TORONTO — Canada’s $32 billion a year auto parts industry is being told to brace for increased costs and complexity under the new U.S-Mexico-Canada free trade agreement.
While the agreement has yet to be ratified and faces an uncertain road ahead through a Democratic dominated House in the U.S, auto suppliers say their customers are already trying to figure out whether they meet the new trade deal requirements.
“The administrative burden is huge,” Karin Muller, director of customs compliance and trade governance, for Magna International Inc., told a conference of Canadian auto industry suppliers In Toronto Tuesday.
Magna, Canada’s largest autoparts maker, has already assembled a team to go through its contracts to see whether they conform, Muller told the conference organized by the Automotive Parts Manufacturers’ Association.
The good news for Canada’s auto suppliers is the deal’s higher local content requirements means their customers will have to buy 25 to 30 per cent more from North American suppliers, said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.
“This deal is worth $6-$8 billion more in annual purchases for Canadian suppliers,” he said.
“We’re going to get out first uptick in business on Jan.1, 2020,” he said, referring to the start of a three-year phase in period for the deal.
“If you’re not ready to bid on that new business, you should be,” he said.
The new trade deal raises the local content requirement for North American automakers to between 65 and 75 per cent — depending on the component —from the previous 62.5 per cent required under the North American Free Trade agreement it will replace.
As well, 40 per cent of the value of a vehicle must be made in a plant that pays an average of at least US$16 an hour.
But, the devil is in the details, auto suppliers heard, as many questions remain about how all this will be calculated and enforced.
“Everything I’ve just talked about adds cost to producing vehicles and parts in North America,” Kristen Dziczek, a vice-president with the Center for Automotive Research in Ann Arbour, Mich., told the conference.
All three countries are expected to sign the tentative deal reached in September by the end of November.
But it will still need the approval of all three governments. While Canada and Mexico are expected to give the pact swift approval, in the U.S., it’s expected to be a long and bumpy process as now that the Democrats control the House.