Autos loom over next NAFTA round

AMERICAN CONTENT

But it’s bound to be controversial when they do.

“Trade negotiations are based on the concept of a balance of concessions and the United States explicitly wants an imbalanced result (that favours the U.S.),” says Ted Alden with the Council on Foreign Relations in Washington. “That’s going to be a pretty hard thing for Canada and Mexico to swallow and I’ve never seen a trade negotiation conducted where that was the starting point.”

Under the current terms of NAFTA, at least 62.5 per cent of a vehicle’s content must be made in North America to qualify for dutyfree access between the U.S., Canada and Mexico — which is already “the highest content requirement of any trade deal we’re aware of,” according to Nantais.

Reports in the U.S. suggest the Trump administration wants to raise that to more than 70 per cent and add a requirement that anywhere between 35 and 50 per cent must be made specifically in the United States.

Moreover, the U.S. reportedly wants to add steel and electronics, which aren’t currently included, to the list of components whose country of origin must be traced.

Automakers on both sides of the border contend the U.S. position would disrupt their fully integrated North American supply chain, add costly red tape and ultimately weaken the North American industry’s competitiveness.

And trade experts on both sides of the border are warning that it could backfire.

In a paper published Thursday, Scotiabank Economics argues that there is no need to tighten rules of origin for the auto sector; more than 75 per cent of vehicle parts are already made in North America.

That could drop, the paper acknowledges, with the rapidly increasing computerization of cars and trucks since the electronic components are primarily produced in China, Japan and Germany. But tightening the NAFTA content requirement wouldn’t necessarily result in those components being made in the U.S.

More likely, Scotiabank says automakers would move more production to Mexico or even opt to conduct trade outside NAFTA altogether, preferring to pay the 2.5-per-cent tariff on auto imports to the U.S.

Dionisio Perez Jacome, Mexico’s ambassador to Canada, warned Friday of such a scenario if the requirement for U.S. content is increased.

“We have to look at it very carefully, in order not to have it backfire,” he said.

Unifor president Jerry Dias, whose union represents Canadian autoworkers, supports hiking the North American content requirement, but warns it can’t be done in isolation.

“Unless you fix the rest of the mess, it’s meaningless,” says Dias.

The rest of the mess includes, in his view, more stringent labour standards that would significantly hike wages for Mexican auto and auto parts workers and an increase in the low U.S. and Canadian tariffs on vehicles imported from outside of NAFTA.

Without those measures, he says more jobs and investment will simply wind up flowing to Mexico or outside North America altogether.