[CTC] U.S. NAFTA auto rules proposal includes four-year phase-in, new wage threshold

[Arthur Stamoulis]

INSIDE US TRADE
U.S. NAFTA auto rules proposal includes four-year phase-in, new wage threshold
April 30, 2018
The latest U.S. proposal for a new North American Free Trade Agreement auto rule of origin includes a new labor value content requirement and four-year phase-ins for higher regional value content requirements covering parts, which could be extended another two years if companies demonstrated “due diligence” in complying with the rule, according to a document reviewed by Inside U.S. Trade.
Sources said the document reflects the U.S. position after Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo left Washington, DC, on April 27 for ministerial-level talks that dealt extensively with auto rules – a key sticking point in the talks.
The previous U.S. proposal included a three-year transition period and did not mention the possibility of extensions. Importing countries would be responsible for granting extensions under the new proposal.
The new U.S. proposal ups the labor value content threshold on the surface, but allows for research and development to count as a higher percentage of the labor content than the previous proposal would have. It calls for at least 40 percent of light-duty vehicles and 45 percent of pickup trucks to be made by workers that make at least $16 per hour. However, salaries for research and development, product development, sales and software could be applied to up to 15 percent of that threshold, effectively reducing the requirement to 25 percent for light duty vehicles and 30 percent for pickup trucks, the document says. The previous U.S. proposal capped the amount that research and development could count toward the labor content at 5 percent.
The proposal maintains three auto parts categories laid out in the previous U.S. proposal – core, principal and complimentary – but changes the regional value content requirement for the latter from 65 percent to 70 percent. Core parts would still have to have 75 percent regional content and principal parts would need 70 percent regional content to qualify for NAFTA preferences.
A requirement previously proposed by the U.S., which held that 70 percent of core parts must be made with North American steel and aluminum, is also changed in the new proposal, moving the onus from parts suppliers to vehicle manufacturers. Instead of the steel and aluminum requirement applying to core parts, the new proposal calls for it to apply to purchases made by vehicle manufacturers, according to the document, making it no longer applicable to suppliers.
Auto groups on Monday issued statements on the progress of the NAFTA talks, with a coalition of U.S. auto companies saying it was encouraged by their direction and a more diverse group of automakers urging the Trump administration to proceed with caution.
“[The American Automotive Policy Council] and its member companies support modernizing NAFTA, and appreciate the constructive dialogue that has occurred between U.S. industry and the administration to update the automotive rules of origin,” the group – which includes Ford, General Motors, and Fiat Chrysler Automobiles – said in a statement. “A balanced outcome is critical and we are encouraged by the direction the discussions have taken in recent weeks. We share the administration’s overall goals of strengthening U.S. auto manufacturing and creating jobs and given the importance of NAFTA to U.S. industry we urge the negotiators to quickly complete the negotiations.”
But the Auto Alliance, which includes AAPC member companies as well as auto manufacturers from Europe and Asia, issued a statement suggesting more wariness about the new U.S. proposal.
“Alliance members support the Administration’s goal of growing U.S. auto manufacturing and jobs,” the group said. “However, there is a delicate balance that must be struck with auto rules of origin – one that continues to incentivize production in North America versus forgoing the NAFTA benefits and moving production to other low-cost production regions. The Alliance is concerned that the draft currently being discussed may not achieve the Administration’s goal, and urges the Administration to ensure that a modernized NAFTA continues to strike the right balance.”
A private-sector rules-of-origin analyst suggested that divide between the auto groups could be rooted in the U.S.-proposed provision that would allow companies to use research and development to count as up to 15 percent of a vehicle’s labor value content. U.S. auto companies conduct research and development in North America, while European and Asian manufacturers generally do not. – Brett Fortnam(bfortnam at iwpnews.com <mailto:bfortnam at iwpnews.com>)
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