October 13, 2017 / 2:13 PM / 2 years ago

U.S. stance on auto industry sows more doubt about NAFTA overhaul

ARLINGTON, Va. (Reuters) - The Trump administration on Friday demanded that U.S.-made content account for half the value of the cars and trucks sold under the North American Free Trade Agreement, raising further doubts about any potential deal to renew the pact.

FILE PHOTO: New cars are shown for sale at a Chevrolet dealership in National City, California, U.S., June 30, 2017. REUTERS/Mike Blake/File Photo

Three sources briefed on the protectionist U.S. proposal, which is in line with President Donald Trump’s goal of shrinking a trade deficit with Mexico and stemming the loss of U.S. manufacturing jobs, said it also seeks sharply higher North American automotive content overall.

The proposal was made during contentious talks in Washington, in the fourth of seven planned rounds of negotiations to overhaul the treaty.

Some Mexican sources denounced it as “absurd,” but Juan Carlos Baker, Mexico’s deputy economy minister, put a brave face on the state of NAFTA negotiations at the halfway point.

“There’s no question there are some difficult proposals,” Baker told reporters at Mexico’s embassy in Washington.

He said Mexico will consider all of them, though he said, “It’s clear to us that there are certain things that are proposals that go against the country’s objectives.”

Trump, who claims that the original 1994 pact has been a disaster for the United States, is threatening to walk away from the agreement unless major changes are made.

Washington’s auto industry gambit came hot on the heels of its demand that NAFTA also contain a so-called sunset clause. That could mean any new deal expires in five years, an idea that Canada and Mexico also strongly oppose.

Although sources briefed on the talks describe the mood as sour, Mexican and Canadian politicians say there is no question of leaving the table for now.

A collapse of NAFTA would wreak havoc throughout the North American economy, disrupting highly integrated manufacturing supply chains and agricultural exports with steep tariffs that would snap back into place. Trade among the three countries has more than quadrupled since 1994 to over $1.2 trillion annually.

Sources close to the talks said Washington wants to increase the North American content requirement for trucks, autos and large engines to 85 percent from 62.5 percent over a period of years. That is in addition to its insistence that 50 percent of the products used in vehicle be U.S.-made within the first year of a signed deal.

The proposal also requires that steel, aluminum, copper, plastics, electronics and other parts be sourced from North America for vehicles to qualify for NAFTA tariff-free status.


Trump has made clear he prefers bilateral trade deals, and skeptics wonder whether the U.S. demands are part of an “America First” strategy designed to ensure the current talks fail.

The U.S. Chamber of Commerce has listed the demand for a greater use of U.S.-made products for vehicles among a number of “poison pill” proposals that it said would torpedo the talks. {nL4N1ML4JW]

The chamber says the proposal would cost jobs, since automakers and parts suppliers would likely forgo NAFTA benefits and simply pay the 2.5 percent U.S. tariff for imported cars and many parts.

Unifor, the union which represents most of Canada’s auto workers, said the U.S. proposals were deliberately untenable.

“Frankly, I think this is a bully move by the American government,” Unifor President Jerry Dias said in a statement.

Trump officials say current rules are too lax and allow auto companies to bring in too many cheap parts from China and other low-wage Asian countries.

Mexico is heavily dependent on the United States and NAFTA for its economic viability, and uncertainty over the outcome of the talks helped push the Mexican peso to near five-month lows this week.

Canadian officials said it was too soon to write off the deal-making process. They noted that U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo were due to meet in Washington on Tuesday to take stock of the negotiations.

Separately, U.S. negotiators on Friday formally asked Canada to address a bilateral dispute over dairy pricing, a request the Canadians are set to resist, sources familiar with the talks said.

Additional reporting by David Lawder in Arlington and Ana Isabel Martinez in Mexico City; Editing by Tom Brown and Leslie Adler

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