NAFTA auto proposals being discussed would benefit local businesses: experts
After months of uncertainty, the pain of the prolonged NAFTA talks looks likely to turn into gains for Windsor and the rest of the Canadian auto sector, industry observers say.
Higher North American content minimums, expansion of the list of parts governed by those rules, higher wages for Mexican autoworkers and an American push to impose tariffs on vehicles produced in North America not meeting those minimum content standards all bode well for the future, says auto analyst Flavio Volpe. Volpe was commenting on the news trickling out of the Mexico-U.S. bilateral talks that resumed Friday in Washington.
“I think by definition these changes are going to drive more purchases for North American suppliers,” said Volpe, president of the Auto Parts Manufacturers Association of Canada (APMA). “I’ve been optimistic for a while that the auto terms were going to be slightly positive for local suppliers and I haven’t heard anything that would change that.” Volpe said he understands the position the sides reached in the spring, requiring vehicles to have 75 per cent North American content, hasn’t changed. Mexican autoworkers’ wages will also rise, but by how much and over what time frame remains unknown. “The U.S. and Mexico appear to be headed to an agreeable settlement on the U.S. proposal for a high-wage labour component of vehicles assembled there,” Volpe said. “If true, it bodes well for the stability and future of Canadian suppliers operating in Canada and in the other two countries.” Jonathon Azzopardi, president of Laval Tool and chair of the Canadian Association of Mold Makers, said just as important as content percentages are the gains made in what parts are covered by the new rules. “That list in general is in our favour,” said Azzopardi, who is also vice-president of APMA.
“It’s parts for engines, transmissions, headlights, alternators and other major components. Those are the things we want to keep because they’re high-value-added parts.” Azzopardi said local firms have been preparing for months to take advantage of a new NAFTA.
“It will essentially create a barrier around North America to protect against low-cost labour countries,” Azzopardi said. “Local companies see opportunities and they’re prepared to go global and expand. We’re very wellpositioned here.”
Both Volpe and Azzopardi agreed the proposed changes are going to require automakers to make more product in North America and buy more locally produced parts if they intend to sell in this market. Even those companies with plants already in the U.S. will run afoul of potential tariffs if their vehicles don’t meet content regulations.
“Anyone expecting to supply into the NAFTA region without meeting the new requirements ought to watch the (U.S.) president’s use of Section 232 tariffs very closely,” said Volpe. The section has allowed the U.S. to impose tariffs on foreign steel and aluminum on the basis that they protect against a threat to national security.
“I am not sure that getting access by merely paying the (WTO’s) 2.5 per cent MFN tariff is a bankable prospect in the mid to long term.” Not only will companies have to buy more North American parts, said Azzopardi, but he expects to see automakers from low-cost countries in Asia building manufacturing plants on this continent. “China wants to import vehicles into North America,” Azzopardi said. “These content percentages and the parts list will force them to build assembly plants here if they want to sell here.”