New buy North American rules for autos seen as key to NAFTA deal

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WASHINGTON — Insiders are suggesting that a NAFTA deal could be done within days with new rules on North American components for autos as a key factor.

The United States has signalled a desire to get a NAFTA agreement before a U.S. legislative deadline early next month and U.S. trade czar Robert Lighthizer is being dispatched to China for talks there next week.

Four people briefed on the NAFTA developments said all this fuels expectations of a deal as early as this week. (opens in a new window)

Foreign Affairs Minister Chrystia Freeland is in Washington for the second time in days and says good progress is being made, but she won’t comment on the timing.

“We’ll be done when we’re done,” she said. “We are working very intensively and we’re making good progress.”

She said autos are a major piece of the puzzle.

“The focus I think, again, today will be rules of origin for the automotive sector,” she said. “This is really the heart of the NAFTA agreement. We have been making good progress.”

Two sources familiar with the autos negotiations say the agreement would require high-value parts to consist mainly of North American steel, with one source suggesting a 70-per-cent threshold.

An industry stakeholder said the talks have entered a final phase and are rising to the political level.

President Donald Trump’s son-in-law, Jared Kushner, Mexico’s foreign minister, Luis Videgaray and Brian Clow, Justin Trudeau’s director of U.S. affairs, have suddenly appeared at the Washington talks.

Trump himself said things are going well.

“We’re doing very nicely with NAFTA. I can make a deal very quickly,” Trump said Tuesday before a meeting with French President Emmanuel Macron.

Flavio Volpe, head of the Canadian Automotive Parts Manufacturers Association, said the challenge now is getting the fine print crafted properly so that there is no inadvertent damage to the North American industry.

He said a particular concern is the number of years it will take to phase in the new rules. The U.S. has been proposing a two-year transition, but Volpe said auto investments are already locked in a few years in advance as companies work on five-to-seven-year cycles.

“If you make it happen quickly, it won’t happen,” Volpe said of the new rules.

“They’ll have to break contracts with current suppliers (if it’s done too quickly), pay for the moving (of supply chains) … and compensate now-former suppliers.”

He said companies could simply ignore the NAFTA rules and pay the tariff if they find the rules impossible to meet. He added that there aren’t any idle North American plants to which production could be immediately shifted.

Sources say that in addition to the requirement about steel, the new rules would also significantly ramp up the North American content requirement in cars, from the current 62.5 per cent to 75 per cent. High-value pieces like engines and batteries would have to be 75 per cent North American, mid-value parts like the electronics in seats would have to be 70 per cent North American and cheaper products like seat-belts would need to be 65 per cent North American.

 

 

The Canadian Press