[CTC] In Nafta Talks, U.S. Pushes Mexico to Raise Wages for Its Auto Workers

[Arthur Stamoulis]

https://www.wsj.com/articles/u-s-pushes-nafta-partners-to-accept-a-wage-floor-in-auto-sector-1525685401?mod=searchresults&page=1&pos=1 <https://www.wsj.com/articles/u-s-pushes-nafta-partners-to-accept-a-wage-floor-in-auto-sector-1525685401?mod=searchresults&page=1&pos=1>


POLITICS
 
In Nafta Talks, U.S. Pushes Mexico to Raise Wages for Its Auto Workers
The proposal is designed to erode a labor cost advantage and bring American auto-sector jobs back                                                                                                                                     
 
By William Mauldin 
May 7, 2018
 
The U.S. is seeking to complete its overhaul of the North American Free Trade Agreement with new rules that would penalize the Mexican auto industry—unless it boosts wages to about $16 an hour.
 
President Donald Trump’s administration is winning some support from Detroit auto makers for its Nafta proposals by including terms that would favor U.S.-based manufacturers over Asian and European rivals that produce cars in the U.S.
 
Support from Detroit might help the administration reach its goal of concluding a Nafta deal by mid-May, which could allow it to push the pact through Congress by year’s end.
 
Under Nafta, U.S. manufacturers have produced cars and parts in Mexico, where wages are lower, but Mr. Trump’s administration is now seeking to force Mexican factories to pay more for labor—or send auto jobs back to the U.S. or Canada.
 
Robert Lighthizer, the U.S. trade representative and lead negotiator for the administration, is reworking Nafta to require that 40% of the content of any car that trades duty free within the North American bloc must come from workers who earn above a particular wage level, according to industry officials familiar with the trade negotiations.
 
In recent talks, the U.S. has discussed a wage floor of about $16 an hour, the officials said. By comparison, Mexican vehicle-assembly workers made less than $8 an hour on average in 2017, with those at parts plants making less than $4 an hour, according to the Center for Automotive Research, a nonprofit research group.
 
Cars that don’t have at least 40% of their content produced with labor at or above the wage floor would be ineligible for duty-free trade and be subject to tariffs at the border, according to the proposal. For light trucks, a higher amount—45% of the vehicle—would have to come from such higher-wage labor, the officials said.
 
U.S. negotiators have struggled for months to write concrete rules to bring back auto jobs without granting special privileges to the U.S. or explicitly singling out Mexico. Mexican and Canadian officials had flatly rejected a previous Washington proposal that would have required high levels of U.S.-specific content in cars.
 
U.S. officials have declined to discuss their proposals or the negotiating process in detail. But industry officials said a wage level of about $16 an hour is high enough to put a cap on Mexico’s labor-cost advantage in the industry, but low enough that U.S. and Canadian-made cars and parts don’t trigger tariffs at the border.
 
Mexico’s auto industry—which includes major manufacturing operations run by auto makers from the U.S., Japan and elsewhere—rejected the latest U.S. wages proposal last week.
 
The Mexican government, however, is open to a Nafta deal before its July 1 presidential election, and senior Mexican officials are expected to introduce a counterproposal or compromise this week, when talks resume in Washington.
 
Mexican economy minister Ildefonso Guajardo said Monday in Washington that officials are working on the auto rules as well as other disputed provisions in Nafta in hopes of achieving a comprehensive deal, adding that talks will continue as long as needed.
 
The American Automotive Policy Council, which represents Fiat Chrysler Automobiles NV , Ford Motor Co . , and  General Motors Co. , said it is encouraged by the latest version of the rules. U.S. auto makers would get credit for higher wages not only on the factory floor, but also in the areas of research and development, marketing and perhaps administrative work, industry officials said.
 
White-collar work in North America could contribute up to 15% toward the car’s 40% labor threshold—which could potentially allow a car to qualify for duty-free treatment if 25% of its physical content were made with high-wage labor, the officials said.
 
The credit for R&D would lift the Detroit manufacturers because they do the overwhelming amount of research, design and marketing work in North America. German, Japanese and Korean auto makers, by comparison, tend to do a greater amount of their R&D overseas.
 
Last week, an association of global vehicle makers said it was concerned about the latest talks. “It is important that the agreement create feasible automotive rules that treat all U.S. auto producers equally,” said John Bozzella, president of Global Automakers, a group that includes Toyota Motor Corp. and Kia Motors Corp.
 
Mr. Trump, a Republican, was elected in part because of trade concerns in the Midwest. But German, Japanese and Korean auto makers have numerous plants in the Southeast, often in Republican districts, and lobbyists are urging lawmakers from those regions to complain that the Nafta proposals would put these plants—and the local workers they employ—at a disadvantage.
 
 
If the proposals are enacted, the burden for calculating whether a car meets the labor rule would fall largely on auto makers that do the final assembly. The rules could lead to significant costs for auto-parts suppliers as they shift production to help their customers, the big auto makers, meet the rules, in addition to administrative expenses to ensure compliance.
 
“We are approaching this with caution because of the potential for administrative burdens placed on suppliers,” said Ann Wilson, senior vice president at the Washington-based Motor Equipment & Manufacturers Association, which represents major auto suppliers.
 
Big Canadian auto suppliers could get some extra business back home under proposals promoting higher-wage labor. Still, many Canadian companies remain cautious, in part because the rules could weigh on their Mexican operations.
 
“This proposal disproportionately affects Mexico and interests in Mexico and Mexican firms, and so it’s incumbent on the Mexican government to oppose it,” said Flavio Volpe, president of the Toronto-based Automotive Parts Manufacturers’ Association “We’re advising Canada not to comment or take a position until the Mexicans do.”
 
A spokesman for the United Auto Workers union declined to comment on the continuing negotiations. Overall, U.S. labor unions have been supportive of the Trump administration’s approach and have said they could potentially support a new Nafta deal.
 
Mr. Lighthizer said he hopes his blueprint for a revised Nafta, including a new chapter on labor rules targeted at Mexico, will win the votes of a significant number of Democratic lawmakers.
 
Rep. Sander Levin (D., Mich.), a member of the House committee that oversees trade, said the wages proposal is an indirect way of dealing with basic labor issues in Mexico. “They’re trying to do indirectly what needs to be done directly,” Mr. Levin said.
 
Appeared in the May 8, 2018, print edition as 'Nafta Talks Turn on Mexican Auto Wages.'
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