The US Administration and the NAFTA Automotive Rules: Now Is Not the Time for the Automotive Industry to Take Its Foot off the Gas

First, Mr. Ross’ opinion piece in the Washington Post entitled, “These NAFTA rules are killing our jobs“ does not mince words that significant changes will be pursued by the US Administration in making it more difficult for automotive products to receive NAFTA benefits in the form of duty reduction. These requirements – known as “rules of origin” –  are viewed by Mr. Ross as being outdated, and have led to the decrease in US content of manufactured goods imported into the US from Canada and Mexico and, as a consequence, US job decline. The Secretary concludes with a no-holes barred pledge to “fix the rules of origin.” Equally indicative was his closing sentence that the upward trend in US trade deficits “is going to change under President Trump, and rules of origin are just the beginning.”
 
The second message came on the same day from the Secretary’s Office of Public Relations announcing the release of an OECD report entitled: Trade in Value Added, a study on the decrease of American production value in US import trends and the increase of non-NAFTA inputs in US imports in the automotive and base material sectors.

The Secretary’s media team pulled no punches in their statement release, saying “[I]t has been widely assumed that American-made parts and components constitute a substantial percentage of the products that are manufactured in Mexico and Canada and imported by the United States. But that is increasingly not the case.” 

With Round Three of the NAFTA renegotiations proceeding this week in Canada, the tone and intention of the messages presented in both pieces are serious and deliberate and should not be taken lightly. Furthermore, in just a few weeks, US Trade Representative Robert Lighthizer will host the fourth round of NAFTA talks on his turf, Washington. During either or both rounds, it is likely that the US negotiators will propose changes in the current NAFTA rules targeting the automotive industry, particularly with regard to regional value content and tariff shift requirements, as well as to automotive-specific rules, such as tracing and “deemed originating.”

Since April, when President Trump announced the renegotiations of NAFTA, the US Administration has been clear on their objectives with regarding to NAFTA and the automotive industry, but less transparent on how it intends to meet them. These latest pronouncements leave no doubt that the US Administration’s position has not changed with respect to the NAFTA automotive rules of origin. And perhaps, more importantly, we may now have a better idea (or confirmation) of the tools the Administration intends to use to  achieve these objectives.