U.S. Proposes Labor Cost Targets, 4-Year Phase-in for NAFTA Content Rules

NAFTA trade negotiators from Canada and Mexico are reviewing a new U.S. proposal to impose wage goals on carmakers and give companies four years to hit higher local content targets, Reuters reports.

The head of the Mexican Auto Industry Assn. declares the new plan “not acceptable,” raising new questions about how close envoys are to an agreement to update the North American Free Trade Agreement.

Carmakers would need to satisfy both sets of rules—and locally source 70% of the aluminum and steel they use—to qualify for tariff-free vehicle shipments within the three-country North American Free Trade Agreement region, according to Reuters.

The U.S. proposal would require manufacturers to pay employees at least $16 per hour for work comprising 40% of the value of cars and 45% of the value of pickup trucks. Companies could use higher salaried paid for jobs in design, product development, engineering, sales and software to contribute 15 percentage points of the target.

The scheme would support relatively high-paying jobs in Canada and the U.S., while pressuring Mexico to raise auto assembler wages from the current average of about $6 per hour.

The U.S. proposal would grant carmakers four years to raise the regional content of their vehicles from the current 62.5% to 75%. Companies could win an additional two years to do so if they demonstrate sufficient progress. High-value components such as engines would need to meet the 75% target. Parts with lesser value would face a 60% local content requirement.