WASHINGTON — The structure of North America's manufacturing networks will be on the line when the first round of negotiations to rewrite the North American Free Trade Agreement begins here this week.
The central showdown is expected to revolve around the amount of regional content products must contain to qualify for duty-free status, the so-called rules of origin. How that contest plays out will have profound implications for the auto industry.
Officials in President Donald Trump’s administration have pointed to stricter rules of origin as one way to address reducing the US$60 billion bilateral trade deficit the United States has with Mexico and shifting more production to U.S. factories.
In the auto sector, 62.5 percent of a car's content value must come from the United States, Canada and Mexico to avoid duties when shipped across the border for final sale. The White House has signalled it wants to raise the regional-content threshold, and possibly even carve out a minimum requirement for U.S. content, to keep more local work and protect against greater use of imported Asian parts.
Automakers and free-trade proponents acknowledge that NAFTA deserves to be updated after a quarter century to reflect new economic realities, but warn that even minor adjustments to the rules of origin could upset the carefully constructed balance of economic interests among the United States, Mexico and Canada.