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Showing posts with label NAFTA. Show all posts

Thursday, August 30, 2018

Most Mexican auto exports can meet new NAFTA rules, minister says

Close to 70 percent of Mexico's auto exports are light vehicles, and are in a position to meet new NAFTA rules of origin, which determine how much North American content vehicles must include.

WASHINGTON -- Most of Mexico's auto exports should comply with new rules drawn up under the agreement struck between Mexico and the United States in the renegotiation of the North American Free Trade Agreement, Mexico's economy minister said on Monday.

The minister, Ildefonso Guajardo, told reporters that close to 70 percent of Mexico's auto exports were light vehicles, and were in a position to meet the new NAFTA rules of origin, which determine how much North American content autos must include.

"Today their numbers, and the way they have their business model would allow them to comply," Guajardo said.

The United States and Mexico have agreed to raise to 75 percent the regional auto content threshold to qualify for duty free market access in the NAFTA region, up from the current level of 62.5 percent, a U.S. trade official said.

The agreement was part of the two neighbors' deal on Monday to overhaul NAFTA, putting pressure on Canada to agree to the new terms on the auto trade and dispute settlement rules to remain part of the three-nation pact.

Guajardo said "at the moment" the new rules governing exports of such light vehicles would "kick in" from January 2020. Mexican officials did not confirm the date, although two industry sources said it was correct.

After 2020, there would be a gradual transition to the new rules through to 2023, he added.

Canada is due to rejoin the NAFTA discussions on Tuesday and has said it also wants to have its say on the new rules.

The minister also said that the revised trade agreement would maintain provisions from the original NAFTA accord which stated that new auto plants would for the first five years only need to meet a requirement of 50 percent regional content.

Pickup trucks, which also account for a significant proportion of Mexican auto exports, were a "very different animal," Guajardo said. That section of the auto industry would require "additional efforts," the minister added.

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Trump vows to scrap NAFTA, threatens Canada after reaching deal with Mexico

President Donald Trump speaks to Mexico's President Enrique Pena Nieto on the phone as he makes an announcement on the status of the North American Free Trade Agreement in the Oval Office. Photo credit: Reuters

UPDATED: 8/27/18 3:00 pm ET

WASHINGTON -- U.S. officials reached a “preliminary agreement” with Mexico on a framework to rebalance manufacturing in North America after resolving key differences related to the cross-border movement of finished vehicles and auto parts.

The tentative deal, if finalized, would increase the regional content value of passenger cars, light trucks and auto parts required to qualify for duty-free status, create a labor content value rule and tighten enforcement of rules of origin, according to the U.S. Trade Representative's Office.

President Donald Trump, announcing the deal at the White House on Monday, said he would terminate NAFTA and send the tentative bilateral deal with Mexico to Congress for approval, adding that Canada might be incorporated or get a separate bilateral deal. In the absence of a Canadian agreement, Trump threatened to slap tariffs on the country's auto exports.

“We’re going to call it the United States/Mexico Trade Agreement,” he said. NAFTA “has a bad connotation because the United States was hurt very badly by NAFTA for many years.”

A senior U.S. trade official told Reuters talks with Canada were expected to begin immediately in the hopes of reaching a final agreement by Friday.

Auto provisions

The Trump administration's deal with Mexico would require that 75 percent of auto content be made in the U.S. and Mexico, up from the regional requirement of 62.5 percent under NAFTA. It also requires that 40 to 45 percent of auto content be made by workers earning at least $16 per hour, while streamlining certification and verification of rules of origin to make enforcement easier. Passenger vehicles would also need to include a certain percentage of North American-produced steel and aluminum.

According to press reports and sources familiar with the negotiations, the two sides also agreed that vehicles that did not meet the content requirements would be bound to the World Trade Organization’s 2.5 percent tariff for "most favored nation" countries if made at an existing factory, but for nonconforming vehicles made at future greenfield sites the vehicle would be subject to tariffs of 20 to 25 percent, pending the U.S.’s determination on auto imports posing a national security threat. The USTR statement, however, made no mention of nonconforming vehicles.

The U.S. and Mexico agreed to review the deal after six years, softening a demand by American negotiators for a clause to kill the pact after five years unless it’s renewed by all parties.

'Long way to go'

Eric Miller, a trade and government relations consultant, cautioned that the preliminary deal lacks concrete details and is not yet a legal text that both sides can agree to.

“We shouldn’t exactly send the white smoke up yet," Miller said. “There’s a long way to go in order to get this resolved."

From an automotive perspective, Canada can live with the U.S.-Mexico deal, said Miller, who heads Rideau Potomac Strategy Group and counts Canadian auto interests among his clients.

Canada, which has also expressed concern about lost manufacturing jobs to Mexico, can accept the higher regional content value as well as the $16 per hour labor formulation because it proposed that to steer the U.S. away from its original demand that a certain percentage of each vehicle include U.S.-made components, he said. In addition, Canada produces very few vehicles that don’t conform to NAFTA content requirements, “so it’s not going to be a hill it dies on.”

The American Automotive Policy Council, which represents the Detroit 3, said in a statement “we are optimistic that the new agreement will maintain and encourage the ongoing competitiveness of the United States and North American auto industries . ... We commend the United States and Mexican negotiators for their success and urge them to work with their Canadian counterparts to complete this negotiation.”

Foreign-brand automakers have told lawmakers they do not support raising local content requirements and that smaller companies could have trouble complying.

“We encourage a renewed focus on a three party agreement that includes Canada,” the Motor & Equipment Manufacturers Association, said in a statement. “Furthermore, at the close of the negotiations between Mexico and the United States, the parties agreed to a potential cap of Mexican motor vehicle parts exports into the U.S. MEMA is concerned that this may serve to decrease American manufacturing jobs and exports and put U.S. businesses at a global disadvantage — all while increasing costs to consumers.”

Campaign promises

Monday’s developments helped fulfill campaign promises to renegotiate NAFTA or terminate it unless the U.S. received more favorable terms that reduced outsourcing of manufacturing jobs to low-wage Mexico and incentivized more domestic investment. The broad understanding between the U.S. and Mexico also addresses agriculture, textiles, intellectual property, digitial trade and other industry sectors.

How the administration could achieve a separate bilateral deal is uncertain because any new deal would require Congress to ratify it and the president has fast-track authority only to renegotiate NAFTA, a trilateral trade agreement. Ratification would take several months, at a minimum, and by then the House of Representatives could be in Democratic hands, making approval for any trade agreement more difficult.

Mexican President Enrique Pena Nieto participated in the announcement by conference call and said he hoped Canada would be folded into the revised agreement.

Canadian Foreign Minister Chrystia Freeland was reported heading to Washington to begin talks after Canada was sidelined while the U.S. and Mexico resolved their differences.

U.S. Trade Representative Robert Lighthizer said he planned to send the Mexico trade deal to Congress on Friday, triggering a 90-day review period, although that seemed to presuppose that the deal will be finalized by then. Analysts said it was unlikely Canada could sign on so quickly.

“These guys like to use time as their pressure point. What they are trying to do is compel Canada to come back to the table and make a deal quickly, by saying ‘the bus is leaving so you better get on,’ “ Miller said.

Reuters and Bloomberg contributed to this report.

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Why Canada's Trudeau thinks a NAFTA deal is possible by Friday

President Donald Trump, seen with Canada's Prime Minister Justin Trudeau during the G7 Summit in Quebec on June 8. Photo credit: REUTERS

UPDATED: 8/29/18 3:26 pm ET - adds Trump comment

WASHINGTON -- President Donald Trump said on Wednesday that American and Canadian officials negotiating a revamped North American Free Trade Agreement (NAFTA) were probably set to meet a Friday deadline for an accord.

"They (Canada) want to be part of the deal, and we gave until Friday and I think we're probably on track. We'll see what happens," Trump told reporters before a meeting on opioids at the White House.

Earlier, Canadian Prime Minister Justin Trudeau said such a deal was possible by Trump's deadline.

"We recognize that there is a possibility of getting there by Friday, but it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada," he said at a press conference in northern Ontario. "No NAFTA deal is better than a bad NAFTA deal."

On Tuesday, Canada's top trade negotiator praised Mexico's trade concessions on autos and labor rights as she rejoined NAFTA talks, while U.S. lawmakers warned that a bilateral U.S.-Mexico trade deal would struggle to win approval in Congress.

Automotive executives and other sources also told Reuters on Tuesday that the bilateral U.S.-Mexico deal announced on Monday allows President Donald Trump to impose 25 percent tariffs on imports of Mexican-made passenger vehicles and auto parts above certain volumes.

If Trump proceeds with the tariffs now under consideration based on national security concerns, Mexican duty-free exports of cars and sport-utility vehicles to the United States would be capped at 2.4 million vehicles annually. Volumes above that level would be subject to tariffs, auto industry officials and other sources said.

Canadian Foreign Minister Chrystia Freeland said that Mexico's "difficult" concessions to the United States on Monday would pave the way for productive talks this week as all three countries race toward a Friday deadline for a deal to modernize the 24-year-old North American Free Trade Agreement.

"These concessions are really going to be important for workers in Canada and the United States," she told reporters after meeting with U.S. Trade Representative Robert Lighthizer.

Freeland, who later met with Mexican officials on Tuesday evening, said she is due to dig into detailed discussions with Lighthizer on Wednesday.

Trump warned on Monday he could proceed with a deal with Mexico alone and levy tariffs on Canada if it does not come on board with the revised trade terms.

After being sidelined from the talks for more than two months, Freeland will be under pressure to accept terms the United States and Mexico worked out on a trade deal announced on Monday.

One of the main sticking points for Canada in the revised deal is the U.S. effort to dump the Chapter 19 dispute resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases. Lighthizer said on Monday that Mexico had agreed to eliminate the mechanism.

Other hurdles include intellectual property rights, such as the U.S.-Mexico 10-year data exclusivity for biologic drug makers and extensions of copyright protections to 75 years from 50, all higher thresholds than Canada has previously supported.

Dan Ujczo, a Columbus, Ohio-based trade lawyer who focuses on U.S.-Canada issues, said it would be hard for Freeland to win concessions from Lighthizer on these issues.

"I think he's going to sit there with his arms folded a lot," Ujczo added.

Mexican Foreign Minister Luis Videgaray told Mexican television on Tuesday the three sides would work for a three-way deal. "We are now going to devote long hours to the negotiation with Canada," he said.

Negotiations among the three partners, whose mutual trade totals more than $1.2 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso and the Canadian dollar. Both currencies gained against the U.S. dollar on Monday, but the peso weakened on Tuesday.

Separate deal

If a deal is not reached with Canada, U.S. Treasury Secretary Steven Mnuchin has said the Trump administration intends to proceed with a separate trade agreement with Mexico.

The Mexican government has also taken that position, even as it says it wants a trilateral deal. Mexican President Enrique Pena Nieto is keen to sign the agreement before leaving office at the end of November.

Some lawmakers said however, that a bilateral pact could lose the benefits of U.S. "fast-track" negotiating authority, which calls for a trilateral deal.

A trilateral deal would need only 51 votes in the Senate, while a bilateral pact would need a far more difficult 60-vote threshold, said Sen. Pat Toomey, R-Pa. If Republicans retain 51 of the Senate's 100 seats in November elections, they could approve a new NAFTA agreement next year without the support of Democrats.

Canada's main stock index opened higher on Tuesday on hopes for a NAFTA trade deal, before ending lower. U.S. stocks edged to record highs for a third consecutive session.

Trump said he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada's dairy protections.

Dairy protection

Canada's dairy farmers operate under a protectionist system that manages supplies and prices, and imposes high tariffs to limit imports. U.S. demands have ranged from ending those tariffs to scrapping a pricing system for milk ingredients that hurt U.S. exports of milk proteins.

"It seems like a pretty steep challenge to now resolve these issues in three days," said David Wines, a Manitoba dairy farmer and vice president of industry group Dairy Farmers of Canada.

If talks with Canada are not wrapped up by Friday, Trump plans to notify Congress that he intends to sign a deal with Mexico, but would be open to Canada joining, Lighthizer told reporters on Monday.

The White House has said Trump will sign the deal 90 days after notification. Congress needs to approve it in a process that will take several months, extending well into 2019.

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As clock ticks, Canada, U.S race toward NAFTA deal

Canada Foreign Affairs Minister Chrystia Freeland: "This is a very intense moment in the negotiations." Photo credit: Ministry of Foreign Affairs/Twitter

UPDATED: 8/30/18 6:37 pm ET

WASHINGTON -- Top NAFTA negotiators from Canada and the United States increased the pace of their negotiations Thursday to resolve final differences to meet a Friday deadline, with their Mexican counterpart on standby to rejoin the talks soon.

Despite some contentious issues still on the table, the increasingly positive tone contrasted with President Donald Trump's harsh criticism of Canada in recent weeks, raising hopes that the year-long talks on the North American Free Trade Agreement will conclude soon with a trilateral deal.

"We are materially close to an agreement in principle, perhaps as early as tomorrow, end of day," said Flavio Volpe, president of Canada's Automotive Parts Manufacturer's Association, who consults with Canadian negotiators. "The mood is cooperative and it's positive."

Trilateral talks were already underway at the technical level and Mexican Economy Minister Ildefonso Guajardo was expected to soon rejoin talks with U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland, possibly later on Thursday, people familiar with the process said.

Negotiations entered a crucial phase this week after the United States and Mexico announced a bilateral deal on Monday, paving the way for Canada to rejoin talks to modernize the 24-year-old accord that underpins over $1 trillion in annual trade.

The NAFTA deal that is taking shape would likely strengthen North America as a manufacturing base by making it more costly for automakers to import a large share of vehicle parts from outside the region. The automotive content provisions, the most contentious topic, could accelerate a shift of parts-making away from China.

A new chapter governing the digital economy and stronger intellectual property, labor and environmental standards could also work to the benefit of U.S. companies, helping Trump to fulfill his campaign promise of creating more American jobs.

Trump has set a Friday deadline for the three countries to reach an agreement, which would allow Mexican President Enrique Pena Nieto to sign it before he leaves office at the end of November. Under U.S. law, Trump must wait 90 days before signing the pact.

The U.S. president has warned he could try to proceed with a deal with Mexico alone and levy tariffs on Canadian-made cars if Ottawa does not come on board, although U.S. lawmakers have said ratifying a bilateral deal would not be easy.

Dairy dispute, settlement

One sticking point for Canada is the U.S. effort to dump the Chapter 19 dispute-resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases. Lighthizer said on Monday that Mexico had agreed to eliminate the mechanism.

Trump also wants a NAFTA deal that eliminates dairy tariffs of up to 300 percent that he argues are hurting U.S. farmers, an important political base for Republicans.

But any concessions to Washington by Ottawa is likely to upset Canadian dairy farmers, who have an outsized influence in Canadian politics, with their concentration in the provinces of Ontario and Quebec.

"Ultimately, we've got huge issues that are still to be resolved," said Jerry Dias, head of Canada's influential Unifor labor union. "Either we're going to be trading partners or we're going to fight."

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Canada rejoins talks to stay in NAFTA

WASHINGTON -- Canada's top trade negotiator joins her Mexican and U.S. counterparts in Washington on Tuesday in a bid to remain part of a trilateral North American trade pact, as U.S. officials expressed optimism a deal could be reached this week.

Ottawa is under pressure to accept new terms on auto trade and dispute settlement rules after the United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement.

Canadian Foreign Minister Chrystia Freeland rejoins the year-long talks following a hiatus of several weeks as the United States and Mexico ironed out outstanding bilateral disagreements in the renegotiation of the 24-year-old accord.

U.S. Treasury Secretary Steven Mnuchin told CNBC on Tuesday that he believed the United States could also reach a trade deal with Canada this week.

"The U.S. market and the Canadian markets are very intertwined," Mnuchin said. "It's important for them to get this deal and it's important for us to get this deal."

Negotiations among the three partners, whose mutual trade totals more than $1 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso and the Canadian dollar. Both currencies gained against the U.S. dollar on Monday, but the peso weakened on Tuesday.

One sticking point for Canada is the U.S. effort to dump the Chapter 19 dispute resolution mechanism that hinders the United States from pursuing anti-dumping and anti-subsidy cases.

U.S. Trade Representative Robert Lighthizer said on Monday that Mexico had agreed to eliminate the chapter 19, something that Canada has strongly resisted.

Trump has threatened he still could put tariffs on Canadian-made light vehicles if Canada did not join its neighbors and warned he expected concessions on Canada's dairy protections.

Canada's so-called supply management system, which includes dairy, matches Canadian production to domestic consumption, sets prices and imposes high tariffs to limit imports

If a deal is not reached with Canada, Mnuchin said on Tuesday, the United States would proceed with a separate trade agreement with Mexico. The Mexican government has also taken that position, even as it says it wants a trilateral deal.

Videgaray said in Washington on Monday that scope for making changes with Canada to what the United States and Mexico had agreed was "significantly larger" this week, though he did not rule out alterations after that.

"But it would certainly be much better to have an understanding by the end of the week," he told reporters. He also said his country was prepared to go it alone without Canada. "We already know that there will still be a deal between Mexico and the United States."

Freeland's spokesman said Canada would only sign a new agreement that is good for the country.

If talks with Canada are not wrapped up by the end of this week, Trump plans to notify Congress that he has reached a deal with Mexico, but would be open to Canada joining, Lighthizer told reporters on Monday.

The White House said Trump will sign the deal in 90 days. Congress has to approve it.

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