Here we go again
It’s New Year, and one resolution that doesn’t look likely any time soon is that between the United States, Canada and Mexico over NAFTA. The three-way negotiations have reconvened in Montreal, but it would take an extreme optimist to predict any positive result. One area where some analysts remain hopeful concerns the regulations over rules of origin, the percentage share of a typical car which must be manufactured in each of the three countries. Currently, this stands at 62.5% but US President Donald Trump wants to see it increase to 85%. Trump’s proposals do not meet with the approval of the Canadian or Mexican delegations although both parties have indicated their willingness to discuss the issue. As always in such negotiations the devil appears to be in the detail. Dennis Darby, CEO of the Canadian Manufacturers and Exporters industry group has spoken of potential changes to the way the actual value of a car is calculated, notably to include technological developments, while Trump seeks to broaden the list of components whose origins are actually being traced. Some of these are currently classed as domestic and risk being reclassified as foreign.
At least Canada now seems to be prepared to contribute more meaningfully to the discussions, something which had previously rankled with the US delegation, and it is expected that it will table counter-proposals which may lead to some progress being made. Meanwhile, the Mexican delegates are playing their cards close to their chests while the other two parties wrangle. It is believed that they would be prepared to compromise on rules of origin but their proposals have not, as yet, been made clear.
A couple of weeks ago Don Walker, the CEO of North America’s largest automotive supplier, Magna International, warned that the whole NAFTA region could be damaged if the agreement were to become overly complex. If it becomes too complicated, too bureaucratic and so costly that it mitigates against low-cost, labour intensive products entering into the region automotive suppliers and OEMs would feel the pinch. Walker described it as a potential lose-lose-lose situation.
NAFTA has now been in force for 24 years during which time it has seen the dramatic resurgence of the automotive industry in Mexico whilst not appearing to have unduly disadvantaged that in the US, if at all. It would be a shame if the three nations could not find common ground and if the baby was thrown out with the bath water.
Simon Duval Smith
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