Mexico Claims Carmakers Want No Change to NAFTA Local Content Rule

The head of Mexico’s auto industry trade group tells Reuters that carmakers in North America agree there should be no change in the North American Free Trade Agreement’s local content standard.

NAFTA’s so-called rules of origin dictate that light-duty vehicles assembled in Canada, Mexico or the U.S. may be shipped duty-free among the three countries if at least 62.5% of their content came from within the region. Heavy-duty vehicles must contain at least 60% local content.

But that means more than one-third of the content of a “locally produced” vehicle could come from non-NAFTA countries outside North America. Those components would enjoy the same duty-free status as the vehicle itself—or similar parts coming from suppliers inside the NAFTA region.

Critics say raising the local content requirement to as much as 90% would create more jobs in NAFTA countries by shrinking the proportion of parts allowed in tariff-free cars that were supplied from outside the region.

But Eduardo Solis, president of the Mexican Automotive Industry Assn. (AMIA), tells Reuters that the current standard has been crucial in NAFTA’s success. “We shouldn’t be touching something as important as the rules of origin,” he asserts.

Last Thursday the White House formally launched a 90-day “consultation” period that would allow it to reopen the trade agreement by Aug. 16. Between now and then, the Trump administration would gather input from business, government and the public about how the 24-year-old pact might be modified.

President Trump has vowed to abandon NAFTA unless the accord can be changed with policies that would increase U.S. jobs. Carmakers and suppliers have urged caution, warning that sweeping changes in the agreement would disrupt complex international supply chains and could boost new-car prices.