Weekly News Review | 3 September 2018 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Progress on NAFTA? Or another false dawn

Last week, US officials reached what has been described as a “preliminary agreement” with Mexico over what used to be known as the North American Free Trade Agreement (NAFTA). Only it’s not going to be called NAFTA any longer. According to President Donald Trump, the term NAFTA has a “bad connotation” so the new arrangement will be known as the United States/Mexico Trade Agreement. A rose by any other name you might think, except for one big difference. There is no mention of Canada, a key member of the previous tripartite agreement.

The new bilateral deal was expected to be put before Congress for approval before the end of last week. US sources also said that talks with Canada would also take place with a view to reaching an agreement within a week. Given the length of time the US has already spent negotiating with its northern neighbour on this issue, this time frame may seem a trifle optimistic. Nor is the arrangement with Mexico by any means a done deal. According to Mexican Economy Minister Ildefonso Guajardo last week, there is still one difference between the two countries which has not been resolved. He declined to say what that issue was.

The negotiations between the US and Mexico have been largely to do with the automotive industry. President Trump has long held the desire to repatriate automotive jobs which have migrated south. The putative new deal would require 75% of vehicle content to be manufactured in the US or Mexico, an increase on the 62.5% required by NAFTA. It also states that 40 to 45% of such content be produced by workers earning at least $16 an hour. Additionally, there is a requirement for passenger vehicles to include a certain%age of North American-produced steel and aluminium.

A deal struck between the US and Mexico may be beneficial for both sides but Canada would be left out in the cold. Could it be that the announcement of the tentative accord is merely a warning shot to the Canadians? Either reach an agreement quickly or miss the bus, in which case be subject to punitive tariffs imposed by the US on Canadian automotive exports. Of course, the whole affair might still prove to be a chimera. The sticking point referred to by Mr. Guajardo might yet be a deal-breaker. In which case, the whole sorry business goes back to square one.

Sam Ogle

Sam Ogle

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