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June 28, 2018

The Honorable Wilbur L. Ross Secretary of Commerce U.S. Department of Commerce 1401 Constitution Ave. NW Washington, D.C. 20230

Attn:

Ms. Sahra Park-Su

Re:

Docket No. DOC-2018-0002; Comments of BMW Group on Section 232 Auto Investigation

Dear Secretary Ross:

BMW Group (“BMW” or “the Company”) submits these comments in response to the 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.

The current U.S. National Security Strategy, issued by the White House only six months ago, states that “the United States distinguishes between economic competition with countries that follow fair and free market principles and competition with those that act with little regard for those principles.” It goes on to explain that the United States “will compete with like-minded states in the economic domain—particularly where trade imbalances exist—while recognizing that competition is healthy when nations share values and build fair and reciprocal relationships.” The current Section 232 investigation runs directly contrary to these statements in the official U.S. National Security Strategy.

The vast majority of finished automobiles imported into the United States are manufactured at facilities in Germany, Canada, Mexico, Japan, and South Korea. Each of these countries follows “fair and free market principles and competition.” None are fairly characterized as economies with “little regard” for such principles. And yet, rather than engaging in “healthy competition” with such “like-minded states,” the United States has launched this 232 investigation to consider whether the competition from these nations so threatens the national security of the United States that a government economic intervention is justified.

We respectfully submit that the answer to that question is an unqualified no.

Imposing Section 232 Duties Will Not Achieve the Desired Outcome

The domestic manufacture of automobiles has no apparent correlation with U.S. national security. It appears that the purpose of threatening to impose these duties is to achieve certain economic objectives, under the theory that enhancing U.S. economic competitiveness will enhance U.S. national security.

The problem with this line of reasoning is that imposing duties is not conducive to increasing U.S. growth and enhancing competitiveness. There is ample academic research—much of it undertaken at U.S. institutions and financed by U.S. research funds—that shows that free trade is beneficial to countries in a number of ways. Firstly, it raises the productivity of firms, thus enhancing a country’s competitiveness and growth. By insulating the

United States from foreign competition, there is less incentive for American companies to strive to raise their productivity and look for ways and means of producing ever better goods (and services) ever more cheaply. As a result, American companies would fall behind. This is not merely a theoretical possibility, but exactly what happened in the early 2000s with the American steel industry. 1

Secondly, trade is beneficial for U.S. consumers by increasing the variety and availability of reasonably priced goods. Producing all varieties within the country would be uneconomical, as there are no advantageous economies of scale. These economies of scale serve to lower prices for consumers. Finally, trade is beneficial to a country as it increases national security. The deeper the economic ties from trade and integrated value chains, the more costly conflict would be, and therefore the more unlikely it is to occur.

This reality—that economic growth is achieved by removing barriers to trade, rather than imposing barriers to compel economic activity—is perhaps nowhere better seen than in the recent history of the auto industry in the U.S.

As you know, in 2010, the United States announced a National Export Initiative (NEI) to create jobs in the U.S. by expanding exports, specifically targeting the auto industry. The strategy of the NEI was simple: attract and retain business investment in the United States by creating a favorable investment climate which would create jobs, spur economic growth, and promote American competitiveness. The strategy worked.

From the year before the NEI launched, in 2009, the value and volume of U.S. auto exports more than doubled in five years. This was a heroic achievement of U.S. economic policy (no doubt bolstered by the recovery of the broader global economy across the same time horizon), made even more remarkable by the fact that domestic demand also soared at the time. In the aftermath of the recession, the U.S. avoided the temptation of swaddling U.S. production with tariffs, instead embracing a strategy that delivered a powerful proof of the efficacy of encouraging growth by reducing the barriers which inhibit it. The U.S. should not abandon a strategy that proved so effective.

It is true that free trade could temporarily produce losers in each country as part of the structural change processes in modernizing economies. Imposing barriers to trade, however, is not the best way to help them. Instead, remaining an open, reliable partner for business and an attractive place for foreign investment will lead to a rebirth of regional/geographical areas that have fallen behind. This is well illustrated by BMW’s history of investment in the United States, and in upstate South Carolina in particular—a region that had well and truly fallen behind in the years prior to BMW’s arrival.

The reason BMW has invested nearly $9 billion in our South Carolina plant, and has produced over 4 million vehicles at that plant since 1994 is not out of concern that BMW would be foreclosed from the U.S. market on account of restrictive U.S. trade policy. This investment was not even driven primarily by a need to ensure access to the U.S. market—as large and important as the U.S. market is. Rather, we have invested and continue to invest in the United States because it makes economic sense for us to do so.

As a consequence of this investment, BMW directly and indirectly adds $6.3 billion annually to South Carolina’s economy and leads to the employment of 36,285 people there. The overall footprint in the U.S. is even larger, with value added by BMW of $15.77 billion and employment of 120,855. In each case, this includes both the direct contribution of BMW and the contribution via purchases of BMW and its employees that would not exist if

1 https://www.tradepartnership.com/pdf_files/2002jobstudy.pdf

BMW were not established in the United States. A 2017 study by the University of South Carolina finds that for every 10 jobs that are directly generated at a U.S. BMW facility, an additional 90 jobs are created elsewhere in the U.S. economy as a direct result of these BMW jobs.

Last year, BMW announced a $600 million investment in our South Carolina plant, which will create 1,000 new jobs. Our BMW plant in South Carolina is now the largest facility in our global production network. Our investments in this facility were not compelled economic activity in response to fear of government retribution, but rather a free economic choice, driven by an analysis that doing so was the highest and best use of our shareholders’ contributions. BMW determined that this investment would generate the maximum possible value for all stakeholders—our firm, employees, shareholders, suppliers, dealer network, and customers, as well as the localities and nations in which we conduct our business.

In fact, BMW’s continuing dedication to investing in South Carolina has been repeatedly commended by the U.S. government. For the fourth year in a row, BMW was invited by the U.S. Department of Commerce to participate in the SelectUSA Investment Summit, which highlights foreign direct investment in the United States. This year, the U.S. Department of Commerce is spotlighting BMW in particular, as an example of the transformative potential of dedicated and successful investment by a foreign-owned company in the United States.

BMW Is a Net Exporter of Vehicles from the United States

If the U.S. cannot be persuaded that, on substance, the proposed Section 232 duties are unsound policy, we urge you to consider as well how individual firms contribute to U.S. trade in different ways. Specifically, we note that BMW auto manufacturing does not contribute to the “harm” which we understand underlies the current investigation (i.e., the U.S. trade deficit).

BMW is the only manufacturer that produces more cars than it sells in the United States. BMW’s manufacturing plant in South Carolina is the single largest exporter of automobiles by value in the United States. More than 70 percent of our annual production is shipped to export markets. In 2017, BMW exported 272,346 vehicles, compared with 247,670 vehicles imported. As a firm, with respect to trade in finished automobiles, BMW lowered the U.S. trade deficit by more than a billion dollars below what it otherwise would have been.

BMW operations in the U.S. and strong investment over the last decades have not only been driven by the U.S. market, but also by the possibility to export U.S. built cars to other parts of the world, for example the European Union (EU) and China. Against this background, production capacities in BMW’s manufacturing plant in South Carolina will increase to 450,000 units annually.

The recently announced measure of the Chinese government to increase tariffs on imported U.S. passenger cars as a direct response to the U.S. administration’s decision to implement a 25 percent tariff on $50 billion of goods from China puts a considerable cost burden on our exports to China (and U.S. production). In 2017, BMW Group exported 81,186 vehicles from our plant in South Carolina to China with an export value of $2.37 billion. This represents 32 percent of the total number of vehicles we exported. Tariffs resulting from the Section 232 Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts would lead to further rebalancing (“retaliatory”) measures from other countries (China, EU).

In addition, higher tariffs on imported components will directly undermine the competitiveness of vehicles exported from the United States and relatively strengthen other production location in relation to the U.S. All off these factors would substantially increase the costs of exporting passenger cars to these markets from the United

States and deteriorate the market access for BMW in these jurisdictions, potentially leading to strongly reduced export volumes and negative effects on investment and employment in the United States. Given the very high export share of our U.S. production, this negative impact could also overcompensate any positive effect of forced deeper localization of products supplying the U.S. domestic market.

If the objective of the Section 232 tariffs would be to reduce the trade deficit, we respectfully request that proper consideration is given to the contribution of exporting companies that are already reducing that deficit.

BMW Supports Reducing Trade Barriers of U.S. Trading Partners

In addition to reducing the U.S. trade deficit, the other rationale that has been broadly discussed for the proposed Section 232 duties is to reduce the tariff barriers that U.S. manufactured goods face in other jurisdictions, such as the 10 percent duty applicable to automobiles imported into the EU.

While we do not think that threatening to impose supplemental U.S. duties is the most effective way to achieve this goal, we do support the effort to reduce trade barriers of all kinds, and with respect to the EU automotive tariffs in particular. BMW has long supported the reduction of the EU automotive duties through bilateral negotiations, as we pay these duties on ~100,000 automobiles we manufacture in South Carolina and export to the EU each year. In 2015, our then Chairman of the Board of BMW, Dr. Norbert Reithofer, put this sentiment on record, stating, “If we remove tariff and non-tariff barriers [between the U.S. and the EU]—that is, import duties and unnecessary bureaucratic and regulatory differences—the result will be economic opportunities.” 2

Removing both U.S. and EU automotive duties entirely is in the best interest of German auto manufacturers, as it would save them an estimated €1 billion per year. 3 We expect similar savings would be realized by U.S. auto manufacturers as well.

We also note that the EU has not shown itself to be particularly committed to preserving these tariffs. Reducing the EU automotive tariffs was frequently cited as the low-hanging fruit to be claimed through the Transatlantic Trade and Investment Partnership (TTIP). 4 In addition, all free trade agreements that the EU has negotiated with third countries over the last decades have eliminated EU import tariffs on passenger cars completely.

We expect that if the U.S. set its sights on removing that barrier to trade, it might very well be able to negotiate for such an outcome in a free trade agreement for industrial goods without having to threaten such significant harm to the global automotive industry.

BMW Is a Partner with the United States on Issues Relating to National Security

BMW has also demonstrated its support for the United States on matters relating to national security through a variety of means, ranging from the practical (e.g., supplying motorcycles and vehicles to U.S. law enforcement), to the scientific and theoretical (investing in a partnership with the U.S. government to develop cutting-edge technology).

BMW has proven to be a trusted and valued partner for local law enforcement and the armed services within the United States. In additional to sales of motorcycles to numerous local law enforcement agencies across the United States, BMW has a multi-year contract with the Los Angeles Police Department to provide several hundred

2 https://www.vda.de/en/press/press-releases/20150128-German-automotive-industry-says---Yes-to-TTIP--.html

3 https://www.reuters.com/article/autos-ttip-bosses/car-industry-heads-lobby-to-drop-tariffs-between-eu-us-idUSL6N0V739L20150128

4 http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_152998.1%20Trade%20in%20goods%20and%20customs%20tariffs.pdf

electric vehicles for official LAPD use. Additionally, this year BMW became the first premium automotive brand to open a workshop and training program for military service members directly on a U.S. military base. The BMW Military Service Technician Education Program (BMW MSTEP) at Camp Pendleton will provide new career opportunities for service members transitioning from military service to civilian life.

Through 2017, the BMW Group invested $2.7 million in a public private partnership with the Department of Energy’s Argonne National Laboratory to significantly improve the performance of Li-Ion batteries for electric vehicles (EVs). The aim of this investment is to accelerate mass market adoption of zero-emissions vehicles. This partnership brings the BMW Group’s total investment with U.S. government agencies, universities, and start-ups to nearly $10 million over the last 3 years alone to advance EV battery technology.

It should be noted that any tariff action which has a material negative impact on BMW could have a residual negative impact on these initiatives and partnerships.

* * *

Thank you for the opportunity to submit these comments. If you have any questions, or if you require any additional information, please contact the undersigned at (201) 307-3714.

Respectfully submitted,

Lisa Errion Saums Vice President, Government and External Affairs for the Americas BMW Group