TORONTO — The new United States-Mexico-Canada Agreement should bring more jobs and investment to Canada, provided details surrounding local content and labour requirements are sorted out, Magna International Inc. CEO Don Walker said.
“There’s a lot of detail here, but overall I think it will be good for the industry,” Walker said Thursday at the Automotive News Canada Congress in Toronto. “There should be more jobs here and more investment here and more trading with great trading partners, the U.S. and Mexico.”
In order to ship between the countries duty-free under the USMCA, 75 per cent of a vehicle’s content must be sourced from within the three countries, up from 62.5 per cent under the North American Free Trade Agreement. It also requires 40 to 45 per cent of parts on a vehicle to be made by workers who make at least US$16 (C$21.21) per hour.
The deal was designed by the three countries to level the playing field after automakers under NAFTA opened numerous assembly plants in Mexico due to its cheaper labour costs. Suppliers in Canada have expressed optimism that regional content requirements would increase business for them. The Automotive Parts Manufacturers’ Association has estimated the USMCA would bring in up to C$8 billion in additional annual parts orders in Canada.
Walker said the USMCA makes the North American region as a whole more competitive with the rest of the world, particularly China.
In launching trade discussions in North America, the United States’ “real objective [was] to level the playing field with China,” he said. “I think it was probably 10 years too late, and they’d probably admit that. But China is going to roll over [North America] if we don’t get a stronger position and better negotiation with them. They’re a scary competitor.”
Walker cautioned that the transition from NAFTA to the USMCA’s rules could be too quick to allow the industry to properly understand and adjust to new regulations. Under the terms of the deal, the USMCA will go into effect 90 days after the final country ratifies the deal. Canada has yet to ratify the bill, while the United States and Mexico have.
Walker said he said he wrote a letter to Deputy Prime Minister Chrystia Freeland and United States Trade Representative Robert Lighthizer urging them to push that back to the start of 2021.
“We’re going to have to make sure all the OEMs approach it the same way, but there’s no way we’re going to get it done,” he said. “The fact is regional value content is going up. That should mean there’s going to be more local sourcing, unless it gets so complicated where they can’t meet the target, in which case somebody may say, ‘I’m going to make the vehicle outside of NAFTA, pay the duty and ship it in.’”
Walker also warned that if wages rise too quickly in Mexico as a result of the new trade pact, supply work could go overseas where it might still be cheaper.
"Be careful what you wish for," he said.
Prime Minister Justin Trudeau’s Liberal Party, now in a minority, requires votes from one of the opposition parties in Parliament in order for Canada to ratify the agreement. Walker urged the House of Commons to move quickly to ratify the USMCA.
“I hope there’s not going to be a lot of political debate for the sake of political debate,” he said. “I think it will get passed. You can’t really change it at this point.”