U.S. delivers quadruple-whammy on auto sector

Strict ‘Made in America’ requirement part of demands

The United States is presenting a quadruplewhammy demand on auto manufacturing at the NAFTA negotiations, including a strict “Made In America” requirement with virtually no grace period to give car companies time to adjust.

The proposal is viewed as a non-starter by virtually every party involved in automobile production: Canada, Mexico, U.S. industry and even labour groups were calling the proposal completely unattainable.

It’s one of the biggest issues of the talks and it’s sure to provoke a backlash on multiple fronts.

The U.S. negotiating team showed industry representatives their proposal to Canada and Mexico and it contained four ideas that would complicate auto production, several sources said Friday.

First, it requires all cars to include 85 per cent North American content to avoid a tariff, up from the current 62.5 per cent; 50 per cent of a car’s content would have to come from the U.S.; and it would toughen the way content is calculated, with a list upgraded to include parts that didn’t exist in 1994 when NAFTA was originally implemented.

A fourth irritant is the minuscule proposed phase-in period.

Automakers would have one year to comply with the American-made quota and two years to comply with the overall North American content requirement under the proposal, which is a radical departure not only in substance but also in the timing of phasein periods normally included in trade agreements.

The demands are deemed so impractical the talk in the hallways at the conference site revolves around which of two objectives the Americans are trying to achieve: Sabotage the talks, or shock other parties into concessions.

A Canadian auto-parts representative said he tends toward the latter.

“My instinct is this is, ‘Art of the Deal,’” said Flavio Volpe. “There are those who think these are poison pills designed ... to get the partners to leave the table.”

The proposal came as the U.S. made its first significant move on dairy, a traditional sticking point with Canada. Several insiders said Friday the U.S. has asked Canada to scrap its special classifications benefiting domestic producers for things like diafiltered cheese-making products.

The U.S. also wants a veto power over future Canadian classification changes.

What’s already proposed would lead to changes in Canada’s supply-management system. The U.S. has not yet made any explicit request for a percentage of Canada’s protected dairy market. But that request could still come at any time.

Earlier U.S. demands include a termination clause that would cancel NAFTA after five years, unless all parties agree to extend it, and a Buy American rule that would make it far more difficult for non-U.S. companies to bid for public projects.

The auto proposal is so controversial, organizations that are normally rivals are allied against it. Volpe’s Automotive Parts Manufacturers’ Association says it could create a perverse incentive for producers to leave the continent.

Their argument is that it’s far easier to ignore the NAFTA rules and simply pay the U.S. 2.5 per cent import tariff: “It’s not good for the Americans,” Volpe said. “It just doesn’t make sense from a business perspective.”

The union representing Canadian auto workers agrees.

Unifor’s Jerry Dias says the U.S. would never have the power to enforce the proposed changes because companies would just ignore it: “All this argument about 50 per cent, 70 per cent, 85 per cent, it means nothing as long as the U.S. has a 2.5 per cent tariff. It’s like the emperor with no clothes,” Dias said.