Auto sector sees potential in new NAFTA provisions
After more than three years of tense, often controversial negotiations, Wednesday marked the official start of the new North American Free Trade Agreement — which local economic watchdogs say finally removes an ominous cloud of uncertainty — especially in the auto sector.
New provisions in the Canada-u.s.-mexico free trade deal include wage upgrades in Mexico — particularly in the auto sector, so corporate investment does not drain so quickly to the south.
The deal has better defined parts quotas in place for the auto industry and manufacturers, and also opens doors for Mexico-based companies to expand into Canada and the U.S.
“This agreement, the result of extensive negotiations over the past three and a half years, is an essential pillar in preserving free and fair trade in North America,” said Deputy Prime Minister Chrystia Freeland, Canada’s leader in the international negotiations.
“The new NAFTA protects jobs and prosperity for workers in all three NAFTA countries. It is good for Canada and good for Canadian workers. It will help ensure North America emerges stronger from the COVID-19 pandemic.”
For the Windsor region, the agreement equates to largely good news, said Bill Anderson, director of the University of Windsor’s Cross-border Institute.
“From the perspective of auto parts manufacturers this makes them more competitive,” he said. “If you think about where this was during the first few months of negotiations with threats to automotive and other industries in this region, the outcome turned out pretty good. This could have been a lot worse.”
The wage disparity and low labour costs available to corporate investors in Mexico “is still going to be there,” Anderson said.
“But this puts a little sand in the gears,” he said. “It will slow down the growth of Mexico’s share of the auto industry.”
Canada can now better compete directly with each nation because of newly defined parts quotas that better protect manufacturers within Canada’s borders.
“That’s why you see the auto parts group being so enthusiastic about this,” Anderson said. “On the auto side of things, it ended up all pretty good.”
In terms of attracting investment locally, the new NAFTA will pay dividends, said Stephen Mackenzie, CEO for the Windsor-essex Economic Development Corp.
“The best example I can give you is how we have already been seeing inquiries from Mexican companies,” he said. “We have an announcement in two weeks of a Mexican company setting up operation in Windsor-essex.
“We are seeing that type of investment from Mexican companies that we have not seen in years. Is it directly related (to the new agreement)? I think it is.”
Mackenzie also expects companies will feel more “safe” in making major capital investments, including in the auto sector, now that the rules are clearly defined for many years to come.
“Uncertainty is a killer,” he said. “Having this (deal) enacted is an extra form of security.”
Both Anderson and Mackenzie lamented one issue left unresolved in the new trade agreement — an updated list of job classifications allowed to cross the border for work.
Many job types did not exist — most notably in the technology sector — when the original NAFTA was put in place nearly three decades ago.
A new list would have helped allow those in technology-related professions to cross into U.S. for work, but still reside in Canada — the same provision as health-care workers.
As it stands, a decision whether to grant a visa or work permit under certain professions not listed is often left to the discretion of an individual customs or immigration officer.
“They didn’t modernize the (eligible) occupations,” Anderson said. “There are some missed opportunities there.
“I’m guessing Canadians working in the U.S. touches some nerves — even though when it happens, it’s often very beneficial to the other side — like the health-care system. It may have been too much of a political hot potato.”