Carmakers Align with Canada, Mexico on NAFTA Content Rules

Trade groups representing North America’s auto industry have joined Canada and Mexico to oppose a U.S. demand that the North American Free Trade Agreement hike U.S. content requirements.

Talks to update the 23-year-old pact began on Wednesday. As expected, the U.S. is taking a hard stance on so-called rules of origin. The regulations calculate local content and decide whether vehicles can avoid tariffs when shipped within North America.

“Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content,” declares U.S. Trade Representative Robert Lighthizer.

NAFTA currently requires 62.5% local content for vehicles and 60% local content for parts to qualify for duty-free movement within the three-country zone. Industry groups say those proportions are already higher than an other auto pact in the world.

But the Trump administration seeks to raise those targets and calculate content levels more specifically.

The Trump administration’s goal is to bring more jobs to the U.S. Backers note, for example, that the electronics content in cars when NAFTA began in 1994 was drastically lower than it is today. They say current rules of origin don’t do a good job of tracking electronics content, and they ignore the origin of software entirely.

Opponents say raising local content standards for the U.S. will result in higher prices and ultimately hurt rather than help U.S. employment.