Canada not expecting progress on NAFTA auto content rules this round

US wants a specific American content requirement added to the deal, along with a way to verify it.

September 25, 2017   by Joan Bryden

OTTAWA — Despite tough talk from the US about the job-killing impact of NAFTA on its automotive sector, Canada’s chief negotiator isn’t expecting to see a detailed American proposal on the matter during the latest round of talks to rewrite the continental trade pact.

Rules of origin will be “a subject for discussion, but we’re not expecting to see anything radically new at this point,” Steve Verheul said.

Verheul made the comment as he arrived for the start of the third round of negotiations, the first at which Canada is playing host.

Under NAFTA’s current rules of origin, vehicles must have at least 62.5% North American content to qualify for duty-free movement between Canada, the US and Mexico.


At the opening round of negotiations in Washington last month, US Trade Representative Robert Lighthizer pronounced that the North American content requirement must be raised and a specific American content requirement must be added, along with a way to verify that content.

But the US has yet to provide any details.

Reports in the US suggest the Americans are looking at raising the North American content to more than 70% and adding a specific US content requirement of anywhere from 35% to 50%.

They are also looking to add steel and electronics, not currently covered by NAFTA, to the list of auto parts whose origin must be traced and accounted for under the content requirement.

On the eve of the third round, US Commerce Secretary Wilbur Ross published a column in which he blasted NAFTA for allowing outside countries to provide auto parts that aren’t covered by the content requirement – likely an allusion to the rapidly increasing amount of electronic components that are primarily produced in China, Japan and Germany.

He cited a new study that found the American content of manufactured goods, specifically autos, imported from Canada and Mexico has dropped “significantly” since NAFTA went into effect in 1994.

“If we don’t fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the trade imbalance,” Ross wrote.

“Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth.”

A spokesman for Foreign Affairs Minister Chrystia Freeland took issue with Ross’s assertions, noting that the US actually ran a small overall trade surplus and a $9-billion surplus specifically on auto trade with Canada.

Alex Lawrence added that Canadian-produced vehicles “have the highest North American content levels among the three NAFTA partners.”

Nevertheless, Canada shares American concerns about the exodus of automotive jobs to low-wage Mexico and officials believe resolution of the problem is the key to staving off US President Donald Trump’s threat to rip up NAFTA.

But while the Americans are focusing on the content requirement to remedy the problem, Canadian officials believe it would be more effective to set more stringent labour and environmental standards, which would raise wages and production costs in Mexico to levels closer to those in Canada and the US.

The environment was on the weekend agenda, but Verheul said it’s “doubtful” negotiators will be able to sign off on the environment chapter during this round, which an American official had earlier suggested was possible.

Among other issues on the agenda was digital trade, customs, government procurement, anti-corruption and gender, a new chapter on which has been proposed by Canada.

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