Automakers say NAFTA has had tremendous benefits for the U.S. economy even though it led to some manufacturing job losses. The industry is open to “modernizing” NAFTA, but wants to block some proposals as the U.S. works to renegotiate the free trade agreement. Brent Snavely, Detroit Free Press
Automakers are embracing the Trump administration’s decision to renegotiate the North American Free Trade Agreement as a rare opportunity to push for improvements to the trade deal that would benefit the industry but are concerned about some administration goals that could harm profits and jobs.
Auto industry groups plan to be fully engaged in negotiations that start Wednesday and are expected to last six or seven months.
The automotive industry wants to be able to ship parts and vehicles back and forth across the border with less red tape, wants negotiators to understand that billions of dollars have been spent to develop a highly efficient North American manufacturing supply chain and is fighting to block any changes to the percentage of parts made in the originating country to qualify for tariff-free trade.
“This is a once-in-a-generation — if not lifetime — opportunity to modernize the North American Free Trade Agreement,” Daniel Ujczo, a partner with Dickinson Wright and president of the Ohio-Canada Business Association told the Free Press. “These opportunities do not come around the corner too often. I think if we miss this opportunity … we may not have it again in my lifetime.”
Industry groups also say the existing trade deal, which was negotiated before the Internet and e-mail emerged as a way to conduct business, is outdated in many ways and is pushing a set of improvements to the way documentation is conducted and wants to ease restrictions on the ability to send teams of technicians across borders for short periods of time.
“If we don’t have these conversations again for another 20 years, we will have missed an opportunity,” said Ann Wilson, senior vice president of government affairs of the Motor & Equipment Manufacturers Association.
Why does the opportunity exist? Because last year, both Donald Trump and former Democratic presidential candidate Bernie Sanders harnessed voter anger over manufacturing job losses, castigating NAFTA as the culprit and vowing to replace it.
The auto industry also argues that Mexico provides the industry with an essential location for low-cost production and says NAFTA has ensured that North America, as a region, is competitive with other leading automotive regions across the world.
That puts industry groups directly at odds with unions that represent auto workers who find themselves oddly aligned with Trump and are also trying to seize the negotiations as an opportunity to push for better wages, benefits and worker rights for Mexican workers.
But industry groups have formed a unified front on most issues affecting the industry.
At least five industry groups representing automakers and suppliers, along with two labor unions that represent auto workers, filed position papers with the U.S. Trade Representative in June and testified during three days of hearings. They include Alliance of Automobile Manufacturers, American Automotive Policy Council, Global Automakers, Motor Equipment Manufacturers Association, Ohio Canada Business Association, the UAW and Unifor.
Here is a what the industry wants and doesn’t want from a new NAFTA agreement:
Protect the efficiency of North American automotive production: First and foremost, the industry argues that Mexico offers an essential location for low-cost automotive parts and vehicle production. Imposing tariffs or taking away duty-free imports from Mexico, they argue, would fail to bring jobs back to the U.S.
Instead, such policies would likely drive automakers farther away from the U.S. to produce more cars and car parts in places like China, Eastern Europe and South America.
Boston Consulting Group, in a study published in July, said automakers are unlikely to build new plants in the U.S. unless a border tariff of up to 40% is imposed — a figure that is even higher than the most aggressive tariffs floated by Trump.
“NAFTA provides the U.S. with a source for competitively priced auto products in close proximity to final assembly,” the American Automotive Policy Council argued in its letter to the U.S. Trade Representative. “These products are not always cost competitive to manufacture or assemble solely in the United States.”
Also, auto sales hit a historic high in 2016 in the U.S. and are falling, and no automaker wants to build a new plant in that environment.
“We don’t want to go back to the times, before the auto bankruptcies, when we had excess capacity,” Wilson said. “It was difficult for the workers, it was difficult for the companies, it was difficult for everybody.”
But a recent decision by Japanese automakers Toyota and Mazda seems to contradict that argument.
The two automakers announced plans on Aug. 4 to build a $1.6-billion U.S. assembly plant that would create up to 4,000 jobs as part of an extensive new alliance. Toyota said it would make the Corolla sedan at the factory instead of in Mexico as previously intended. A location was not been announced.
Leave “rules of origin” alone: The auto industry doesn’t want the new NAFTA to include any changes to the “rules of origin” provision. What are rules of origin? Currently, to qualify for tariff-free exports from one country into another, at least 62.5% of the content of the car or truck must come from the country where it is assembled.
The negotiating principles released last month by the U.S. Trade Representative said the Trump administration wants to “update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.”
The Auto Alliance, which represents the Detroit Three as well as Asian and German automakers, says the 62.5% threshold is already “the highest of any U.S. trade agreement.”
The American Automotive Policy Council argues the current threshold provides the right balance.
“It is neither too easy to meet — by allowing free riders to enjoy the benefits of the NAFTA agreement without making the necessary investments — nor too stringent, which could prevent those invested in North America from enjoying the duty-free benefits of the agreement.”
Mexico isn’t a back door for Chinese auto parts: One of the reasons the Trump administration wants to strengthen rules of origin is because of the belief that some parts made outside of North America are imported into Mexico and then shipped into the U.S.
But the American Policy Council says less than 6% of the value of auto parts consumed in the U.S. are imported from China.
During the hearings, “A lot of time was used to dispel the myth that China is not using Mexico as a back door to the U.S. What in my view (the Trump administration) is looking to do from NAFTA is make sure Mexico and Canada are not back doors for goods for China,” Ujczo said.
Don’t worry about trade deficits: The Trump administration wants to shrink America’s trade deficit with Mexico, viewing it as a sign of weakness of the U.S. economy.
“For the first time the United States Trade Representative has included deficit reduction as a specific objective for the NAFTA negotiations,” the office said in a statement in July. “Since NAFTA was implemented in 1994, the U.S. bilateral goods trade balance with Mexico has gone from a $1.3 billion surplus to a $64 billion deficit in 2016.”
But the auto industry argues that a trade deficit isn’t necessarily bad for the U.S. economy.
“Much attention has been paid to how the U.S. runs a trade deficit in auto parts with Mexico. However, similarly, Germany runs a large trade deficit in auto parts with Eastern Europe,” the American Automotive Policy Council said. “Both the U.S. and Germany enhance global competitiveness by strategically using lower cost inputs for high labor content components.”
Convince Mexico to adopt U.S. Federal Motor Vehicle Safety Standards: Canada and the U.S. largely require cars and trucks to meet the same regulations, but Mexico does not. The auto industry would like the new agreement to require Mexico to adopt something close to U.S. federal motor vehicle safety standards.
This, the industry argues, would streamline the manufacturing process for automakers selling cars in Mexico, cut down on costs and improve safety for Mexican consumers.
“We recommend the U.S. utilize this opportunity to formally enshrine existing practice and include commitments in the agreement requiring Canada and Mexico to recognize Federal Motor Vehicle Safety Standards,” the Auto Alliance said in a letter to the U.S. Trade Representative last month.
Training for U.S. workers: This is the one area where the industry, administration and labor unions share common ground. There is a recognition that NAFTA, and America, failed to put adequate worker retraining programs in place to help manufacturing workers displaced by free trade and automation into other jobs and careers.
In fact, the emerging manufacturing jobs in the U.S. tend to require more skills and training than the training programs of the past.
“I don’t think a new NAFTA will get through Congress without some sort of workforce, skills training provision,” Ujczo said. “If it comes about as something just about companies and not about people, I don’t think it gets through Congress.”
In June, Trump signed an executive order in June to substantially increase the number of U.S. apprenticeships from the current 500,000 by doubling the amount the government spends on apprenticeship programs — a move welcomed by the auto industry.
“We would like to see something that maybe moves in parallel with NAFTA that addresses some of our workforce issues,” Wilson said.
Stronger labor regulations: The UAW and Unifor want stronger labor law protections for workers and want Mexican workers to have stronger union rights. While most Mexican manufacturing workers members of labor unions it is illegal for unions to call a strike and workers who go on strike can be fired. The unions also have little bargaining power when it comes to contracts.
“For far too long successive Mexican governments have failed to protect and advance workers’ fundamental rights and auto companies have been all too willing to reap the windfall of repressed wages and weak standards,” the UAW and Unifor said in a joint statement in July.
The NAFTA negotiating principles announced in July by the Trump administration includes as its goal the inclusion of labor regulations in the main agreement rather than as a side agreement.
The goal in those principles is for “NAFTA countries to adopt and maintain in their laws and practices the internationally recognized core labor standards as recognized in the (International Labor Organization) Declaration, including: Freedom of association and the effective recognition of the right to collective bargaining.”
Contact Brent Snavely: 313-222-6512 or email@example.com. Follow him on Twitter @BrentSnavely.