NAFTA’s big sticking point: major gaps between US, Mexico on autos

Freeland with Enrique Peña Nieto in Mexico in February 2018.
Photo: President of Mexico

WASHINGTON — A clash in visions for the auto industry continued to cast doubt on the likelihood of an imminent NAFTA deal Tuesday as the three main players gathered for what could be a final effort to achieve an agreement this year.

Any hope of a deal rests on Mexico and the U.S. bridging that still-significant gap.

Sources said Mexico this week presented ideas on auto parts that differed substantially from the American goal at these talks: that is, to benefit production in high-wage jurisdictions.

Mexico’s proposal lacked a firm wage standard as the US has demanded, would require less North American content than the U.S. wants, ignored rules on using North American steel and would allow companies a 10-year adjustment period, more than double the proposed US phase-in period.

The countries continued to say they were making progress at this round, which is potentially the final opportunity to get an agreement before elections in Mexico and the U.S. leave the talks in a freeze until 2019.

When asked how talks were going, Mexico’s lead minister Ildefonso Guajardo said: ”It’s going.”

He said the countries were working to find solutions that might accommodate the different countries, which he noted have drastically different economic realities. In particular, Guajardo said the countries were trying to bridge differences on the salary standard.

President Donald Trump’s son-in-law Jared Kushner also sounded a positive note as he popped in and out of different sessions at the round, being held across the street from the White House.

”Very productive,” Kushner said.

Canada’s Foreign Affairs Minister Chrystia Freeland used a vivid metaphor to describe the state of the NAFTA negotiations, as countries began a multi-day push to deliver a deal.

She likened it to childbirth.

”When I was giving birth, one of my midwives said, ‘You never know how long the labour will be, but you know that each contraction is one contraction closer to the baby being born.’ And if I could use such a personal metaphor, that seems to apply to trade negotiations,” she said.

”We are definitely making progress. I am not going to predict the day and the minute and the hour that we will be finished.”

Mexico and the US are sharply divided over the American plan to credit companies for building cars in wealthier, high-wage countries – in other words, outside Mexico.

A Mexico-US meeting to resolve those differences ran overtime on May 7, delaying by a day Freeland’s latest encounter with US counterpart Robert Lighthizer.

Sources say Mexico has proposed that 70% of all cars comprise North American parts to avoid a tariff – the US has asked for 75%. But the US also wants a wage guarantee: that 40% of every car be made in places that pay more than $16 an hour.

A Canadian union leader present at the talks blamed Mexico for slow-walking efforts at wage reform.

Jerry Dias of Unifor suggested that if the current Mexican government won’t agree to boost salaries, perhaps everyone should wait a few months until after the Mexican election and negotiate with the next president.

Left-wing candidate Andres Manuel Lopez Obrador currently has a big lead in Mexico’s presidential polls.

Dias called low wages in Mexico the central issue of this negotiation – ”the gorilla in the room.” And he said Mexican negotiators seem more interested in keeping salaries low than in helping workers.

”You’ve got international American corporations … masquerading as Mexican negotiators. Nobody’s moving on the key issues,” Dias said.

”Ultimately Canada and the United States at some time or another are gonna have to join forces and say to Mexico, ‘Here’s what the wages have to be in the auto industry, here’s what the rules have to be.’ And if Mexico flatly refuses then I suggest we should wait until after July 1, when there’s a new Mexican president.

”Ultimately we’re gonna have to show Mexico we’re not messing around anymore.”

One big unknown is what happens after an agreement on autos and whether the US will soften other demands in order to get a quick deal.

The auto rules themselves must be adjusted with care, as seemingly small changes could have a far-reaching.

An industry-funded report for the Center for Automotive Research recently estimated that the proposed U.S. changes would amount to a multibillion-dollar tax on consumers, as car companies would face the choice to either abide by tougher new standards, or simply pay the 2.5% vehicle tariff and possibly pass costs onto consumers.