United States Continue To Complicate NAFTA

Forex News

Washington’s request in NAFTA trade talks that aims at pushing auto jobs back to the US might not boost cars and trucks building. Industry executives and supply chain experts claim that new math to assess the vehicle content and state what limits apply to allow tariff-free auto imports or how long companies would have to comply under a new NAFTA agreement isn’t likely to make a change for Detroit automakers. Very soon, General Motors Co will be the only Detroit Three automaker building pickup trucks in Mexico.

Mark Wakefield (head of the North American automotive practice for consultancy AlixPartners) says: "Broadly speaking the (tariff) increase isn't big enough to make a wholesale change. No one is likely to shut down an active factory in Mexico and build a new one to replace that in the U.S."

The US wants 40% of the value of light-duty passenger vehicles and 45% of a truck's content to be built at wages of 16 dollars per hour to qualify for tariff-free import from Mexico. Mexico, in its turn, wants 70% of a vehicle's content to be made within North America. Automakers that don’t comply with proposed U.S. or North American content and wage rules could be burdened with a 2.5% tariffs on cars or sport utility vehicles shipped to the United States from Mexico.

If US offer is adopted, automakers wouldn’t be able to count salaries for engineering, research, sales, software and product development jobs. Auto firms would have 2, 4 or even 9 years to comply. It would also interfere with terms for electric and self-driving cars, that automakers want to build in Mexico.

Overall, senior U.S., Canadian and Mexican representatives finished the Friday negotiation without a deal to modernize NAFTA. The talks are yet to be resumed.