Last week’s deal on a NAFTA reassessment eased some tensions between the United States and Mexico, though it didn’t end the uncertainty looming around the automotive supply chains in North America.
The administration is reminding its intention to the Congress of updating the regional trade pact. However, under the law for speedy reviews, negotiators will have 30 extra days to provide details.
Automotive industry executives are quite jittery awaiting the fine print so they can decide how much it would cost to meet aggressive new rules of origin that determine which vehicles and parts qualify for duty-free status.
Officially, the agreement would require that 75 percent of auto content be made in North America, up from 62.5 percent, to cross borders duty-free. It also would require that 40 to 45 percent of auto content be made by workers earning at least $16 per hour. Passenger vehicles would also be required to include a certain percentage of North American-produced steel and aluminum.
The US administration’s goal is to raise labor rates in Mexico, or at least discourage car companies from moving production out of the US in search of lower wage.
Automakers, particularly foreign brands, and suppliers gravitated towards the status quo, but they suggest that they are likely to accept the higher thresholds, even if grudgingly.
“Automakers, in general, have very low expectations about what is going to emerge from this process,” stated a former US trade negotiator. “Even though it’s going to add costs and be a pain in butt, compared to the possibility of no NAFTA, they’ll grit their teeth.”
Further, Rob Wildeboer, who is the executive chairman of Martinrea International Inc, said that the Ontario supplier “can live with” the content and wage rules the US and Mexico agreed to. He stated that the labor provision would not entail major changes. He also added that the $16/hour figure is in line with how vehicles are already produced in North America.
“I can’t see the supplier base complaining a whole lot, and I think that overall we haven’t increased the cost of making vehicles a lot,” he said.
Wildeboer stated the rules, if they were implemented, would not have a large impact on where automakers and suppliers build plants.
“If I am a European-based car company, and I find that it’s cheaper to make vehicles on Mexico and those vehicles are going to be imported into the EU, I’m probably going to be as inclined to build in Mexico as anywhere else, and that's what we’ve seen,” he stated.
“Similarly those Mexican states will compete with North Carolina, South Carolina, and other US states to say, ‘I’ll make it worth your while. Here’s $800 million to locate here.’ I think those things are going to continue,” he explained.