As NAFTA Nears Completion, Business Interests Wonder How Auto Rules Will Change
Business interests who depend on NAFTA are trying to piece together a strategy for how to handle changes under a new deal, but there are differing opinions on what will happen to car rules of origin. Trade lawyer Daniel Ujczo, who chairs the Canadian-U.S. trade practice at Dickinson Wright, said in an interview that the U.S. trade representative is looking for a 75 percent North American content on high value parts, such as the engine and transmission, but may allow lower percentages for other tiers of parts. But Ujczo said his understanding is that the lower hurdle for parts doesn't eliminate the top-line requirement that 85 percent of cars' value must come from NAFTA partner countries in order to qualify for duty-free status.
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Most news reports have said that USTR Robert Lighthizer has agreed to come down from the 85 percent standard. El Economista, a business-focused Mexican newspaper, wrote that Mexican sources close to the negotiation are pleased that the U.S. is compromising on auto rules of origin, widely believed to be the highest priority for Lighthizer. El Economista wrote on April 20 that the U.S. is offering a 70 percent standard without the need to track specific parts, with a five-year transition period, or a 75 percent with parts tracking, and a 10-year transition.
Ujczo said currently no car or truck made in the region has more than 73 percent or 74 percent NAFTA content, and he says that changing the rules on specific parts tiers would create major compliance burdens. Given that the tariff on autos -- though not trucks -- is just 2.5 percent, will companies that assemble in Mexico or Canada just pay that rate rather than prove rules of origin?
"That’s what the Mexicans have argued -- it’s going to be so nominal anyway, companies are going to say we’ll pay the tariff," Ujczo said. He said the USTR is trying to call that bluff. "I think the Mexicans internally are having a debate of what’s the cost of this deal? Is automotive going to pay the price?" Ujczo said Lighthizer thinks he has the upper hand. "In the last month, USTR has sensed there’s blood in the water, that the Mexicans want to get a deal, and thinks he has maximum leverage," he said. But, he said, Mexico is pushing back, saying, "We’re not going to take any deal. You’re not going to squeeze every drop of blood out of us, let’s get real."
If the three countries reach an agreement in principle this week or next, Congress likely will not vote on it in 2018, Ujczo said. Even if President Donald Trump announces he will withdraw the U.S. from the current NAFTA, there is a six-month delay before a withdrawal can occur built into the agreement, and some experts say Trump cannot withdraw at all without agreement from Congress (see 1711150031).
The top negotiators on NAFTA are meeting again in Washington April 24. Trump tweeted about NAFTA on April 23, tying illegal immigration from Central America to the trade deal. Luis Videgaray Caso, Mexico's foreign minister, responded on Twitter that Mexico decides on migration based on its own sovereignty.