GM CHAIR REPORT, September 20th, 2018
Auto Industry / NAFTA Negotiations updates
U.S. and Canadian trade negotiators are scrambling to come to a compromise on a new NAFTA deal. It’s especially important for the auto industry given that if they don’t reach an agreement President Trump has threatened to cut Canada out of the deal and forge ahead with a new pact with Mexico alone. To date the Canadian government has showed little support for the auto industry in Canada as a result we are working with the UAW and other American allies to get support in efforts to resolve this in an equitable and fair-minded agreement.
North American Auto
Analysts say that could be very bad for the U.S. auto industry which makes cars and sources parts across all three countries. It’s taken decades and many billions of dollars to build the complex supply chains that are involved. Car parts move across borders, a screw made in Mexico ends up in a motor in the U.S., and so on. At this point, the auto industry is so integrated across North America that it would be incredibly hard and costly to take it apart.
Blowing up NAFTA without replacing it with a deal including Canada could be very damaging to companies in all three countries, which is why the Trump administration’s latest move here is so bewildering. The United States increased the pressure by virtually holding a gun to the head of Canada and saying, strike a deal or we’re going to do this bilaterally with Mexico. This could be a tough negotiating tactic or a bluff.
What we know of the deal with Mexico is that it boosts the portion of a car that is built in North America from 62 percent to 75 percent as well as the addition of a $16 U.S. per hour wage. Every vehicle made in Mexico must have 40 – 45% of its parts manufactured by Mexican workers making at least the $16 U.S. wage factored in to qualify to be exempt from the 25% tariff threatened by the U.S.
Under current NAFTA rules those that don’t meet the content threshold, could simply use more North American parts to meet the standards of content or they can just pay a relatively small penalty roughly a 2.5 % tariff. To counter this low tariff under the new agreement Trump has stated he will simply use the National Security Tariffs section “232” to circumvent the W.T.O and put heavy tariffs on autos coming in from off shore.
Offshore Cars and Trucks
A much bigger factor looming out there for offshore auto makers is that the U.S. would impose a steep tariff that it’s considering for cars and auto parts from the rest of the world, outside of NAFTA. Other countries could retaliate, cars would be more expensive, sales would slump. This could mean a loss of more jobs unless there is a mutual resolution for offshore vehicles coming into NAFTA markets.
Why build in Canada?
Canada is the United States biggest trading partner for exports – bigger than China, bigger than Mexico, bigger than anybody – so the idea of cutting it out of NAFTA has all kinds of businesses nervous, particularly those in the auto industry. Canada is one of the few countries that has a trade deficit with the United States.
Canada on cost is approximately 25% lower with a highly educated and productive workforce. Canada is also a stable place to build with quality second to none.
The Union is to some extent optimistic that with so much at stake the U.S. and Canada will work out a deal. A top Canadian negotiator said just yesterday that the two sides have made a lot of progress, including a basic agreement on cars. Most analysts hadn’t realized that.
The impact of no deal or worse a bad deal could have a direct effect on us as the supply chain realigns to the new NAFTA agreement. Saying that, we are working with the National Union and other partners including all levels of Government to get this right and avoid a catastrophic outcome for our members.
We will continue with our grassroots campaign because we believe it will have a positive impact on Investment and product allocation and avert extensive job loss in the years to come. Please get involved!
Overview of agreement with Mexico
Automobile production Under the proposed agreement, 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, up from 62.5% under NAFTA. The agreement stipulates that between 40% and 45% of auto content must be produced by workers earning at least $16 per hour. Automobiles that do not meet these requirements will be subject to 2.5% normal duties – and potentially Section 232 auto duties.
Rules of origin in other sectors New rules will also be put in place for industries such as textiles, chemicals, steel-intensive products and other industrial goods to qualify for tariff-free treatment.
Intellectual property Copyright holders will have full copyright protections in markets of all member countries.
Digital trade Tariffs will be prohibited for digital products that are distributed electronically (e.g., e-books, videos, music, software and games).
Labour In addition to requiring higher wage factories in the automobile supply chain, the deal will require Mexico to take specific steps to recognize collective bargaining rights.
Sunset clause The deal calls for a 16-year agreement with a provision for review after six years.
Dispute settlement As part of the deal, the dispute settlement panels will remain only for certain industries.
Agriculture The United States and Mexico have agreed not to impose tariffs on each other’s agricultural goods and not to use export subsidies.
Comment
Notably, the legislative bodies of the signatory countries must approve any agreement. In the United States, the Trade Promotion Authority (TPA) allows for a straight ‘up or down’ vote on the agreement and presents the best options for obtaining congressional approval of the agreement. In order to meet the TPA’s requirements, the agreement must be presented to Congress 90 days prior to signing. However, when the TPA’s authority was extended in 2018, it was based on the administration’s efforts to renegotiate NAFTA as a trilateral agreement, and thus it is expected that submission of only a US-Mexico agreement would meet resistance in Congress.
Although Canada is currently in negotiations regarding the provisions of the US-Mexico agreement, it is unknown whether, or how quickly, an agreement could be reached by all three parties. One particular concern is that Mexico President Enrique Penna Nieto leaves office on 1 December 2018. In order for the United States to sign the agreement by that date, the agreement must be presented to the Congress by 31 August 2018. Thus, while it appears that the US-Mexico handshake is a big step forward in the NAFTA renegotiations, there are still many roadblocks and time considerations to the completion, approval and implementation of a new NAFTA agreement, whether it is bilateral or trilateral.
Issued by,
Tim McKinnon, GM Unit Chairperson
On behalf of the Bargaining Committee
Paul Dortono, Doug Wark, John Rakich, Trevor Longpre, Ken Naldjieff