Mexican Officials Prepare Auto Rules of Origin Counterproposal

February 21, 2018 by Mara Lee|International Sources

With less than a week before the seventh round of NAFTA talks begin, top Mexican officials are talking about working with the country's auto industry to shape a proposal on auto rules of origin. The Office of the U.S. Trade Representative has suggested that vehicles contain 85 percent North American content to qualify as duty free, and that half of the content come from the United States (see 1712120022). Detroit automakers have said that would be massively disruptive and make cars more expensive.

Mexican Economy Minister Ildefonso Guajardo told reporters in Mexico earlier this week that Mexico will have a new proposal at the next round, and it will be written in cooperation with the country's auto lobby, according to a MENAFN report. El Financiero reported that Kenneth Smith Ramos, Mexico's chief NAFTA negotiator, said his fellow negotiators “feel there can be an automotive sector solution” even though they don't believe there's a problem with the way autos are currently treated under NAFTA. “We're not at the point of putting a proposal on the table,” he told the newspaper, adding that to do so would be “telegraphing the pass.”

On Feb. 20, Moody's Investors Service released a report that said uncertainty about the future of NAFTA continues to cloud Mexico's bond ratings. “Moody's baseline scenario remains that an agreement for a revised treaty will be reached by the end of March 2018,” the release said. It said it's also possible the U.S., Canada and Mexico continue making progress, but it takes until mid-2019 to reach agreement. Another outcome could be an end to NAFTA but Mexico and the United States transition to a bilateral agreement based on WTO rules. Moody's said a path where the U.S. exits NAFTA and raises tariffs on Mexican goods and introduces other barriers to trade would drive Mexico into recession. “The main risk under this scenario is related to the heightened level of uncertainty associated to US trade policies and the Mexican authorities' reaction to that.”