Automotive "Country of Origin" standard a NAFTA sticking point

Mar 12, 2018

Automotive Assembly Line
Credit Wikimedia Commons

The 7th round of North American Free Trade Agreement talks have come to an end. One renegotiation sticking point involves automotive production and what is called the “country of origin” provision. Can U.S. demands be met? WGVU recently spoke with an automotive analyst and the Consul General of Canada to find out.

Under the rules of origin, Douglas George, Consul General of Canada explains NAFTA trade bloc partner products must contain 62.5 percent of regional content in order to qualify for no tariff.

“Which is the highest in any trade agreement in the world.”

U.S. negotiators are demanding North American manufactured cars and trucks contain 85-percent regional content with 50-percent manufactured in the United States.

“The U.S. industry says this is nonviable. Canada thinks it would be damaging. One, we can’t agree to a U.S content and 85-percent we don’t think works. And this proposal A wouldn’t fly and B would be damaging if it was ever put into place.”

Why don’t the numbers add up?

“When we talk about the U.S. percentage of 50-percent that may even be the taller order of both.”

Mike Wall is director of automotive analysis for IHS Markit.

“Because that’s not how those supply chains have been borne out we have parts that are literally are crossing the border four, five, six times at a given time frame so it’s really tricky.”

Do you grandfather or count parts differently? Wall says the supply chain is flexible and can evolve but that it takes time. He tells me there’s a perception that if 50-percent of automotive components are U.S. manufactured there will be greater investment and expansion and grow jobs. The reality is that automation does more with less.

“Way back in the day you might be adding a 1,000 head count or adding 600, 700. Now, we’re talking about adding 50. Maybe 100 if we’re lucky.”

Don’t get Wall wrong, that’s still a good thing.

The Consul General says his country is for encouraging production, too and is proposing changing the rules of origin to make them more user friendly.

“We want to encourage working on the new technologies developing them here so they’re produced here, so the cars are produced here, so that we’re at the leading edge. We think we can use the rule of origin to our advantage. Not just Canada, but all three countries advantage, and that’s what we propose.”

“Hopefully at the end of the day we get to a meeting of the minds across all three countries," wall explained, " And maybe we get some modernization, I think that’s always a good thing, but it just hasn’t really been talked about the last 20 some odd years. And if we do get some changes in the contenting, particularly in the NAFTA region contenting, we can likely work within those parameters but it’s just a matter of magnitude. And then, again, how much time do we have to really do that and make that happen.”

Mr. George is on board with that sentiment, “It’s an area that has great potential as long as all three countries are willing to work toward the same end which is a win-win-win.”

While that may be true, reaching a consensus on the percentage of automotive content is a sticking point slowing NAFTA renegotiations.

Patrick Center, WGVU News.