Scotiabank calls the U.S. NAFTA proposals on automotive rules of origin an “ill-conceived solution in search of a problem.”
The United States has proposed raising the minimum North American share for duty-free movement under NAFTA to 85 per cent on vehicles, with a new additional requirement that 50 per cent of their value must have been generated in America.
Under NAFTA’s existing rules of origin on automobiles, 62.5 per cent of the total value of a finished automobile must have originated in North America in order to qualify for NAFTA’s trade preferences
U.S. President Donald Trump insists raising those requirements would drive automakers to invest in the United States and create jobs there. Scotiabank disagrees.
“It would be an unnecessary restriction on the North American auto sector that would render it less competitive against its global peers,” the financial institution says in a report entitled NAFTA: Data at Odds with Proposed Changes to Auto Rules of Origin.
Scotiabank argues that “data don’t support the U.S. demand for tighter rules on autos.”
Economists reviewed a set of papers that find higher local content shares in Canadian- and Mexican-assembled manufactured goods and autos than in estimates presented in a recent cornerstone study by the U.S. Commerce Department that has been cited by U.S. Commerce Secretary Wilbur Ross.
Ross has said in the past that data is not available beyond 2011, but Scotiabank argues otherwise. It calls the information being used by U.S. Department of Commerce and the Organisation for Economic Cooperation “skewed.” Instead, Scotiabank cites a more recent U.S. National Highway and Transportation Safety Administration report in arguing against changing the rules of origin requirement.
According to the authors of the Scotiabank report, the U.S. government's own data, reported by the NHTSA, show that since 2011 U.S. and NAFTA content shares have generally increased in vehicles assembled in Canada and Mexico. Data also show it decreased in vehicles assembled in the United States.
“Our estimates show that across all auto models, the NAFTA content share increased from 71 per cent to 74 per cent in Mexico and from 68 per cent to 70 per cent in Canada during 2011–17,” the report reads. “More strikingly, these same data and methodologies imply that the NAFTA shares in autos built in the US have actually decreased since 2011. U.S.-assembled autos had a 71 per cent North American share in 2011, which dropped to 65 per cent by 2017.”
When it comes to auto parts production, “NAFTA members continue to dominate North American auto-parts markets,” the report says.
“We reckon that around 80 per cent of vehicle parts sold in North America originate from one of the NAFTA members,” the report says. “This share has remained stable since 2010.”
Scotiabank insists there is no reason to tinker with NAFTA’s current rules of origin and warn it could backfire on U.S. politicians.
“An amendment to NAFTA to tighten rules of origin on autos and auto parts—already amongst the most onerous in any trade agreement—may drive auto and parts production overseas rather than pull it back to the U.S. Compliance with an 85/50 NAFTA/US rule of origin may be nearly impossible for automakers to achieve.”