U.S. ‘has much more to lose’ in axing NAFTA

LINAMAR CEO

ALICJA SIEKIERSKA The chief executive of a Canadian auto parts maker has issued a warning about the ongoing NAFTA renegotiations, saying the United States and North American consumers stand to lose if the U.S. makes good on its threat to pull out of the trade deal.

“The effects on individual companies is unlikely to be material, but the effects on the economy as a whole could be significant. America has much more to lose than they will ever gain to take that road,” Linamar Corp. chief executive Linda Hasenfratz said Tuesday.

Speaking on a conference call with analysts after the company released its quarterly results, Hasenfratz outlined how several potential scenarios for NAFTA renegotiations could affect Linamar, a company that has emerged as a global player in the auto-parts industry with 59 plants around the world, including in the U.S. and Mexico.

Should the U.S. withdraw from the agreement, a threat President Donald Trump has made repeatedly, Hasenfratz said it is most logical to assume that a most-favourednation tariff of between 2 and 2.5 per cent would apply between Canada and the U.S.

“It is not logical to assume some highly punitive tariff level being imposed, as that would contravene (World Trade Organization) rules and I have to assume that the U.S. would, at the very least, want to remain part of the WTO,” Hasenfratz said.

The most-favoured-nation duty would not drastically change Linamar’s operations, including its manufacturing footprint, Hasenfratz said.

“The bottom line is one way or another, we would deal with the two per cent. No one is going to spend billions of dollars shifting work to different countries for two per cent,” she said.

“The most likely result is the extra costs that OEMs (original equipment manufacturers) are forced to absorb from a whole variety of suppliers will be passed on to the consumer. Nothing will change on the manufacturing footprint, and the consumer will suffer with no compensating upside of new jobs.”

Hasenfratz’ remarks come the week before the fifth round of NAFTA renegotiations, which have become increasingly contentious since the U.S. proposed several changes that were met with resistance from both Canada and Mexico.

Among the more contentious demands is a U.S.specific automotive content requirement of 50 per cent, one that Hasenfratz said there was no sense evaluating as the “general consensus opinion is there is no chance that country-specific content will be agreed to by Canada or Mexico.”

The U.S. has also suggested increasing NAFTA’s rules of origin, which currently stipulate that vehicles must have at least 62.5-percent North American content in order to gain dutyfree access to all three member countries.

Hasenfratz, one of the 13 members on a council advising the Canadian government on NAFTA strategy, said how an increase to NAFTA’s rules of origin would impact Linamar remains to be seen. However, she stressed that 93 per cent of the company’s auto parts purchases are North American content.

“If anything, there’s a chance we could win some new work if our customers have an issue with meeting new content requirements,” she said.

A Scotiabank report released in September focusing on how NAFTA would affect the auto industry said that tightening NAFTA’s rules of origin requirements is not necessary and could reduce competitiveness of North American auto production and actually push more production to Mexico. “America has much more to lose than they will ever gain to take that road,” says Linamar head Linda Hasenfratz.