U.S. auto part content proposals could sink NAFTA talks, experts say

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As NAFTA (North American Free Trade Agreement) negotiations continue, experts agree that the U.S. proposals put forth on the North American auto industry pose significant difficulties for Canada and Mexico.

On Friday, Oct. 13, the U.S. NAFTA negotiation team presented its proposed changes to the auto sector. These involve boosting the North American content requirements in all vehicles from 62.5 per cent to 85 per cent as well as implementing a “Made in America” content requirement of 50 per cent.

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Failure to meet these requirements would force corporations to pay a U.S. tariff of around 2.5 per cent. The changes would apply to trucks, automobiles and large vehicle parts.

Mexico’s deputy economy minister, Juan Carlos Baker, said at the halfway point of negotiations “there’s no question there’s some difficult proposals.” While he said Mexico would consider all of them, he states “it’s clear to us that there are certain things that are proposals that go against the country’s objectives.” Canadian negotiators have yet to formally comment on that motion.

Tony Faria, co-director of the Office of Automotive and Vehicle Research at the University of Windsor, believes that if these proposals are not walked back, they are virtually unacceptable.

Faria explained in an interview that these content requirements would have an adverse effect on the Canadian auto sector whether companies attempt to meet them, or simply decide to swallow the costs of the 2.5 per cent tariff.

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“Those numbers would never be acceptable…we’d end up with pretty much nothing coming from Canada.”

While he hopes that the three nations are able come to an agreement, he doesn’t believe it’s possible if the Trump administration doesn’t come down on their proposed content restrictions.

Carleton University international affairs professor went a step further to say these proposals are “bordering on ridiculous.” He explains that the auto sector would suffer greatly in Canada if vehicle manufacturers were to attempt to meet those requirements.

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“It would reduce them to assembly, and the parts people would be overlooked in many cases. It would [also] certainly harm the Japanese producers in Canada.”

Experts are also in agreement that if these content requirements were to be implemented, employment in Canada’s auto sector would also suffer as a result.

Unifor president Jerry Dias, the largest union representing auto workers in Canada, says that if taken at face value, content requirements like this could barrage Canada’s auto and steel industries.

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“[This] means the auto industry in Canada is dead. The steel industry is completely wiped out. Everything with wheels is going to be caught by this,” Dias explained.

While he doesn’t think the proposal will hold up with the other countries at the negotiating table, Dias said that if content requirements become too difficult to meet, they may decide to save time and money by producing the vast majority of vehicle parts inside the United States.

He calls the potential effects of that move on auto Canadian manufacturing “devastating.”

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Erin O’Toole, Conservative federal MP for the Durham region, has been an outspoken critic of the way the auto industry has been handled in NAFTA negotiations thus far. Global News also reached out to the Liberal Party of Canada but did not receive a comment.

While he believes that these proposals would “hamstring all the big three [auto manufacturers] in Ontario,” and that accepting them would be “detrimental for jobs,” he hasn’t lost hope for an updated NAFTA that works for everyone.

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“You can come into a negotiation taking very strong, aggressive positions,” O’Toole explained. O’Toole called the content requirements “virtually unacceptable as is,” but he believes it’s in the best interest of Canadian and American industries to work towards a middle ground before the end-of-year negotiation deadline.

“We still have time to drive towards a consensus.”

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