, Assessing the R&D and
Economic Performance of Key Industries: The Automotive Sector, AEA
Technology PLC report for European Commission, May 11, 2012, https://iri.jrc.ec.europa.eu/documents/10180/11632/Assessing%20the%20R%26D%20and%20economic%20performance%20of%20key%20industries%20-%20the%20automotive%20sector at iv.
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R&D decisions are also increasingly driven by government-based
initiatives to attract investment away from other automobile-producing
nations. For example, the Chinese Government has increased automotive
R&D in the domestic market through various incentives and restrictive
investment requirements. In 2006, the Government set aside $184 million
for automotive R&D support under its National High Tech R&D Program, a
program designed to accelerate R&D across a range of sectors.\214\
Under China's 13th Five-Year Plan (2016-2020), 20 New Energy Vehicle
(``NEV'') projects were allotted around $111 million pursuant to the
National Key Research and Development Program of China, a program
focused on rapidly developing new energy technologies.\215\
---------------------------------------------------------------------------
\214\ Jieyi Lu, Comparing U.S. and Chinese Electric Vehicle
Policies, Environmental and Energy Study Institute, Feb. 28, 2018,
https://www.eesi.org/articles/view/comparing-u.s.-and-chinese-electric-vehicle-policies.
\215\ Id.
---------------------------------------------------------------------------
Other traditionally low-cost countries with growing domestic
markets, or within close proximity to growing markets, have also
invested heavily in attracting automotive R&D. Hungary cut its
corporate tax rate to 9 percent--the lowest in the EU--and introduced
special tax incentives for companies with R&D investments.\216\ Hungary
recently invested $15 million in a test track for traditional and
autonomous vehicles that it intends will become a magnet for future
investment in automobile development and testing. Brazil is
implementing a 14-year incentive program that will offer up to BR1.5
billion ($467.4 million) in annual tax credits for automobile producers
and automobile parts manufacturers that reach certain R&D investment
targets.\217\
---------------------------------------------------------------------------
\216\ Nick Gibbs, A Test Track Takes Hungary Deeper Into R&D,
Automotive News, July 8, 2018, https://www.autonews.com/article/20180708/OEM01/180709905/1740?template=economic-development.
\217\ Catherine Osborn, Brazilian Auto Industry Awaits Word on
Incentives, WardsAuto, Mar. 20, 2018, https://www.wardsauto.com/industry/brazilian-auto-industry-awaits-word-incentives.
---------------------------------------------------------------------------
Heavy investment in attracting R&D in new automotive technologies
is also a strategy for mature automobile producing countries. In order
to target new technologies and manufacturing, the South Korean
Government recently agreed to invest about 2 billion Euros into
hydrogen mobility (including fuel cells) over the next five years.
Facilities manufacturing fuel cell vehicles and those performing
related R&D will receive funding in order to reach the Government's
ambitious production target of 15,000 fuel cell vehicles by 2022.\218\
Additionally, fearing that the EU automobile industry could be left
behind in the race to build mass market electric vehicles because of
their reliance on batteries from Asia, the EU recently announced that
it will offer billions of Euros of funding to companies willing to
build giant battery factories in the region.\219\ Individual EU
countries will fund 100 percent of research.\220\
---------------------------------------------------------------------------
\218\ South Korea to Invest [euro]2BN into Fuel Cell Vehicles,
electrive.com, Jun. 25, 2018, https://www.electrive.com/2018/06/25/south-korea-to-invest-e2bn-into-fuel-cell-vehicles/.
\219\ Rochelle Toplensky, EU to Offer Billions of Funding for
Electric Vehicle Plants, Financial Times, Oct. 14, 2018, https://www.ft.com/content/097ff758-cec3-11e8-a9f2-7574db66bcd5?desktop=true.
\220\ Id. ``The EU's Horizon 2020 research fund has set aside
[euro]200m for battery projects; [euro]800m is available to finance
building demonstration facilities; regions looking to promote the
industry can apply for the [euro]22bn regional funds available; and
the European Fund for Strategic Investment is available from the
European Investment Bank to co-fund the billions of euros needed to
build an EU equivalent of Tesla's `gigafactory' in the Nevada
desert.''
---------------------------------------------------------------------------
Government efforts worldwide to divert automotive R&D and related
manufacturing abroad is particularly dangerous for the American-owned
automotive industry. Data show that, across all industries, the United
States heavily outsources R&D to other nations and that the automotive
industry is a large driver of this R&D offshoring trend.\221\ The
offshoring of R&D activities (coupled with manufacturing) jeopardizes
the ability of the U.S. automotive industry, and specifically American-
owned manufacturers, to develop innovative products and deliver high-
tech products and skilled workers to the industrial base, threatening
technological advancements necessary for defense capabilities. Further,
the offshoring of R&D and manufacturing will increasingly render the
United States reliant on imported products. Conditions of competition
must be improved so that American-owned automobile producers and
automobile parts manufacturers are able to increase production in the
United States, and thereby augment R&D levels to develop and capitalize
on the latest technologies domestically.
---------------------------------------------------------------------------
\221\ J. John Wu, Why U.S. Business R&D Is Not as Strong as It
Appears, Information Technology & Innovation Foundation, June 2018.
https://www2.itif.org/2018-us-business-rd.pdf at 10, 13, 14.
---------------------------------------------------------------------------
D. Decline in Employment in the U.S. Automotive Industry
The deterioration in the competitive position of the U.S.
automobile and automobile parts manufacturing industry outlined above
is further evidenced by the decline in U.S. automotive industry
employment, and in particular employment by American-owned firms. The
U.S. automobile and automobile parts industry (American-owned and
foreign-owned firms) employs approximately 798,300 workers, or
approximately 6 percent of the nation's manufacturing workforce.\222\
This is a significant drop from the recent peak in 2000, when the
industry accounted for 291,400 automobile assembly jobs and 839,500
automobile parts manufacturing jobs.\223\ The decline amounts to a loss
of 332,600 manufacturing jobs, which is equivalent to approximately 7
percent of the loss in all manufacturing jobs between 2000 and
2017.\224\ American-owned automobile manufacturing plants account for
[TEXT REDACTED] of the overall workforce across all U.S. based-
automobile plants.\225\
---------------------------------------------------------------------------
\222\ Bureau of Labor Statistics, Total Employment for Motor
Vehicles and Motor Vehicle Parts, supra.
\223\ Id.
\224\ Id.
\225\ U.S. Producers' Survey Responses, Question 8.
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BILLING CODE 3510-DR-P
[[Page 62075]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.066
Further, as shown in Figure 27, the sharp decline in passenger
vehicle manufacturing employment (sedans, SUVs, CUVs, and vans)
accounts for the majority of the overall decline in automobile
manufacturing jobs. This steep 32 percent decline (equivalent to 54,400
jobs) coincided with the 282 percent increase in passenger vehicle
imports during this same period. Light truck imports rose more than 150
percent over the same period, contributing to job losses of two percent
overall in the United States (equivalent to 1,400 jobs).\226\
---------------------------------------------------------------------------
\226\ Bureau of Labor Statistics, Total Employment for Motor
Vehicles and Motor Vehicle Parts, supra.; Department of Commerce,
Census Bureau.
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[[Page 62076]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.067
Figure 28 disaggregates job losses in automobile parts
manufacturing by segment. Most of the decrease in automobile parts
manufacturing employment is due to a 48 percent reduction in the
workforce for electrical component manufacturing and a 23 percent
reduction in engine and engine parts manufacturing. Although jobs in
powertrain component manufacturing have increased since 2009, the
number of lost jobs in that sector amount to 25,000 since 2000.
Further, the skill level involved in this sector is rapidly eroding as
imports of powertrain parts have caused the U.S. transmission industry
to shift to assembly rather than product development and manufacturing.
Overall, for parts manufacture, American-owned producers account for
approximately 50 percent of the U.S.-based workforce.\227\
---------------------------------------------------------------------------
\227\ Bureau of Economic Analysis, Foreign Direct Investment in
the United States, Data on Activities of Multinational Enterprises;
Bureau of Labor Statistics, Current Employment Statistics.
---------------------------------------------------------------------------
[[Page 62077]]
[GRAPHIC] [TIFF OMITTED] TN08NO21.068
BILLING CODE 3510-DR-C
The loss of manufacturing jobs parallels the rate of closure of
U.S. automobile manufacturing plants, in particular American-owned
manufacturing plants.\228\ In 1985, American-owned producers operated
62 assembly plants in the United States and produced 97 percent of the
11.4 million passenger vehicles and light trucks produced in the United
States.\229\ By 2000, American-owned producers were operating only 44
plants and their share of U.S. production had dropped from 97 percent
to 67 percent.\230\ Finally, by 2017, American-owned producers were
operating only 24 assembly plants in the United States and producing
only 42 percent of total U.S. production, notwithstanding the fact that
overall demand for automobiles in the United States increased by 11
percent during the 1985 to 2017 period.\231\ Moreover, GM recently
announced its intent to close five additional plants and lay off
approximately 15,000 workers in 2019.\232\ In January 2019, Tesla
announced a planned seven percent contraction of its workforce.\233\ By
contrast, foreign-owned automobile manufacturers in the United States
(EU, Japanese and South Korean manufacturers), have expanded operations
over the past three decades and increased the number of facilities
operating in the United States from 3 facilities in 1985 to 22 in
2017.\234\ As noted above, their expansion in the U.S. market has come
at the expense of American-owned producers, who (as detailed in
Appendix F) do not have the same market access in the EU, Japan and
South Korea as their foreign counterparts do in the United States.
---------------------------------------------------------------------------
\228\ U.S. automotive employment--and consequently job losses--
has been spread across the United States. While Michigan continues
to have the largest share at 172,000 workers, many other states are
significant employers as well. Indiana currently employs 111,500
automotive workers, Ohio employs 95,300 workers, Kentucky employs
60,500 workers, and Alabama employs 38,300 workers, along with
smaller employment in California, Missouri, Texas, New York, and
Mississippi. Bureau of Labor Statistics, Total Employment for Motor
Vehicles and Motor Vehicle Parts, supra.
\229\ Wards Intelligence InfoBank.
\230\ Id.
\231\ Id.
\232\ Eric Morath, GM Closings a Fresh Sign of Worry for
Economy, Wall Street Journal, Nov. 26, 2018, https://www.wsj.com/articles/gm-closings-a-fresh-sign-of-worry-for-economy-1543271097.
\233\ Tesla, Company Update, January 18, 2019, https://www.tesla.com/blog/tesla-company-update.
\234\ Wards Intelligence InfoBank.
---------------------------------------------------------------------------
With the ongoing contraction of automobile and automobile parts
production in the United States and resulting plant closures by
American-owned firms, employment in the U.S. automotive manufacturing
industry will shrink further. As noted, today's production of
automobiles and automobile parts is a complex and technical process
that demands a trained, skilled workforce that in many cases requires a
decade or more of experience. Given that the United States needs to
rely on American-owned facilities to develop cutting-edge technologies
with national defense capabilities, it is imperative that a robust and
skilled workforce is available to manufacture and operate those
technologies. For this reason, the loss of skilled workers at American-
owned plants is detrimental to America's manufacturing and innovation
capabilities, and consequently America's ability to develop new and
emerging technologies for military applications.
VII. Conclusion
Based on the findings in this report, the Secretary concludes that
the present quantities and circumstances of imports of automobiles and
certain automobile parts, specifically engines and engine parts,
transmissions and powertrain parts, and electrical components as
defined in Section VIII, are ``weakening our internal economy'' and
threaten to impair national security as set forth in Section 232.
As discussed throughout this report, the negative impact of imports
and the resulting displacement of production by American-owned
automobile and automobile parts manufacturers are significant, and are
increasing given that the U.S. automobile market is experiencing a
decline in demand. A decline in demand is expected in the next several
years due to a number of factors that impact the normal sales cycle,
and many indicators point to market saturation. For example, the ratio
of automobiles to households is
[[Page 62078]]
now 2:1, a record high. In addition, while approximately one quarter of
the automobiles on the road are less than four years old, the average
age of automobiles in the United States increased from 8.4 years in
1995 to 11.6 years in 2016,\235\ and the tendency of consumers to keep
automobiles longer has negatively impacted demand. (This has caused the
gap between new and used automobile prices to reach record highs.)
Sales peaked in 2016 at 17.5 million units, but declined to 17.1
million units in 2017, and remained at roughly the same level in 2018.
A further decline in demand is expected in 2019, with interest rates
projected to rise and recent reports indicating that $56.8 billion in
auto loans are delinquent.\236\ Equally as important, exports to
foreign markets are unlikely to provide avenues for additional sales
and revenue as tariff and non-tariff barriers to entry discourage U.S.
automotive exports and the U.S. dollar remains strong relative to
Europe, Japan, and China. Finally, employment in the automotive sector
remains significantly below the industry's employment peak in 2000,
impacting the ability to maintain a highly skilled workforce that is
essential for national security needs.
---------------------------------------------------------------------------
\235\ U.S. Department of Transportation, Bureau of
Transportation Statistics, https://www.bts.gov/content/average-age-automobiles-and-trucks-operation-united-states.
\236\ David Harrison, Auto Borrowing Rises as New Mortgage Loans
Sag, New York Fed Says, Wall Street Journal, Feb. 12, 2019, https://www.wsj.com/articles/auto-borrowing-rises-as-new-mortgage-loans-sag-new-york-fed-says-11549988807?mod=searchresults&page=1&pos=7.
---------------------------------------------------------------------------
Defense purchases alone are not sufficient to support a robust
military vehicle supply chain and R&D in key automotive technologies
(such as autonomous driving, vehicle lightweighting, electrification,
and connectivity) that are vital to meeting the needs of national
defense. To be available to meet national defense needs, American-owned
automobile and automobile parts manufacturers must have a robust
presence in the U.S. commercial market. Moreover, innovations generated
by R&D investments are necessary for manufacturers to remain
competitive in both the commercial automotive sector and the defense
sector. It is that innovation capability which is now at serious risk
as imports continue to displace American-owned production. An American-
owned automotive industry that is not competitive in the latest
technologies, nor has the ability to retain a large skilled workforce
and attract the next-generation workforce, will be unable to ensure
that the United States maintains the ability to produce cutting-edge
technologies that are essential to America's national security.
The many factors listed in this report form the basis for the
Secretary's determination that the ``displacement of domestic products
by excessive imports''--in particular the displacement of automobiles
and certain automobile parts manufactured by American-owned firms--is
causing a ``weakening of our internal economy'' that ``may impair the
national security.'' See 19 U.S.C. 1862(d). Therefore, the Secretary
recommends that the President take corrective action. See 19 U.S.C.
1862(c).
VIII. Recommendation
The Secretary recommends the following actions the President could
take as possible options to remove the threatened impairment of the
national security:
1. Direct further discussions and negotiations to obtain agreements
that address the threatened impairment of national security. Since this
investigation was initiated, there have been productive discussions
that could result in positive changes for the automotive industry in
the United States, and the United States has signed the USMCA. If these
discussions and the USMCA result in positive changes to the U.S.
automotive industry, the President could determine whether those
actions address the threatened impairment of the national security
found in this report.
As provided in section 232(c)(3), if appropriate agreements have
not been reached in a timely manner or if a negotiated agreement is not
being carried out, the President could determine that further action
under section 232 is necessary.
Or
2. Impose tariffs of up to 25 percent (in addition to any existing
duties) on imports of automobiles and certain automobile parts (engines
and parts, transmissions and powertrain parts, and electrical
components) in order to increase U.S. production of automobiles and
parts to a level sufficient to generate additional revenue to increase
R&D investments by American-owned (as well as foreign-owned)
manufacturers in the United States. Imports under USMCA Side Letters
would not be subject to the tariffs.
Or
3. Impose tariffs of up to 35 percent (in addition to any existing
duties) on imports of SUVs and CUVs, which will increase domestic
production and generate additional revenue to increase R&D investments
by American-owned (and foreign-owned) manufacturers in the United
States. The Department of Commerce would work with the U.S. Customs and
Border Protection on the most appropriate means to implement this
option if selected. Imports under USMCA Side Letters would not be
subject to the tariffs.
Exemptions
The President may wish to consider agreements that the United
States has renegotiated recently in determining whether specific
countries should be exempted from the proposed tariffs based on an
overriding national security interest of the United States. For
example, the President should consider the Republic of South Korea for
an exemption based on the recently improved agreement and strong
national security relationship. The Secretary recommends that any
determination to exempt a specific country should be made at the outset
and a corresponding adjustment be made to the final tariffs imposed on
the remaining countries. Any country exempted should be placed under a
quota to ensure that producers in that country do not increase exports
to the United States and to prevent transshipment through that country
of automobiles and automobile parts seeking to avoid tariffs. This
would ensure that overall imports of automobiles and automobile parts
to the United States remain at or below the level needed to enable
American-owned producers to reach levels of production sufficient to
increase R&D for technologies that are important to national defense.
Automobiles and Automobile Parts Subject to Tariffs Described Above
Electrical Components & Parts: 8414308030; 8414596040; 8414596540;
8414598040; 8415830040; 8507100060; 8507304000; 8507404000; 8507600010;
8507904000; 8511200000; 8511300040; 8511300080; 8511400000; 8511500000;
8511802000; 8512202040; 8512204000; 8512204040; 8512300020; 8512300030;
8512404000; 8525201500; 8525206020; 8525209020; 8525601010; 8527211015;
8527211020; 8527211025; 8527211030; 8527211500; 8527212510; 8527212525;
8527214000; 8527214040; 8527214080; 8527214800; 8527290020; 8527290040;
8527290060; 8527294000; 8527298000; 8527298020; 8527298060;
[[Page 62079]]
8531800038; 8531808038; 8531809031; 8531809038; 8536410005; 8539100040;
9029108000; 9104004510; 8536906000; 8539100010; 8539100020; 8539100050;
8539212040; 8544300000; 9029104000; 9029204080; 9029902000; 9029908040;
9029908080; 9104002510; 9104004000
Engines & Parts: 4010101020; 4016931010; 4016931020; 4016931050;
4016931090; 8407341400; 8407341540; 8407341580; 8407341800; 8407342040;
8407342080; 8407344400; 8407344540; 8407344580; 8407344800; 8408202000;
8409913000; 8409915080; 8409915081; 8409155085; 8409919110; 8409919190;
8409919910; 8409991040; 8409999110; 8409999190; 8413301000; 8413309060;
8414593000; 8414800500
Transmission, Powertrain & Parts: 8708401000; 8708401110; 8708401150;
8708402000; 8708405000; 8708407550; 8708407000; 8708407570; 8708407580;
8708935000; 8708936000; 8708937500
Passenger Vehicles & Light Trucks 8703220000; 8703230015; 8703230022;
8703230024; 8703230026; 8703230028; 8703230030; 8703230032; 8703230034;
8703230036; 8703230038; 8703230042; 8703230044; 8703230045; 8703230046;
8703230048; 8703230052; 8703230060; 8703230062; 8703230064; 8703230066;
8703230068; 8703230072; 8703230074; 8703230075; 8703230076; 8703230078;
8703240032; 8703240034; 8703240036; 8703240038; 8703240042; 8703240050;
8703240052; 8703240054; 8703240056; 8703240058; 8703240060; 8703240062;
8703240064; 8703240066; 8703240068; 8703240075; 8703310000; 8703320010;
8703330045; 8703330060; 8703900000; 8703220100; 8703230120; 8703230130;
8703230140; 8703230160; 8703230170; 8703240140; 8703240150; 8703240160;
8703310100; 8703320110; 8703330145; 8703330185; 8703400010; 8703400020;
8703400030; 8703400040; 8703400070; 8703600020; 8703600030; 8703600080;
8703700030; 8703700070; 8703800000; 8703900100; 8704210000; 8704310020;
8704310040
Dated: November 1, 2021.
Anne Driscoll,
Acting Assistant Secretary for Industry and Analysis.
[FR Doc. 2021-24162 Filed 11-5-21; 8:45 am]
BILLING CODE 3510-DR-P
