Commerce Secretary Wilbur Ross is optimistic the U.S., Canada and Mexico will be able complete a renegotiation of NAFTA before the end of the year.
Trump Administration officials may have just offered up the proposal that puts the final nail in the coffin of renegotiating the North American Free Trade Agreement as the largest potential beneficiary of the plan, the automotive industry, begs for the deal to remain unchanged.
U.S. negotiators proposed more stringent content standards on vehicles, engines and other components that would be largely favorable to U.S. companies, immediately drawing backlash from Canadian and Mexican officials. President Trump has long advocated pulling out of the deal, including earlier this week.
The administration believes vehicles must have more regional content to qualify for NAFTA tariff-free access, according to Reuters. Reportedly, Trump officials want to increase the North American content mandate to 85% from its current level of 62.5%, and 50% of content must be produced in the U.S.
The idea behind the move is to eliminate or severely restrict the ability of companies to use cheaper components from other countries, such as China, to cut costs and eliminate manufacturing jobs in the process.
(Commerce Sec’y Ross optimistic about NAFTA talks. For the story, Click Here.)
Negotiators from Canada and Mexico said the demands would be highly disruptive to the auto industry that is highly integrated. A Mexican source with direct knowledge of the talks called the auto content proposal “absurd,” Reuters reported. The new proposal comes a day after the U.S. team introduced a “sunset clause” into the talks. The clause would require a new approval of NAFTA by all three countries every five years.
The two moves have essentially thrown a wet blanket over the talks, which are just over half completed. Despite this, Trump officials have expressed optimism that a new deal can be reached before the end of the year.
That said, the automotive requirements come as scores of auto-related advocacy groups have called for the deal to remain largely unchanged or, in the case of the United Auto Workers, any changes should focus on helping Mexican auto workers, who currently work for $3 an hour, according to the union.
“(N)egotiators must comprehensively focus on balanced trade that provides real wage growth for American, Canadian with special emphasis on Mexican workers, whose suppressed wages are harmful for all three countries,” said UAW President Dennis Williams in a released statement.
(Click Here for details about Trump’s warning against NAFTA talks.)
“We must stop allowing companies to abuse their workers to gain a competitive edge. Toothless labor chapters from failed trade agreements will not get the job done. We need an innovative approach. If not, NAFTA will continue to fail workers as it has for nearly a quarter of a century.”
Other groups suggest increasing local content requirements would raise costs for consumers, hurt regional competitiveness and cause many companies to forego NAFTA’s benefits and simply pay the 2.5% U.S. tariff for imported cars and many parts.
AIADA President Cody Lusk noted that Edmunds predicts that the average vehicle transaction price will increase to an all-time high of $35,000. He added that American consumers can’t afford the additional costs that would come with disruptive changes to NAFTA.
“The auto industry is one of NAFTA’s biggest success stories and helped international nameplate dealers – located in cities and towns across America – to sell 8.4 million vehicles to American consumers last year resulting in 59% of total U.S. retail vehicle sales,” he said in a statement.
(U.S. trade leader says NAFTA has “failed” Americans. Click Here to see why.)
“While NAFTA modernization is important, we urge caution in considering the jobs that might be lost and the prices American consumers may incur as the result of changes to key aspects of the agreement.” The three sides are scheduled to meet again on Tuesday to discuss the state of the talks.