ABSTRACT
The European Community has been transferring public policy decisions regarding the motor industry from national governments to Brussels since 1957. This process will be largely completed by about 1999 when the Community has a uniform set of rules in place governing vehicle standards, state aids to industry, intra-European trade of vehicles manufactured in Japanese “transplant” factories in Europe, and trade between the Community and the rest of the world.
The Community’s policy toward foreign trade and investment is the special concern of this chapter. In particular, the chapter examines the likely implications of EC auto policy for the American-based motor vehicle industry. The findings are as follows:
The European industry faces serious competitive problems with the Japanese motor vehicle industry. In conditions of completely open trade and investment, the European industry would be at significant risk.
Within Europe, the German and American-owned producers are in the strongest positions while the French and Italian producers are the weakest.
The recent trade and investment negotiations between the European Community and Japan have produced an understanding 194that finished unit imports of Japanese vehicles will not increase from the current level (meaning their market share will decline as the European market grows). In addition, it is understood that Japanese transplant factories will achieve roughly 80 percent European content in their vehicles within a few years of the start of production. Finally, it is understood that the rate of increase of Japanese transplant production in Europe will be roughly synchronized with the growth of the overall vehicle market. The Japanese firms will be allowed to capture practically all of the growth in the European market in the 1990s, but the existing European and American-owned firms producing in Europe will not have to reduce their overall production volume and will avoid the “downsizing” agony currently experienced in Detroit.
Given this very high level of effective protection for the European and American-owned auto industry in Europe, it seems highly unlikely that there will be trade friction in the 1990s between the United States and the EC over vehicle shipments across the Atlantic from the United States to Europe, even if these vehicles do not have a high level of American content.
