Auto Interests Diverge on US NAFTA Proposal for Rules of Origin

Mexico's auto industry is against the U.S. proposal to require higher-wage work as part of the NAFTA rules of origin that make it possible for Canadian and Mexican assembly plants to sell cars into the U.S. duty free. The Wall Street Journal recently quoted the head of the Mexican auto parts manufacturers' trade group, Eduardo Solis: "'The U.S. proposal isn’t acceptable. The percentage, the transitions, the restrictions. You have to understand the U.S. proposal is like putting padlocks on padlocks,' Mr. Solis said of the two-layered rule of origin. 'Imagine a car that does comply with the percentage, but doesn’t comply with all the core parts. Or you comply with core parts but don’t meet the steel and aluminum requirements. Or you comply with the first three but you don’t meet the wage requirements.'"

According to The Wall Street Journal, the U.S. is proposing an overall 75 percent North American content standard, a 75 percent standard for core auto parts, a requirement that 40 percent of the car content and 45 percent of truck content be produced at $16 an hour or more, and that 70 percent of steel come from NAFTA countries. There would be a four-year transition period for cars, and two years for trucks.

But American auto interests have diverged, with one recently saying the U.S. trade representative is on the right track and another saying "the draft currently being discussed may not achieve the Administration’s goal." The latter comment, from the Auto Alliance, suggests that too-strict rules of origin will move production to lower-cost countries in Asia rather than keep work in the region. The Auto Alliance includes both American firms and foreign firms that assemble cars in the U.S. and Mexico, as well as some auto companies that sell in the U.S. but do not assemble cars in the NAFTA region.

In contrast, the American Automotive Policy Council, which represents General Motors, Ford and Fiat-Chrysler, said: "We are encouraged by the direction the discussions have taken in recent weeks," adding that there has been "constructive dialogue" between U.S. industry voices and the administration.