TRUMP TARGETS STEEL, AUTO PACT.

OTTAWA/MEXICO CITY • The U.S. wants to include steel in NAFTA’s tracing list and hike the share of a car that originates in America, moves that may increase costs and red tape for automakers, two officials familiar with negotiations say.

The steel proposal comes along with one of the Trump administration’s most highprofile demands so far in talks aimed at overhauling the North American Free Trade Agreement. The U.S. proposed late Thursday raising the so-called auto rules of origin to 85 per cent from the current 62.5 per cent, one official said, speaking on the condition of anonymity as discussions with Canada and Mexico are ongoing.

The rules govern what share of a product must be sourced within NAFTA to receive the pact’s benefits. President Donald Trump’s negotiators proposed adding a new, U.S.-only content requirement of 50 per cent, meaning it wants half of every car traded under NAFTA to be built in the U.S., the official said. The 85 per cent requirement would be phased in over multiple years, the official added.

Trump’s team also wants to add steel to the tracing list, two officials said Friday. The U.S. proposed vastly expanding the list to include textiles, aluminum and other metals, one official said. A spokesperson for U.S. Trade Representative Robert Lighthizer declined to comment.

Brett House, deputy chief economist at Bank of Nova Scotia in Toronto, said the rules of origin proposal would be a “potentially Pyrrhic victory” for Trump because automakers would just pay the U.S.’s 2.5 per cent tariff to import cars into the country rather than deal with the complicated set of rules for NAFTA.

If it were to come into force “what you would likely see is a lot of production being shifted either offshore or to Mexico rather than creating more jobs in the United States,” House said. “You wouldn’t see a big increase in U.S. employment and production.”

Steel currently isn’t on the NAFTA tracing list, allowing cars to be traded without a pound of the metal manufactured in North America. The steel industry has been in talks with the automotive industry to figure out a palatable way to add it, according to industry sources.

The move, if passed, would boost domestic American steelmakers, particularly integrated producers like U.S. Steel and AK Steel Holding, which supply automakers with sheets to make hoods, doors and other parts on cars, SUVs and trucks.

North American steelmakers are up about 45 per cent in the past year, according to the BI North American Steel Producers Valuation Peers index, as Trump promises to implement an infrastructure package and pass fresh tariffs on steel imports, boosting the demand outlook.

Rules of origin were expected to be negotiated in sessions Friday, Sunday and Monday during the fourth round of talks outside Washington. The auto sector has warned that a substantial change to rules of origin would upend supply chains and be costly for the industry.

“NAFTA’s rule of origin for autos is already the highest in any trade agreement in the world but the administration reportedly would like to raise it to 85 per cent,” U.S. Chamber of Commerce Senior VicePresident for International Negotiators for the United States have proposed that half of every vehicle traded under NAFTA be built in the U.S., and that steel be included in the tracing list. Policy John Murphy said on Friday in a statement. “However, higher requirements for North American content would actually incentivize manufacturers to cease trading under the agreement and instead simply pay the low U.S. most-favoured nation tariff (just 2.5 per cent).”

The Mexican and Canadian delegations didn’t immediately publicly respond to U.S. proposals. The fourth round of talks are scheduled to run through Oct. 17 and the parties have said they aim to wrap up a deal within the next few months.

The Canadian Press reported that so impractical were the U.S. demands, the talk in the hallways at the conference site involved trying to decipher which of two objectives the Americans are trying to achieve: Sabotage the talks, or shock other parties into concessions.

A Canadian auto-parts representative tends toward the latter.

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

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.

“They can yell, scream, threaten, then people say, ‘OK, here — I’ll pay the 2.5 per cent.’ ”

He said it’s a moot point anyway because there’s no chance Canada or Mexico will ever agree to a NAFTA that looks like what the Americans are proposing.

“Get it out of your head. That’s never gonna happen,” Dias said. “It’s not going to happen. I know for sure that Canada will never accept (this)... None of these things are going anywhere... This is a deal that is going nowhere very quickly.”