Vehicle Content Rules Still Slowing North American Trade Deal

Replacing the North American Free Trade Agreement (NAFTA) has proven difficult for the Trump administration. Trade negotiations have progressed slowly, with Mexico, Canada, and the United States rarely seeing eye-to-eye on most issues. Some of the biggest problems have dealt with content requirements.

The latest hangup stems from a rule requiring 70 percent of the steel and aluminum found in North American vehicles to come from the same continent in order to ensure a duty-free existence. Mexico isn’t keen on the proposal — as it sources a large amount of metal from Brazil, Japan and Germany. Meanwhile, the United States is attempting to use the inclusion to appease the United Steelworkers union and keep labor-focused jobs in the country.

According to Bloomberg, a letter from Mexico’s industrial chamber (La CONCAMIN) was sent to chief negotiator Jesus Seade on Wednesday. The document stipulates that the changes the U.S. is seeking on steel and aluminum are unacceptable and essentially impossible for the nation’s automakers to adhere to. It believes the rule threatens their competitiveness and risks destroying two decades of supply chain integration.

Seade reportedly returned to U.S. Trade Representative Robert Lighthizer’s office for more talks on Friday.

From Bloomberg:

On Monday, President Donald Trump announced plans to reinstate tariffs on steel and aluminum from Brazil and Argentina, nations he accused of devaluing their currencies to the detriment of U.S farmers.

Rules for cars are at the heart of Trump’s bid to replace the North American Free Trade Agreement with the so-called U.S.-Mexico-Canada Agreement, or USMCA, that gives more incentive to manufacture in the U.S. They were among the most difficult and painstaking issues to resolve in the negotiations last year.

“The USMCA rule of origin is challenging to comply with, but we can meet this additional requirement,” said Matt Blunt, President of the American Automotive Policy Council which represents the Detroit 3 automakers. “Passage of USMCA remains our highest priority.”

Another major sticking point for Mexico is a provision aimed at ensuring greater protections for the Mexican workforce, especially in the automotive sector. This particular item is being pushed hardest by American Democrats. But Mexico’s leadership has mixed feelings on the matter — fearful that higher wages could further reduce its competitiveness against the U.S. and Canada. On Thursday, House Speaker Nancy Pelosi told CNN she’s still optimistic the USMCA can be completed. However, she harbors concerns that there won’t be sufficient enforcement provisions in the final document and wouldn’t want to vote without them. Seade’s take is that bringing in U.S. inspectors to monitor the treatment of its workforce is totally unreasonable.

Unfortunately, if the USMCA doesn’t get passed, there’s a strong chance Trump will simply wish NAFTA out of existence. The clean-slate approach is one he said he’d be fine pursuing, suggesting the current trade deal is poisonous for the United States and that it could simply renegotiate with countries individually after its demise.

While economic analysts initially criticized the strategy as reckless, few believe member nations would prefer that outcome. Killing NAFTA with no replacement would bring untold levels of uncertainty, upending a regional economy trading more than $1 trillion in goods every year. While all nations would undoubtedly be hurt by such a decision, the U.S. would almost certainly emerge as the country in the best position to bargain once the dust had settled.

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