NAFTA concern: Red tape tying up auto production

Canada is voicing concerns heard from car companies that some of the rules being considered during the NAFTA negotiations could prove damaging to one of this continent’s biggest industries.

Foreign Affairs Minister Chrystia Freeland says she raised some of those worries during a meeting with her U.S. counterpart, as countries make what could be a last stab at a deal in 2018.

She also asked questions about whether the implications of some details in the latest proposals had been properly thought through.

“(These) are the rules that govern this huge, highly integrated automotive industry in North America. Making a mistake could mean burdening companies with far too much red tape – something that’s too cumbersome that makes North America less competitive, compared to the rest of the world,” Freeland said upon leaving the meeting.

“That’s certainly an issue that I’m very, very focused on. I want the rules that we come up with to be rules that do not force our car companies, and our car-parts companies, to be spending too much time on administration and on box-checking, when I would like them to be spending most of their time inventing – and building – really, really great cars and trucks.”

The latest U.S. proposal demands that 75 per cent of every car use North American parts, that 70 per cent of all steel be North American, that 40 per cent of every car be built by workers making $16 per hour and that companies get credit for research and development spending.

“I want the rules that we come up with to be rules that do not force our car companies, and our car-parts companies, to be spending too much time on administration and on box-checking…”

— Foreign Affairs Minister Chrystia Freeland

One industry-funded study by the Center for Automotive Research says those rules would increase the cost of a car by hundreds or even thousands of dollars, essentially act as a multibillion-dollar tax, and ultimately hurt sales.

The study calculates that somewhere between 25 per cent to 87 per cent of vehicles currently sold in the U.S. would fail to meet the new rules, and would wind up simply paying a tariff.

While the U.S. goal is to steer manufacturing work back north, the fact that the U.S. tariff for non-compliance is only 2.5 per cent has some industry-watchers saying the new rules would just create more tariffs, not jobs.

Mexico in particular has opposed the American proposal, and has countered by recommending more modest changes.

Autos are considered a key issue in the talks, which must necessarily be resolved before the countries make the final tradeoffs in other sectors required to achieve a deal.

If such an agreement does not happen in the next few weeks, there is a chance the process will go into political hibernation for the duration of the year, as Mexico and the U.S. hold national elections.

“NAFTA’s important to our industry, so we’re extremely hopeful that all three parties will be able to quickly come to some sort of agreement,” said Matt Blunt, president of the American Automotive Policy Council and former governor of Missouri.

“We’ve urged a speedy completion of the negotiation, and always felt like the certainty of NAFTA was extremely important.”

He said he was encouraged that there has been progress in the talks. For months, the U.S. was proposing that half of all car parts be produced inside the United States.

Tight window for passing NAFTA

Canada’s foreign minister got a detailed explanation Thursday about why there might only be a few days left to get a NAFTA agreement in 2018.

Chrystia Freeland attended a discussion with top U.S. lawmakers on Capitol Hill.

They included the speaker of the House of Representatives, Paul Ryan, and Kevin Brady, the chair of the House committee that oversees trade legislation.

They shared their view of the so-called fast-track law, which sets the rules for votes on trade deals.

“Very meaningful, productive work is being done this week. We have made a lot of progress since Monday.”

— Foreign Affairs Minister Chrystia Freeland

The prevailing view in Washington is that it would likely be impossible to get a vote this year on any agreement reached after around May 18, and if it doesn’t happen this year a new Congress will consider the issue after the midterm elections.

Freeland said she appreciated hearing from lawmakers who actually wrote and are responsible for implementing the U.S. rules.

“The rules are set out quite clearly in the … legislation,” she said later.

“It was certainly useful for me to hear directly from some of the people who actually wrote it, how they see that process playing out…. We discussed how the … (fast-track) legislation could come into play.”

She said lots of progress has been made this week, and negotiators are closer to success – although the talks have been mostly seized with the issue of autos, giving little space to hard negotiations on other top files.

The autos issue, in particular, has pitted the Trump administration against Mexico. The Canadian government has offered broad suggestions throughout the process, and has also voiced some concerns about the specifics of the proposed new rules, but is less of a litigant on this issue than the other two countries, who have clashed with different visions of the future of the sector.

For the second time this week, Freeland did not meet with U.S. trade czar Robert Lighthizer in person Thursday, as he worked on the auto differences with his Mexican counterpart.

They have continued speaking by phone.

Freeland wasn’t ruling out an imminent deal just yet: “Very meaningful, productive work is being done this week. We have made a lot of progress since Monday,” she said.

“We are definitely getting closer to the final objective.”