U.S. Automakers will be Permitted to Participate in Japan’s Cash for Clunkers Program

The Japanese government has agreed to include vehicles produced by Detroit’s Big Three automakers in that nation’s “cash for clunkers” program.

Under heavy pressure from the U.S. Congress, the Japanese Embassy in Washington on Tuesday defended Tokyo’s policy which has prohibited U.S. automakers from taking part in the government subsidized program and announced that they will now be allowed to participate.

Critics of the Japanese program claimed that it was unfair to foreign automakers and pointed to the fact that Japanese brands accounted for nearly half of the new car sales generated by last summer’s U.S. CARS program.

Although the Japanese government has agreed, in principle, to allow U.S. automakers to participate in its stimulus program, no final emissions standards for inclusion have been announced. The U.S. and Japan use different methods and thresholds to test vehicle emissions levels.

The Japanese embassy said, "More details regarding how to apply for the subsidy will be decided soon and available through the Web site of Next Generation Vehicle Promotion Center, dealers of imported cars."

The U.S. Congress, which had scheduled a hearing this week to address the issue, praised the announcement and moved to postpone the hearing.

Sen. Debbie Stabenow (D-MI) said, "When I authored the CARS program in the Senate, in compliance with international trade laws, it applied to all vehicles sold in the United States. Yet, for too long, Japan’s ‘cash for clunkers’ program discriminated against our automakers, hurting American jobs.” Stabenow went on to say, “Now, after excluding our vehicles for months, Japan is finally doing what is fair by including American cars in its program.”

The announcement also won praise from the American Automotive Policy Council. In a statement released Tuesday, the Council said, "Japan still remains the most closed automotive market in the world. We hope Japan’s willingness to address this issue is a sign of future cooperation to remove additional non-tariff barriers, including currency manipulation."

Under the Japanese “clunkers” program, new car buyers are provided tax credits of up to $2,830 provided their trade-in vehicle is at least 13yearsold and the new vehicle being purchased meets the government’s 2010 fuel efficiency requirements. New car buyers who opt not to scrap their old vehicles also qualify for incentives of $1,130.

Japan’s automotive market is considered one of the most restrictive in the world and American automobiles account for less than 5% of the annual auto sales in the country.

Forty House Democrats delivered a letter to Japan’s ambassador to the U.S. in which they called for an easing of the restrictions which have prohibited participation by U.S. automakers. In the letter, the House members characterized the practice as an "unfortunate historical pattern of the Japanese government keeping its domestic auto industry closed to foreign competition."

For U.S. automakers, the move may be too little, too late to make any real impact on their bottom lines. Japan’s “clunkers” program is scheduled to end on March but there is speculation that it may be extended.

Although the U.S. House of Representatives postponed the meeting it had planned for Thursday, another hearing is set for January 26. That hearing, being held by the House Energy and Commerce subcommittee and chaired by Rep. Bart Stupak (D-MI) is expected to proceed as scheduled.

Congressional pressure has also been directed toward the White House. Last week Rep. John Dingell (D-MI) sent a letter to President Obama urging him to file a protest with the World Trade Organization over what he claims are unfair trade practices designed to prohibit U.S. and other foreign automakers from competing in the Japanese market.

In his letter, Dingell said, "While the U.S. ‘cash for clunkers’ program provided unfettered access to the U.S. market for foreign automakers, many of which benefitted handsomely from the program, U.S. automakers are effectively prohibited from participating in the analogous Japanese program."

Dingell also criticized South Korea’s government for unfair trade practices. He said that auto scrappage programs in both Japan and South Korea "stand in sharp contrast to the U.S. ‘cash for clunkers’ program, where Japanese and South Korean automakers benefited enormously from the initiative. Especially in this economic crisis, such barriers cannot and should not be tolerated."

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