ARLINGTON, Virginia -- A number of Canadian organizations involved in the automotive sector wasted no time in condemning U.S. demands on auto parts at the NAFTA negotiations, including a strict “Made In America” requirement that's viewed as a non-starter by virtually every party involved in automobile production.
The proposals contain three ideas that automakers say would complicate production: requiring all cars sold without tariffs to include 85 per cent North American content — up from the current 62.5 per cent. The proposals also call for 50 per cent U.S. content in all duty-free cars sold in the United States and an elaborate, detailed listing of parts that didn't exist in 1994 when NAFTA was introduced.
Canada and Mexico, the two other members of the pact, strongly oppose both ideas. A Mexican source with direct knowledge of the talks called the auto content proposal "absurd."
So impractical are the U.S. demands, the talk in the hallways at the conference site involves trying to decipher which of two objectives the Americans are trying to achieve: Sabotage the talks, or shock other parties into concessions.
A Canadian auto-parts representative tends toward the latter.
"My instinct is this is, 'Art of the Deal,"' said Flavio Volpe, president of the Canadian Automotive Parts Manufacturers’ Association. "There are those who think these are poison pills designed ... to get the partners to leave the table."
The auto proposal is so controversial organizations that are normally rivals are allied against it. Volpe's association says it could create a perverse incentive: producers might simply shift away from North America, and hurt the entire continent.
'IT'S NOT GOOD'
The argument is that it's far easier to ignore the NAFTA rules and simply pay the U.S. 2.5 per cent import tariff.
"It's not good for the Americans," Volpe said. "It just doesn't make sense from a business perspective."
The union representing Canadian auto workers agrees.
Unifor President Jerry Dias says the U.S. would never have the power to enforce the proposed changes because companies would just ignore it.
"All this argument about 50 per cent, 70 per cent, 85 per cent, it means nothing as long as the U.S. has a 2.5 per cent tariff. It's like the emperor with no clothes," Dias said. "They can yell, scream, threaten, then people say, 'Okay, here — I'll pay the 2.5 per cent."'
He said it's a moot point anyway because there's no chance Canada or Mexico will ever agree to a NAFTA that looks like what the Americans are proposing.
"Get it out of your head. That's never gonna happen," Dias said. "It's not going to happen. I know for sure that Canada will never accept (this)... None of these things are going anywhere... This is a deal that is going nowhere very quickly."
Scotiabank analysts agree the proposals would hurt their author.
Car companies would have an incentive to move production away from the U.S. and Canada — either to Asia or Mexico — and pay a tariff rather than deal with the rules being proposed by the U.S., said its deputy chief economist Brett House.
"If accepted, the U.S. [proposal] would be a Pyrrhic victory," he said.
House called the proposal a poor solution to a non-existent problem. Auto employment since the Great Recession has skyrocketed in the United States to six per cent a year, and he said North American content is on the rise in cars produced in Canada and Mexico, contrary to figures being floated by U.S. Commerce Secretary Wilbur Ross.
"There's no problem here to address," he said.
One real problem, however, is stagnant wages. U.S. auto salaries have not seen an appreciable increase for years, according to stats from the U.S. Bureau of Labor Statistics. Dias says that's the problem everyone should be attacking — by increasing labour standards, especially in Mexico.
Other people briefed on the talks told Reuters that the U.S. autos proposal would also require automakers to verify the use of North American steel, aluminum, copper and plastic resins in their vehicles.
Sources familiar with the talks say the mood is bad and question whether the negotiations can be wrapped up by the end of the year as planned.
Reuters contributed to this report.