U.S. to demand higher American auto content in NAFTA talks, Ross warns

Javier Stokes
September 24, 2017

Battalions of negotiators for Canada, Mexico and the United States have been working at a breakneck pace trying to reach agreement on a revamped North American free trade pact by the end of the year but so far they have little to show for it.

"If we don't fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the [U.S.] trade imbalance", Mr. Ross wrote in a recent opinion piece in The Washington Post.

Trade talks with the United States are proving to be hard since Canada is facing a trading partner that does not necessarily see the benefits of free trade, Rona Ambrose, a member of Canada's NAFTA Advisory Council, told BNN in an interview. Mexico is now the destination for more than one-third of all auto parts exports from the US, up from less than 5 per cent when NAFTA took effect in 1994.

During the same appearance, Ross said President Trump's administration doesn't want to "unnecessarily irritate" Congress with trade concerns as the legislative arm of the federal government works to achieve tax reform.

One literal barrier that could derail a deal is President Donald Trump's border wall, which Napolitano called "a political symbol and the wrong political symbol because it signifies that the United States somehow wants to wall itself off from Mexico". USA content in goods imported from Mexico fell even more - from 26 percent to 16 percent. "That is going to change under President [Donald] Trump, and rules of origin are just the beginning". The declining USA share of content in imports from Canada and Mexico puts those jobs at risk.

Canada has suggested it will walk away from the talks if Chapter 19 is tossed aside.

Canadian officials have said they don't expect any breakthroughs during the five-day session and suspect the USA will wait until closer to the end of negotiations to lay all its cards on the table. While the US imports more goods and services from Mexico annually than it is exporting to Mexico (commonly referred to as a "trade deficit"), Arizona experiences a $900 million economic benefit from the Arizona/Mexico trade equation.

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These data debunk the claim that USA content in the form of parts is so high that we shouldn't worry about headline gross-deficit figures. At the time, U.S. Trade Representative Robert Lighthizer, who will be in Ottawa on Wednesday for ministerial talks, said rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content.

Without those two additional measures, he says more jobs and investment will simply wind up flowing to Mexico or outside North America altogether.

As negotiators sit down, a survey by the Angus Reid Institute shows that Canadians' top priority in the talks is to ensure labour standards are equal across all three countries.

Two-thirds of the 38 banks and institutions that responded to the poll expected the outcome of the renegotiation to be largely neutral or positive for both Mexico and Canada. Commerce Secretary Wilbur Ross chimed in that ending the agreement is "the right thing" to do if the United States doesn't get what it wants by the end of the year.

That two-way trade, alone, supports 6 million U.S.jobs.

In a paper published Thursday, Scotiabank Economics argues that there is no need to tighten rules of origin for the auto sector; more than 75 per cent of vehicle parts are already made in North America.

"I think it's important that Canadians aren't naive and thinking we are going into these talks...with a partner on the other side of the table that is pro free-trade, perhaps not even pro fair-trade", said Ambrose.

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