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21st of October 2017

Automotive



Mexico expects rough round of NAFTA talks

Mexico auto industry officials are bracing for hardball proposals from U.S. trade negotiators in the latest round of talks to revise the North American Free Trade Agreement starting Wednesday in Washington.

After three rounds of negotiations that focused on easier issues, such as bringing small business into the pact, the U.S. is expected to propose measures that would increase American-made content in manufactured goods.

This round of talks has been extended an additional four days until Oct. 17 to allow negotiators more time to resolve outstanding issues, the U.S. Trade Representative announced. 

President Donald Trump has accused Mexico of using low wages to draw manufacturing jobs away from its neighbors and has demanded that the pact, which went into effect in 1994, be rewritten to create more of those jobs in the U.S.

An expected U.S. proposal on so-called rules of origin would require manufactured goods to have a higher percentage of content made within the trade bloc in order to qualify for tariff-free status.

For example, finished autos now must have 62.5 percent of their parts made within North America in order to move freely among the three nations. Raising that percentage would force automakers to source more parts within the bloc, but could also raise costs significantly.

The Trump administration is reportedly demanding a regional content value of 85 percent for automobiles and auto parts, with a new condition that half the content be produced in the U.S.

Mexican negotiators have said that singling out any one nation for more favorable treatment than its trading partners would undermine the spirit of the free-trade agreement.

Furthermore, moving the origin requirements by just a few percentage points could potentially make it more profitable for some producers to manufacture elsewhere and simply pay import duties for access to the North American market, reducing local jobs for all.

"We have to be very careful with rules of origin," said Eduardo Solis, president of the Mexican Automotive Industry Association.

Solis, a former NAFTA negotiator now in Washington advising his government, said that a Mexican-made auto currently has about 40 percent of its parts and components from U.S. sources.

"If that vehicle is made in China instead, the estimates are that less than 2.5 percent would be from the U.S., and we all lose," he told reporters during an event in Mexico City on Monday.

His example isn't as far-fetched as it sounds. Ford decided this summer to make its Focus compact car in China and export it to the U.S. rather than building a new plant in Mexico as originally planned.

Solis also took issue with a study cited by U.S. officials that suggested Mexican-made vehicles had a significantly lower percentage of U.S. content than estimated by his group.

The study by the Organization for Economic Cooperation and Development dates from 2011 and uses questionable methodology, Solis said. A recent analysis in Mexico puts U.S. content between 37 and 39.5 percent on average.

"There is no doubt about the levels of integration that we have reached today, and of course it's important for us that this delicate and important negotiation is done with hard data and up-to-date, real numbers," he said.

The latest round of NAFTA talks comes after Trump again suggested that he'll likely exit the pact during an interview with Forbes earlier this week.

On Tuesday, the Mexican peso fell in value to a near five-month low against the U.S. dollar amid growing speculation that the talks may fail.

Eric Kulisch contributed to this report.

  The fourth round of talks has been extended an additional four days until Oct. 17 to allow negotiators more time to resolve outstanding issues, the U.S. Trade Representative announced. 

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