NAFTA talks turn tough Friday as auto sector leads agenda
Industry, Canadian and Mexico officials to challenge push for rules favouring U.S.
While U.S. President Donald Trump tweeted up a storm Thursday, the massive trade negotiation he launched was off to a quick, quiet start in the boardrooms of a Washington hotel.
Separate working groups on more than two dozen topics are holding their first encounters in this week’s initial round of North American trade talks, including groups that will deal with some of the thorniest topics.
Those working on government procurement and intellectual property were meeting Thursday; on auto-parts rules of origin Friday; and on agriculture Saturday, according to a schedule obtained by The Canadian Press.
While the original talks were expected to focus on formalities, one official said they will go beyond the simple setting of schedules and will delve immediately into actual substance.
He illustrated it with a sports metaphor: “It’s like a hockey season — with no pre-season.”
Several participants have called it an unprecedented pace for international trade negotiations, prompted by Trump’s election. The countries are aiming to get a deal wrapped up before the Mexican election next summer.
Trump’s trade czar Robert Lighthizer kicked off the event by declaring himself on the same page as the president and insisting on major changes to NAFTA. He made a more specific remark that pointed to an irritant ahead on automobiles.
“Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content. Country of origin should be verified, not ‘deemed,’” Lighthizer said on Wednesday.
One senior Mexican official, speaking on background Thursday, said it’s unclear what Lighthizer will seek.
His own theory is that the U.S. will seek various avenues to steer manufacturing to the U.S., and isn’t wedded to one specific path yet. He said he believes Lighthizer was floating a U.S.-specific rule as a possibility: “He’s hinting at it.”
The American negotiating strategy starts with the premise that trade deficits are bad, the U.S. has been running them for years, and the country needs to start importing less and exporting more.
Most mainstream economists challenge that assumption. So does the Canadian government.
Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo both said they were not in favour of specific national rules of origin within NAFTA — a position that the auto industry agrees with.
“We certainly think a U.S.-specific requirement would greatly complicate the ability of companies, particularly small- and medium-size enterprises, to take advantage of the benefits of NAFTA,” said Matt Blunt, president of the American Automotive Policy Council. The trade group represents General Motors, Ford, and Fiat Chrysler.
His comments were echoed by Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association.
“Anytime you say this list or a part of this list has to come from one specific country you’re going to hurt all three countries,” he said.
The United States had an autos and auto parts trade deficits of US$74 billion with Mexico and US$5.6 billion with Canada.
Lighthizer’s mention of tightening verification requirements is a reference to expanding the parts tracing list, which is used to determine whether companies meet the 62.5-per-cent North American content requirement for autos and 60 per cent for components.
Devised in the early 1990s, the tracing list covers almost none of the sophisticated electronics found in today’s cars and trucks, most of which come from Asia. Putting these on the tracing list could force suppliers to source these components from North America or pay tariffs on them.
Volpe said any changes to this must also capture the North American system design work and software content for these components that are not currently included. “A car today probably has 25 to 30 per cent advanced electronics, software content in it. In 1994, it had zero or one per cent,” Volpe said. “Could you address the tracing to help you get to NAFTA compliance level by capturing some of the work that’s being done in Silicon Valley or Waterloo, Canada? Yes.”
John Bozzella, CEO of the Association of Global Automakers, which represents international-brand carmakers, said NAFTA has allowed a major expansion of auto exports, with more than one million more vehicles built annually in the United States than in 1993.
“Negotiators should be mindful of this success as they work to modernize the agreement,” Bozzella said, whose organization represents international brand carmakers with U.S. plants, including Toyota Motor Corp, Honda Motor Co Ltd and BMW.