U.S. lowers NAFTA key auto content demand: auto executives

MEXICO CITY/WASHINGTON (Reuters) – U.S. trade negotiators have significantly softened their demands to increase regional automotive content under a reworked NAFTA trade pact in an effort to move more quickly towards a deal in the next few weeks, auto industry executives said on Friday.

FILE PHOTO: Eduardo Solis, President of the Mexican Automotive Industry Association (AMIA), speaks during an interview with Reuters in Mexico City, Mexico May 22, 2017. REUTERS/Carlos Jasso/File Photo

A deal on automotive content rules would remove one of the biggest sticking points in talks to update the 24-year-old North American Free Trade Agreement.

The Trump administration had initially demanded that North American-built vehicles contain 85 percent content made in NAFTA countries by value, up from the current 62.5 percent, along with half the value coming from the United States – levels that Canada, Mexico and automotive groups had said was unworkable.

But this has been cut by 10 percentage points, and the U.S. specific percentage demand dropped, industry officials said.

“The U.S. put on the table 75 percent instead of 85 percent for the regional content value of the vehicle and its core components,” said Eduardo Solis, head of Mexico’s AMIA automotive industry association.

“All of this is being carefully analyzed and specific questions are being asked during this round of the U.S. negotiators (in charge of) rules of origin,” Solis said in a statement.

The 75 percent regional content is for major components such as engines, drivetrains, axles, suspensions and body panels. Aluminum and steel would go into a bucket of other parts and materials requiring 70 percent regional content, while a third bucket of lesser parts would require 65 percent regional content.

“From the parts manufacturer perspective this is a significant step in the right direction, compared to where we were,” said Ann Wilson, head of government affairs at the Motor and Equipment Manufacturers Association.

“But it does appear that this will creates significantly more paperwork for smaller suppliers to have to certify their parts,” Wilson added. “I think there’s a lot of room yet to improve this.”

Negotiators from the three nations were due to discuss the new U.S. proposals at talks this week in Washington. Talks on rules of origin were due to take place on both Friday and Saturday, according to a schedule seen by Reuters.

A senior union leader who spoke to the Canadian negotiating team on Friday said the talks were progressing slowly.

“We really still are far, far, far away on the issues that are keeping us apart and frankly there has been very little discussion on them this week,” Unifor President Jerry Dias told Canada’s CTV network, citing the U.S. stance on dispute resolution and labor standards.

U.S. Trade Representative Robert Lighthizer has been pushing for a deal-in-principle on NAFTA in the next few weeks as the Mexico’s presidential election campaign officially gets underway. President Donald Trump said on Thursday that he thought negotiators were “pretty close” to a deal, but that he was in no hurry for a conclusion.

“Unless the United States makes some meaningful major changes in the short term, for anybody to think this is getting done by the end of April is pushing their luck,” said Dias.

U.S. negotiators had also recently floated the idea that 40 percent of automotive production must occur in areas paying wages of between $16 to $19 per hour. Some auto industry officials briefed on the U.S. plan said the latest version would require an average wage rate of $16 an hour for a finished vehicle.

Setting wage minimum wage thresholds for the auto industry could benefit the United States and Canada, whose trade unions say that lower Mexican pay has prompted manufacturing capacity to move south of the Rio Grande.

Talks to rework NAFTA, which underpins $1.2 trillion in annual trade, began last year after President Donald Trump took office promising to abandon the 1994 agreement if it could not be reworked to better serve American interests.

Reporting by Anthony Esposito and David Lawder; Additional reporting by David Ljunggren in Ottawa; Editing by Chizu Nomiyama and Cynthia Osterman

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