President Donald Trump’s threats about the US pulling out from NAFTA might not come to fruition but the renegotiation of the agreement is imminent. The first round of negotiations will start today and go on to August 20 in Washington, D.C. Although representatives expect seven rounds of negotiation, they have been scheduled every three weeks starting in August to be finalized before the end of 2017. According to El Financiero, one of the Mexican negotiators stated that this was planned in order to avoid an overlap with Mexico’s presidential elections in 2018.
Among Trump’s promises regarding NAFTA was the implementation of a 35 percent tariff on automotive exports entering the US, which was later transformed into a border adjustment tax that would favor US exporters while charging companies importing products to the US. Both of these initiatives have found resistance from investors and members of the Democratic and Republican parties but Automotive News reports that the border tax adjustment proposal might still be pursued, impacting production costs and final prices for the end consumer.
Rules of origin might also be revised during NAFTA negotiations but the Mexican Association of the Automotive Industry (AMIA) and its counterparts in Canada and the US are already lobbying to keep regulations unchanged. “NAFTA represents a success story and we should not be messing around with important topics such as rules of origin,” stated Eduardo Solís, Executive President of AMIA. “Our members feel very strongly that rules of origin are not the tools to use to reshore jobs into the US,” said Ann Wilson, Senior Vice President of Government Affairs for the Motor and Equipment Manufacturers Association in an interview with Reuters.
The topic is still on the table and one of Lighthizer’s objectives is to ensure rules of origin favor material sourcing from the US. The goal is to decrease the US$74 billion trade deficit the US has with Mexico and limit the entrance of Chinese auto parts to the region. However, a more stringent limit than the 62.5-percent local content regulation already in place would force automakers to go straigth to paying the added tariff, according to Charles Uthus, Vice President for International Policy of the American Automotive Policy Council.
The data used in this article was sourced from Automotive News, Business Insider, El Economista and El Financiero.
The article was updated from its original version published on July 21, 2017.