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NAFTA and the North American Auto Industry

NAFTA and the North American Auto Industry

In keeping with his election promise, President Trump has brought to a head discussions on revisiting NAFTA.  The APMA has been active in publicly advocating for the importance of the trade agreement (both prior to the election and ongoing), emphasizing the interdependence of the North American automotive supply chains in anticipation of any potential trade agreement discussions.

APMA members should be aware that we are on the forefront of all issues relating to trade and matters that may impact the Canadian automotive supply chain.  While you may hear varying reports in the media concerning NAFTA and other trade agreements, the APMA wishes to advise its members that we are actively working on your behalf and that your voice is being heard.

Below is a round-up of important NAFTA article summaries over the last few months, emphasizing the need for free trade-partners in an increasingly global industry.  Links to the original publications are included in each article.

Pace of NAFTA talks doesn’t help anyone: Head of Automotive Parts Manufacturers

Flavio Volpe, president of the Automotive Parts Manufacturers Association (APMA), is back from D.C. and Mexico City. He offers his first-hand look at the talks.

Playing hardball at NAFTA table

BY LETHBRIDGE HERALD OPINON ON OCTOBER 18, 2017.
U.S. demands increasingly strict

As the Major League Baseball playoffs continue, the United States is playing a little hardball of its own during NAFTA negotiations with Canada and Mexico.

An analysis of the U.S.’s ever-increasing demands at the negotiating table raises the question of whether the Americans grasp the concept of compromise. Perhaps the U.S. negotiators prepared for the talks by reading Donald Trump’s “The Art of the Deal,” or more likely, they boned up by watching some classic Abbott and Costello skits such as “Have you got two tens for a five?”

The recently begun fourth round of talks was forecast to be the most contentious yet, and the U.S. wasted little time before firing several salvos over the bow of Canada’s NAFTA negotiating team. The U.S. ended the previous round by proposing much stricter “Buy American” rules, then followed that up with a tough “Made in America” requirement for the auto manufacturing sector, with virtually no grace period to allow companies time to adjust.

The demands on automakers prompted talk that either the Americans were trying to deliberately sabotage the talks or were hoping to shock the other parties into making concessions.

In a Canadian Press story Friday, Flavio Volpe, a Canadian auto-parts representative, suggested it was the latter case. “My instinct is this is, ‘Art of the Deal.’ There are those who think these are poison pills designed … to get the partners to leave the table.”

Whichever it is, the U.S. isn’t backing down on its approach. In fact, it’s continuing to drop more bombshells on Canadian negotiators. Now the U.S. is demanding an end to the supply management system for dairy, chicken, eggs and turkey.

The U.S. has made its position very clear – it wants strong barriers to protect its own trade sectors while calling for the elimination of similar barriers in those same sectors in Canada. The Americans want to hang onto their own cake while demanding Canada’s cake, too.

Such tactics might have worked for Bud Abbott in his dealings with the gullible Lou Costello, but let’s hope they prove less effective against Canadian negotiators.

Earlier this month, during a visit to Washington where he met with Trump, Prime Minister Justin Trudeau acknowledged that getting a new NAFTA deal wasn’t going to be easy.

“… we are ready for anything and we will continue to work diligently to protect Canadian interests, to stand up for jobs, and look for opportunities for Canadian business and citizens of all of our friends and neighbour countries to do well,” Trudeau said.

Eric Miller, a Canadian consultant who advises Industry Canada, noted back in July that Canada would “have to fight hard for issues it cares about.”

That has certainly become evident as the NAFTA talks proceed. The Hamilton Spectator, in an August editorial, declared “No deal is better than a bad deal.” That seems like good advice. As important a trading partner as the United States is, Canada would not be doing itself any favours by allowing itself to be bamboozled or bullied into a deal that lets the U.S. take advantage of us. That would be bad for the Canadian economy and bad for Canadians.

Baseball might be the Americans’ game, but Canada’s negotiators need to show their U.S. counterparts that we can play hardball, too. By the time this game is over, we’ll see who’s on first.

Click here for original article.

U.S. pushes for sweeping protectionism at fourth-round NAFTA talks

ADRIAN MORROW, Globe and Mail
ARLINGTON, VIRGINIA
October 16, 2017

The Trump administration has thrown down all of its major demands in the renegotiation of the North American free-trade agreement, pushing for sweeping protectionist changes that would decisively tilt the playing field in favour of the United States at the expense of Canada and Mexico.

In the fourth and most substantial round of talks so far, at a Washington-area hotel, American negotiators formally presented demands for U.S. content in autos, the gutting of the deal’s dispute-resolution system and a sunset clause that would terminate NAFTA in five years unless the three countries agree to keep it. The United States had previously laid out a demand to restrict Canadian and Mexican access to American government contracts.

The United States also privately acknowledged that its deadline for finishing discussions by the end of the year might be unrealistic. One source said U.S. officials floated scheduling negotiations as late as February, 2018, to their Canadian and Mexican counterparts.

But while the U.S. agenda has been spelled out in detail, Washington’s ultimate aim remains murky.

Government officials, members of industry and expert observers could not agree whether the United States’ tough demands are designed to extract concessions or provoke the collapse of talks.

One source contended the United States itself does not know and is simply throwing out as many demands as possible while it tries to sort out a plan. Another person, who had been briefed on the American negotiating position, said the United States seems content with either a revised deal or tearing up NAFTA. “It’s ‘my way or the highway.’ Both options would be acceptable,” this person said.

Both Canada and Mexico are determined to hold the line against the U.S. onslaught and not walk away from the table, the sources said. The aim is to keep the ball squarely in the United States’ court, forcing the Trump administration to decide whether it is willing to bargain down to make a deal or make good on threats to tear up the pact.

On Sunday night, Mexican Economy Secretary Ildefonso Guajardo visited the hotel for a closed-door pep talk with his negotiating team. Loud cheering and applause could be heard from the room as he spoke.

“Mexico will not leave the table,” he told reporters after emerging from the session.

For now, the toughest sessions mostly consist of Canadian and Mexican negotiators trying to convince their U.S. counterparts that their positions are bad and would hurt the economies of all three countries, one source said.

The American demands are so protectionist that even the U.S. trade negotiators, mostly career civil servants rather than political staff, often do not seem to agree with them, said two people briefed on the talks. One person said U.S. officials will often simply present the proposals but not make much effort to defend their merits when challenged by Canadian and Mexican counterparts. Another person said some U.S. negotiators have tried to distance themselves from the demands by explaining they are only following the White House’s orders.

Flavio Volpe, president of the Automotive Parts Manufacturers Association, said the U.S. demands were designed to knock Canada off its game in hopes of either triggering concessions or the collapse of the talks. He predicted they would not succeed.

“The [American] proposals appear to be geared to sow an emotional response from Canada and Mexico. I was reminded that it’s a negotiation, and I think they will learn about us in our response,” said Mr. Volpe, who was in Washington to advise the Canadian government.

In an Oval Office meeting with Prime Minister Justin Trudeau on Wednesday, the first day of the current round of negotiations, U.S. President Donald Trump threatened to pull out of NAFTA.

But some stakeholders dismissed much of Mr. Trump’s rhetoric as negotiating bluster.

“There’s a lot of posturing,” Ken Neumann, Canadian director of the United Steelworkers, said in an interview at the union’s Washington office as negotiations unfolded across the river. “When you get up in the morning and listen to Twitter, it doesn’t quite translate into what the real world’s all about.”

Congress could also prove a check on Mr. Trump’s ability to shred NAFTA: If Mr. Trump pulled out of the deal, legislators would likely have to pass a law repealing its provisions, such as lower tariffs. And members of the House ways and means committee, which handles trade, expressed no interest in blowing up the deal.

“We didn’t talk about anything imploding,” said Dave Reichert, a Washington State Republican who chairs the trade subcommittee, following a meeting with Mr. Trudeau on Wednesday.

Negotiations continue Monday. On Tuesday, Canadian Foreign Minister Chrystia Freeland, Mr. Guajardo and U.S. trade czar Robert Lighthizer will meet in Washington to conclude this round. The three sides will reconvene in Mexico City later this month.

The top American demand in this round was that vehicles made in Canada and Mexico contain at least 50-per-cent U.S. content in order to qualify for duty-free shipment throughout the NAFTA zone, a requirement that would not apply to vehicles made in the United States, while North American content in all NAFTA zone autos would rise from 62.5 per cent to 85 per cent and every component of a vehicle – down to the steel – would count toward that total.

The United States also formally demanded countries be allowed to opt out of Chapter 11 dispute-resolution panels, which allow corporations to sue governments for political decisions that hurt their business; and that Chapter 20 panels, which adjudicate trade disputes between governments, be demoted to an advisory role, allowing a losing country to disregard their decisions and retaliate against the other country.

In the first round, the U.S. demanded that all of Chapter 19, which governs dispute panels that Canada has successfully used to challenge American tariffs on softwood lumber, be simply struck from the agreement.

In the third round in Ottawa, it demanded that Canada and Mexico be barred from receiving any more in government contracts, dollar-for-dollar, than American companies receive in those two countries.

Click here for original article.

U.S. demand on autos for NAFTA: Make huge changes, immediately

By Alexander Panetta — Oct 13 2017

ARLINGTON, United States — The United States is presenting a quadruple-whammy demand on auto manufacturing at the NAFTA negotiations, including a strict “Made In America” requirement with virtually no grace period to give car companies time to adjust.

The proposal is viewed as a non-starter by virtually every party involved in automobile production: Canada, Mexico, U.S. industry and even labour groups were calling the proposal completely unattainable.

It’s one of the biggest issues of the talks and it’s sure to provoke a backlash on multiple fronts.

The U.S. negotiating team showed industry representatives their proposal to Canada and Mexico and it contained four ideas that would complicate auto production, several sources said Friday.

First, it requires all cars to include 85 per cent North American content to avoid a tariff, up from the current 62.5 per cent; 50 per cent of a car’s content would have to come from the U.S.; and it would toughen the way content is calculated, with a list upgraded to include parts that didn’t exist in 1994 when NAFTA was originally implemented.

A fourth irritant is the minuscule proposed phase-in period.

Automakers would have one year to comply with the American-made quota and two years to comply with the overall North American content requirement under the proposal, which is a radical departure not only in substance but also in the timing of phase-in periods normally included in trade agreements.

The demands are deemed so impractical the talk in the hallways at the conference site revolves around which of two objectives the Americans are trying to achieve: Sabotage the talks, or shock other parties into concessions.

A Canadian auto-parts representative said he tends toward the latter.

“My instinct is this is, ‘Art of the Deal,'” said Flavio Volpe. “There are those who think these are poison pills designed … to get the partners to leave the table.”

The proposal came as the U.S. made its first significant move on dairy, a traditional sticking point with Canada. Several insiders said Friday the U.S. has asked Canada to scrap its special classifications benefiting domestic producers for things like diafiltered cheese-making products.

The U.S. also wants a veto power over future Canadian classification changes.

What’s already proposed would lead to changes in Canada’s supply-management system. The U.S. has not yet made any explicit request for a percentage of Canada’s protected dairy market. But that request could still come at any time.

Earlier U.S. demands include a termination clause that would cancel NAFTA after five years, unless all parties agree to extend it, and a Buy American rule that would make it far more difficult for non-U.S. companies to bid for public projects.

The auto proposal is so controversial, organizations that are normally rivals are allied against it. Volpe’s Automotive Parts Manufacturers’ Association says it could create a perverse incentive for producers to leave the continent.

Their argument is that it’s far easier to ignore the NAFTA rules and simply pay the U.S. 2.5 per cent import tariff: “It’s not good for the Americans,” Volpe said. “It just doesn’t make sense from a business perspective.”

The union representing Canadian auto workers agrees.

Unifor’s Jerry Dias says the U.S. would never have the power to enforce the proposed changes because companies would just ignore it: “All this argument about 50 per cent, 70 per cent, 85 per cent, it means nothing as long as the U.S. has a 2.5 per cent tariff. It’s like the emperor with no clothes,” Dias said.

“They can yell, scream, threaten, then people say, ‘Okay, here — I’ll pay the 2.5 per cent’.”

He said it’s a moot point anyway because there’s no chance Canada or Mexico will ever agree to a NAFTA that looks like what the Americans are proposing.

“Get it out of your head. That’s never gonna happen,” Dias said. “This is a deal that is going nowhere very quickly.”

Scotiabank analysts agree the proposals would hurt their author.

Car companies would have an incentive to move production away from the U.S., and Canada, either to Asia or Mexico, and pay a tariff rather than deal with the rules being proposed by the U.S., said its deputy chief economist.

“If accepted, the U.S. (proposal) would be a pyrrhic victory,” said Brett House.

House called the proposal a poor solution to a non-existent problem. Growth in auto employment since the Great Recession has skyrocketed in the U.S. to six per cent a year and he said North American content is on the rise in cars produced in Canada and Mexico, contrary to figures being floated by U.S. Commerce Secretary Wilbur Ross.

“There’s no problem here to address,” he said.

One real problem, however, is stagnant wages: U.S. auto salaries have not seen an appreciable increase for years, according to data from the U.S. Bureau of Labor Statistics. Dias says that’s the problem everyone should be attacking — by increasing labour standards, especially in Mexico.

Alexander Panetta, The Canadian Press

Click here for original article.

U.S. proposes to exempt itself from key provision of NAFTA auto demands

GREG KEENAN AND ADRIAN MORROW
TORONTO AND ARLINGTON, VA.
October 14th, 2017
Globe and Mail

The United States is proposing to exempt itself from a key automotive provision it has tabled in the North American free-trade negotiations – a move that experts say would seriously threaten Canada’s ability to land new investment by auto makers.

The Americans have proposed that vehicles shipped to the United States from Canada or Mexico contain 50-per-cent U.S. content, but would not apply that requirement to vehicles made in the United States that are exported to the other two NAFTA countries, according to sources familiar with the negotiations.

Such an exemption would make one of the most protectionist demands the United States has put on the NAFTA table even more stringent, and would divert investment by auto makers in new assembly plants to the United States and away from Canada and Mexico, auto industry officials and trade experts say.

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Auto industry officials believe such a proposal also poses a danger to existing assembly plants in Canada – which employ more than 20,000 people – in particular because auto makers could theoretically source parts from anywhere in the world, driving down the costs of making vehicles in the United States.

The boom in automotive investment in North America since the Great Recession has already largely bypassed Canada. The last new auto plant to open in Canada was in the depths of the recession in December 2008, while several plants have begun production in Mexico this decade.

Canada would be harmed more than Mexico because the vast majority of vehicle production in Canada is intended solely for the U.S. market.

Mexico also ships millions of vehicles to the United States annually, but it has free-trade agreements with 44 other countries. That gives car companies making vehicles in Mexico more diverse export opportunities than auto makers in Canada have.

In addition, some of the vehicles made in Mexico are for cars that are popular around the world – the Volkswagen Beetle, for example – while cars made in Canada are generally aimed at Canadian and U.S. buyers.

The demand, part of a series of U.S. proposals made at the fourth round of NAFTA negotiations in Alexandria, Va., on Friday, is so obviously unacceptable to the other two countries that it is unclear whether the Americans are trying to shock Canada and Mexico into submission or deliberately scuttling the talks.

Under one potential scenario, Canadian and Mexican refusals to accept the tough measures could be used as a pretext for the Americans to tear up NAFTA, as President Donald Trump has repeatedly threatened to do.

“It’s a revelation of the degree to which the United States wants these negotiations to be totally one-sided and favourable to them at the expense of the other NAFTA partners,” said veteran trade lawyer Larry Herman.

“What [the Americans] are doing – based on what you tell me – is saying, ‘We don’t have to abide by these rules but Canada and Mexico do,'” Mr. Herman said. “It’s highly preferential and favours production in the United States over the other NAFTA trading partners.”

Mr. Herman believes the talks will fail.

Mark Warner, a lawyer who specializes in Canada-U.S. trade, said the entire U.S. content requirement appears to be a negotiating ploy to push the other countries to accept stricter rules of origin on NAFTA-zone content.

“My general approach to the 50-per-cent requirement is that it’s all theatre. It’s not a bombshell to blow up the talks,” he said in an interview. “It’s meant to get Canada and Mexico to agree to the 85 per cent.”

Mr. Warner said a U.S. content requirement would likely break World Trade Organization rules and subject all three countries to a lawsuit by industry. He said American negotiators – led by trade czar Robert Lighthizer, a trade lawyer with four decades’ experience in the field – probably realize this, and only put the demand on the table to make it clear to Canada and Mexico that they are serious about getting tougher rules of origin.

“As a negotiating tactic, it’s not a bad one,” he said.

The proposal, if it comes to pass in a new North American free-trade agreement, could run counter to the Trump administration’s goal of repatriating both assembly and auto parts jobs that it believes have stampeded out of the United States and into Mexico since NAFTA took effect 23 years ago.

If vehicles made and sold in the United States are not subject to a rule requiring a minimum amount of regional or U.S. content, auto makers could import parts from low-cost countries in Asia, eastern Europe or elsewhere instead of buying them from relatively higher-cost U.S. suppliers.

“If true, this American protectionist proposal only works for the auto makers and leaves their entire supply sector unprotected,” said Flavio Volpe, president of the Automotive Parts Manufacturers Association of Canada, which represents Canadian suppliers. “How does this make sense?”

He noted that the U.S. vehicle market is large enough that demand for a particular vehicle can be satisfied by plants that make vehicles only for the domestic market.

That’s not the case in Canada, where the overall market is smaller. The best-selling Canadian-made vehicle is the Honda Civic, whose sales of 64,552 in 2016 represented only about one-quarter of the sales needed to sustain typical production of 250,000 annually at an assembly plant.

The U.S. content requirement was part of a package of tough auto demands presented by American negotiators to their Canadian and Mexican counterparts Friday at the Sheraton Pentagon City in a Washington suburb.

Another U.S. demand is that vehicles exported from one country to any of the other countries in NAFTA contain 85-per-cent North American content, compared with the current NAFTA level of 62.5 per cent.

And the Americans want every component of a car or truck – down to the steel and aluminum used in chassis or body parts and the sand used to make glass – to count toward the 85 per cent requirement.

That’s not the case under the current NAFTA regime.

Click here for original article.

Another Trump poison pill for NAFTA? Ottawa slams demand for 50% U.S. content in cars

“I just think there’s no way, at all, ever, not-no-how, that Mexico and Canada can accept it,” an expert who worked on the original NAFTA said of the long-rumoured U.S. proposal.

By DANIEL DALEWashington Bureau
Fri., Oct. 13, 2017
Toronto Star

The Trump administration has made another demand that could destroy NAFTA talks, this time unveiling a protectionist auto manufacturing proposal considered outlandish and unpalatable by Canada, Mexico, unions and car companies.

The new U.S. proposal creates yet more pessimism about the chances for a successful renegotiation of the continental free trade pact. It is the second major U.S. proposal in two days that Canada and Mexico are unlikely to even consider endorsing.

The latest proposal has experts wondering again whether the Trump team is making unrealistic demands as a bargaining ploy or whether the president who has threatened to terminate NAFTA is deliberately trying to sabotage the negotiations.

“I think it’s one of these poison pills. I just think there’s no way, at all, ever, not-no-how, that Mexico and Canada can accept it. I don’t know what they’re thinking. The auto industry hates this,” said Jon Johnson, a C.D. Howe Institute senior fellow who worked on auto issues during the negotiation of the original North American Free Trade Agreement.

The long-rumoured proposal, discussed at NAFTA renegotiation talks on Friday, would make a car need to be composed of 50 per cent American content to avoid tariffs. At present, there is no American-content rule: NAFTA requires only that a car include 62.5 per cent content from North America as a whole.

The U.S. also proposed to raise that North American requirement to 85 per cent. This, too, is considered an unreasonable threshold by the industry given the importance of Asian electronics and other elements found overseas.

Further, the timeline proposed by the U.S. was extraordinarily aggressive. Companies would have just one year to meet the 50 per cent U.S. requirement, two years to meet the 85 per cent North American requirement — an unusually rapid implementation period for an industry in which it takes years for companies to turn an idea into a product.

The proposal for 50 per cent U.S. content was described as “madness” by Flavio Volpe, president of Canada’s ‎Automotive Parts Manufacturers’ Association, and “completely ridiculous” by Jerry Dias, president of the Unifor union representing Canadian autoworkers. The Canadian government views it as so bad and so important that Foreign Affairs Minister Chrystia Freeland’s office issued its first written denunciation of a U.S. demand.

“On NAFTA, we are working for a good deal, not just any deal. That means that we will continue to defend our national interest and stand up for Canadian values. We will not accept proposals that put Canadian jobs at risk,” said Freeland spokesperson Adam Austen. “We will continue to make clear, reasoned arguments based on fact and to put forward pragmatic, mutually beneficial proposals.”

Trump’s negotiators formally unveiled the proposal late Thursday at the fourth round of NAFTA talks in a suburb of Washington. It came a day after the Trump team proposed a “sunset clause” that would automatically terminate the deal in five years if all three countries did not approve it again.

Experts say the proposal is unwise since it would likely lead carmakers to simply choose to get their components from outside the NAFTA zone, killing jobs throughout North America, rather than attempting to meet the overly onerous thresholds.

The tariff on cars that do not meet NAFTA thresholds is a mere 2.5 per cent — hardly enough to compel carmakers to stay put in North America, industry players said Friday.

“They’ll just say, ‘You know what, I don’t need to comply with NAFTA. If my price advantage of sourcing out of South Asia is 7 per cent, why wouldn’t I pay the 2.5 per cent tariff?’” said Volpe.

For that reason, Volpe said, a proposal supposedly designed to protect U.S. jobs would actually hurt them.

“The only ones who are going to win are non-North American suppliers,” he said. “Never mind Canada and Mexico — I know (Trump officials) don’t care. But if you game it out for U.S. industry? Anybody who’s making cars or car parts right now under this scenario, if it was accepted, would be hurt, including workers.”

Johnson said the content proposals are particularly confusing because U.S. demands for auto trade are usually in line with the wishes of the U.S. auto industry. In this case, the industry is aghast.

“Any increase in the rules of origin would add complexity, burden and cost, thus reducing Canada’s competitiveness as well as the competitiveness of the trade bloc as a whole,” the Canadian Vehicle Manufacturers’ Association, which represents General Motors, Ford and Fiat Chrysler, said in a statement.

Dias said the auto proposal, like the sunset clause proposal, is evidence the U.S. is not really interested in making a deal.

“I spend a lot of time with the Canadian team. They view the U.S. proposals as as foolish as I do. So they’re not going anywhere. This deal is falling apart,” he said. “There’s not going to be a NAFTA.”

The U.S. team also proposed Thursday to include steel, for the first time, on the list of components that count toward the content threshold, an idea designed to boost the U.S. steel industry.

Speaking to the media at a meeting with Mexican President Enrique Pena Nieto on Thursday, Prime Minister Justin Trudeau said Canada remains committed to the talks and “will not be walking away from the table based on proposals put forward.”

In a speech to the Mexican Senate on Friday, Trudeau promoted gender equality and warned of a rising tide of isolationism.

“Isolationism is taking hold in too many corners of the world, but our people must not succumb to fear. We, as leaders, must not succumb to fear,” he said.

Click here for original article.

Propuesta automotriz de EUA es ´perversa´: Canadá

El presidente de la APMA comentó que la intención de EUA de incrementar a 50% la producción de autos a su favor, puede provocar un “incentivo perverso” entre los productores

Viernes, 13 de Octubre de 2017

La Asociación de Manufactureros de Partes Automotrices (APMA) de Canadá rechazó hoy la propuesta de Estados Unidos de incrementar a su favor el contenido regional en los vehículos producidos en la zona del Tratado de Libre Comercio de América del Norte (TLCAN).

El presidente de la APMA, Flavio Volpe, señaló que la intención de Estados Unidos de incrementar a 50 por ciento el contenido regional de autos en Norteamérica para estar libres de arancel puede crear un “incentivo perverso” al hacer que los productores simplemente saquen su producción de la región.

Los productores automotrices podrán ignorar las reglas del TLCAN y pagar el 2.5 por ciento de tarifa de importación, agregó Volpe, quien dijo que la propuesta no tiene ningún sentido desde una perspectiva de negocios y no es buena para los americanos.

En un sentido poco más optimista, Jerry Dias, líder de Unifor, uno de los sindicatos más grandes e importantes de Canadá, aseguró que el gobierno estadunidense no tendrá el poder de imponer esos cambios, pues las compañías los ignorarán.

“Todo este argumento sobre el 50 por ciento, el 70 por ciento, el 85 por ciento, no significa nada, cuando Estados Unidos tenga un arancel del 2.5 por ciento”, añadió.

Dias, quien representa a 310 mil trabajadores y quien ha estado presente en las cuatro rondas de negociación para reformar el TLCAN como asesor de la delegación canadiense, refirió que los negociadores estadunidenses “pueden gritar y amenazar, pero las compañías automotrices optarán por pagar el 2.5 por ciento'”.

El líder sindical se mostró seguro de que ni Canadá ni México aceptarán dicha propuesta. “Sáquenlo de su cabeza, porque eso no va a pasar”, dijo refiriéndose a la propuesta estadunidense.

Brett House, analista del banco Scotiabank, coincidió en que la propuesta de Estados Unidos sería un incentivo para que los productores automotrices elevaran su manufactura fuera de Estados Unidos o Canadá y la instalaran en Asia o en México.

Esa propuesta “es una solución pobre ante un problema que no existe”, porque los empleos en la industria automotriz estadunidense han crecido desde la Gran Depresión 6.0 por ciento en promedio, mientras que el contenido norteamericano sigue creciendo en autos producidos en Canadá o México, contrario a lo que asegura el secretario de Comercio, Wilbur Ross, detalló House.

Click here for original article.

U.S. to drop auto-parts bombshell at NAFTA trade talks as early as today

Industry sources who have seen the demands say they are so damaging many auto makers will ramp up production in Asia and just pay the tariff.

The Canadian Press Via the Financial Post

ARLINGTON, United States — The United States is presenting a triple-whammy of a demand on auto parts at the NAFTA negotiations, including a strict “Made In America” requirement that’s viewed as a non-starter by virtually every party involved in automobile production.

It’s one of the biggest issues of the talks and it’s sure to provoke a backlash on multiple fronts: Canada, Mexico, U.S. industry, and even some labour groups were calling the proposed numbers completely impractical.

Two sources say the U.S. negotiating team has been showing industry representatives the proposal they are expected to present Canada and Mexico as early as Friday.

It contains three ideas that automakers say would complicate production.

First, it requires all cars to include 85 per cent North American content to avoid a tariff, up from the current 62.5 per cent; 50 per cent of a car’s content would have to come from the U.S.; and it would toughen the way content is calculated, with a list upgraded to include parts that didn’t exist in 1994 when NAFTA was originally implemented.

So impractical are the U.S. demands, the talk in the hallways at the conference site involves trying to decipher which of two objectives the Americans are trying to achieve: Sabotage the talks, or shock other parties into concessions.

A Canadian auto-parts representative tends toward the latter.

“My instinct is this is, ’Art of the Deal,”’ said Flavio Volpe. “There are those who think these are poison pills designed … to get the partners to leave the table.”

Earlier U.S. demands include a termination clause that would cancel NAFTA after five years, unless all parties agree to extend it; and a Buy American rule that would make it far more difficult for non-U.S. companies to bid for public projects.

The auto proposal is so controversial organizations that are normally rivals are allied against it. Volpe’s Automotive Parts Manufacturers’ Association says it could create a perverse incentive: producers might simply shift away from North America, and hurt the entire continent.

The argument is that it’s far easier to ignore the NAFTA rules and simply pay the U.S. 2.5 per cent import tariff: “It’s not good for the Americans,” Volpe said. “It just doesn’t make sense from a business perspective.”

The union representing Canadian auto workers agrees.

Unifor’s Jerry Dias says the U.S. would never have the power to enforce the proposed changes because companies would just ignore it: “All this argument about 50 per cent, 70 per cent, 85 per cent, it means nothing as long as the U.S. has a 2.5 per cent tariff. It’s like the emperor with no clothes,” Dias said.

“They can yell, scream, threaten, then people say, ’Okay, here — I’ll pay the 2.5 per cent.”’
He said it’s a moot point anyway because there’s no chance Canada or Mexico will ever agree to a NAFTA that looks like what the Americans are proposing.

“Get it out of your head. That’s never gonna happen,” Dias said.

“It’s not going to happen. I know for sure that Canada will never accept (this)… None of these things are going anywhere… This is a deal that is going nowhere very quickly.”

Scotiabank analysts agree the proposals would hurt their author.

Car companies would have an incentive to move production away from the U.S. and Canada — either to Asia or Mexico — and pay a tariff rather than deal with the rules being proposed by the U.S., said its deputy chief economist Brett House.

“If accepted, the U.S. (proposal) would be a Pyrrhic victory,” he said.

House called the proposal a poor solution to a non-existent problem. Auto employment since the Great Recession has skyrocketed in the U.S. to six per cent a year, and he said North American content is on the rise in cars produced in Canada and Mexico, contrary to figures being floated by U.S. Commerce Secretary Wilbur Ross.

“There’s no problem here to address,” he said.

One real problem, however, is stagnant wages: U.S. auto salaries have not seen an appreciable increase for years, according to stats from the U.S. Bureau of Labor Statistics. Dias says that’s the problem everyone should be attacking — by increasing labour standards, especially in Mexico.

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FRONTE COMUNE CANADA-MESSICO NEL SETTORE AUTO

Author: Francesco Veronesi

TORONTO – Un fronte comune tra Canada e Messico per arginare le pressioni americane sul settore auto. È quanto è stato discusso ieri a città del Messico dal primo ministro Justin Trudeau e il presidente messicano Enrique Peña Nieto in un incontro bilaterale che ha anche registrato la presenza del ministro degli Esteri Chrystia Freeland e del ministro del Commercio internazionale Francois-Philippe Champagne. Il summit coincide con l’inizio del quarto round di negoziati per il rinnovo del Nafta e secondo le previsioni gli Stati Uniti coglieranno l’occasione per il tanto temuto giro di vite sul “local content” nel settore automobilistico e nella componentistica auto. Washington, come aveva confermato al Corriere Canadese Flavio Volpe, presidente Automotive Parts Manufacturer’s Association, starebbe pensando di inserire un’ulteriore clausola, quella relativa al materiale realizzato e prodotto negli Stati Uniti. Un vincolo questo ritenuto inaccettabile sia da Ottawa che dalla controparte messicana, perché si andrebbe a destabilizzare un settore che negli ultimi venticinque anni si è sviluppato su scala continentale.

Ora, nella difficile partita a scacchi che si sta consumando lungo sette round di negoziati che dureranno per tutto il 2017, il primo ministro canadese sta cercando di capire se vi sia la possibilità di proteggere il comparto dell’auto, un settore chiave per l’economia canadese, magari facendo delle concessioni agli Stati Uniti.
È ipotizzabile che Ottawa si dimostri più possibilista su un’eventuale apertura nei meccanismi di tutela e garanzia per il settore dei latticini, che gli americani vorrebbero liberalizzare completamente sua scala continentale. Il Canada fino a questo punto ha difeso il “supply management”, il meccanismo che permette ai produttori esteri di latte e derivati di entrare nel nostro mercato fissando delle quote limite: superate queste, scattano dei dazi doganali altissimi che affossano la competitività dei prodotti che arrivano dal sud del confine.
Fino a questo momento il settore caseario non ha fatto parte del Nafta, ma i negoziatori americani stanno facendo un pressing forsennato per inserirlo.

In ogni caso, il Canada e il Messico stanno studiando le contromisure da prendere di fronte all’intransigenza degli States. Un approccio questo ribadito anche mercoledì in occasione della visita di Trudeau alla Casa Bianca, durante la quale Donald Trump ha paventato, per l’ennesima volta, l’ipotesi di un’uscita unilaterale degli Stati Uniti dal Nafta.

Il primo ministro canadese ha invece respinto questo scenario che ovviamente avrebbe delle ripercussioni estremamente negative per l’economia canadese.

Insomma, il percorso che porterà alla nascita del Nafta 2.0 continua ad essere pieno di ostacoli da superare, come era facile aspettarsi alla vigilia del negoziato. Resta da capire fino a che punto Washington sarà disposto a tirare la corda e se le minacce dell’inquilino della Casa Bianca siano semplicemente uno strumento da usare nella trattativa o se veramente Trump sia disposto al grande salto nel buio con l’uscita degli Usa dal Nafta.

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NAFTA round four: Turn on the charm, Trudeau

THE CANADIAN PRESS via iPolitics/Sean Kilpatrick
October 10th, 2017

It’s highly unusual for a Canadian prime minister to schedule a bilateral meeting with an American president at the White House while trade talks with the U.S. are being held in Washington at the same time.

But that’s the set-up for Wednesday’s meeting between Justin Trudeau and Donald Trump, which occurs as the U.S. hosts the fourth (and possibly pivotal) round of NAFTA talks with Canada and Mexico.

Trudeau also will meet with the 39-member House Ways and Means Committee, the rules-maker on trade in the House of Representatives. That’s a smart move — a necessary step in making Canada’s case to Congress and the states, as well as to the Trump administration.

Members of Congress know exactly how many jobs in their districts depend on exports to Canada: nine million. And two-thirds of U.S. states call Canada their biggest customer.

Trudeau might politely remind Trump of that, but the prime minister’s real objective is to get a sense of where Trump is coming from on NAFTA, and where he wants to go. Never mind the trash talk on Twitter about “terminating” NAFTA “at some point.” What are Trump’s real bottom lines?

Trudeau’s significant interpersonal skills have enabled a surprisingly positive relationship with Trump since their first White House meeting in February, and subsequent encounters during the NATO, G7 and G20 summits in Europe. Trudeau also had the presence of mind to call Trump and offer Canada’s help and best wishes in the wake of Hurricane Harvey in Texas.

Team Trump has made some big asks on rules of origin in the auto industry, which currently require 62.5 per cent North American content in cars and light trucks. The Canadian Press has reported that the Americans this week will demand 50 per cent U.S. content and 85 per cent North American content in vehicle assembly.

That benchmark would be challenging to meet — not only for Canada and Mexico but for the highly integrated North American auto and parts industry itself, which sends cars across the borders six or seven times during assembly. CP’s Joan Bryden spoke to Flavio Volpe of the Canadian Automotive Parts Manufacturers Association, who noted that “studies have found Canadian-produced vehicles already contain 63 per cent American content, while those produced in Mexico contain 40 per cent.” And a research note from Scotiabank Economics puts current North American content at 75 per cent.

If we’re already at 63 per cent U.S. content in Canadian assembly lines, Trump’s 50 per cent American ask might be acceptable to us, as would 75 per cent North American content (though not 85 per cent). That would give Trump bragging rights in the automotive and steel states of Michigan, Ohio and Pennsylvania — the three swing states that put him in the White House. After campaigning against NAFTA as “the worst trade deal ever,” Trump desperately needs a couple of wins in re-negotiating it.

But the Americans are also behaving boorishly on a number of stand-alone trade issues, notably aerospace and softwood lumber.

The U.S. Department of Commerce has slapped 300 per cent preliminary duties on Bombardier’s CSeries aircraft. Boeing, in its complaint against Bombardier, asked for only 80 per cent. In its first ruling, the Commerce Department hit the CSeries with a 220 per cent countervailing duty because the Quebec government took a 49.5 per cent interest in the project and Ottawa has made a $370 million repayable loan.

Adding insult to injury, the Commerce Department ruled that Bombardier dumped the price on its sale of up to 125 CSeries to Delta Airlines. Boeing wasn’t even bidding against Bombardier for the Delta deal and — except for the Boeing 737 — doesn’t even make single-aisle aircraft any more. But it doesn’t like foreigners invading American airspace, as Airbus did decades ago.

Boeing is bringing corporate hypocrisy to a new low. The U.S. Export-Import Bank is known as “Boeing’s Bank” because it receives about 40 per cent of the bank’s grants to subsidize sales to foreign airlines. And on the R&D side of the business, Boeing has for generations been the recipient of Pentagon largesse in developing military aircraft — like the 18 Super Hornets that Ottawa will not be buying for $6 billion as replacements for CF-18s as long as Boeing is trying to put Bombardier out of business.

And the CSeries isn’t just being built in Canada. Bombardier’s Belfast plant is the largest employer in Northern Ireland, and British Prime Minister Theresa May needs the support of 10 Northern Irish Unionist MPs to keep her minority Conservative government in office.

Trudeau also may wish to point out to Trump that Bombardier has an annual U.S. payroll of $2.4 billion, employing nearly 23,000 people in 10 states, including Learjet in Kansas and business jet service centres in several states.

On softwood lumber, the Department of Commerce put a 27 per cent preliminary countervail and dumping duty on Canadian imports in the spring. This is the latest eruption of a decades-old American grievance — that stumpage fees on Crown-owned Canadian forests constitute government subsidies of softwood exports to the U.S. Driven by the U.S. Lumber Coalition, the U.S. has been litigating on softwood for decades … and it keeps losing one case after another.

Softwood should not be an irritant in the middle of the NAFTA talks. There’s a do-able deal here: The Americans lift the preliminary duties in return for Canada accepting a cap on U.S. market share a few points below the 34 per cent in the last softwood lumber agreement, which expired in 2015. Call it 30 per cent — about where we are now, with demand ramping up to rebuild in Texas, Florida and Puerto Rico following the hurricanes.

Meantime, softwood might give Trudeau the opportunity to remind Trump that this is precisely the sort of situation the independent dispute settlement mechanism in Chapter 19 of NAFTA, carried over from the original Canada-U.S. FTA of 1987, was designed for. Thirty years ago last week, it was the deal-breaker for Brian Mulroney. So it is today for Justin Trudeau.

It’s not personal, Donald. It’s business. It’s the Canadian national interest; defending it is Trudeau’s job. Have a good meeting.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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NAFTA deal: Trudeau is Canada’s only card against Trump’s wild card

DEREK H. BURNEY AND FEN OSLER HAMPSON
SPECIAL TO THE GLOBE AND MAIL
October 10, 2017

Derek H. Burney was Canada’s ambassador to the United States from 1989-1993. He was directly involved in concluding negotiations of the free-trade agreement with the United States. Fen Osler Hampson is Chancellor’s Professor at Carleton University and the author of the forthcoming book Master of Persuasion: Brian Mulroney’s Global Legacy.

Prime Minister Justin Trudeau’s two-day trip to Washington comes none too soon. Canada is being whipsawed by Donald Trump’s administration on many fronts. Relations are in a deep dive as Canada gets hit by punitive measures on softwood lumber (initiated by the Obama administration) and, more recently, by the outlandishly harsh tactics by the Trump administration against Bombardier, Canada’s aerospace giant, amid allegations of unfair subsidies.

A thickening fog is now enveloping the North American free-trade agreement, a cornerstone of Canadian prosperity, as talks bog down over extreme U.S. demands on procurement, content rules for autos and dispute arbitration. The next round of NAFTA talks begins in Washington on Wednesday, so the Prime Minister’s visit is timely and necessary.

In fact, despite all the American yammering about trade “deficits,” and the initially tough rhetoric directed at China, Japan and Germany, each of which have much larger trade deficits than Canada (where the United States is actually running a modest surplus) or Mexico, the only country really being hit with punitive trade measures is Canada.

Direct contact between the two leaders is the only way to clarify objectives and identify the critical ingredients for political and economic success.

Mr. Trudeau is Canada’s most powerful card. Only he can make a deal with the biggest wild card, President Trump himself, whose motives other than “make America great again” remain unclear.

The Prime Minister has assiduously courted the American President from his first day in office and from all reports has a good personal rapport with Mr. Trump. With all the turbulence in Washington, he and his officials have chosen their words carefully, displaying discipline, tact and self-restraint.

But the Prime Minister is going to have to use more than his charm when he meets with the U.S. President. He may need his boxing gloves, too.

His first challenge is to find out what Mr. Trump’s view is of the political and economic ingredients of a successful negotiation. Mr. Trump’s repeated insinuation that NAFTA is “the worst trade deal ever” raises suspicion about his real intent. The Prime Minister will have to probe his true motives – concluding a mutually satisfactory deal in revising NAFTA or abrogation.

If the President wants a deal, the Prime Minister must nail down a common understanding with Mr. Trump about what constitutes “success.” That includes being clear to the President about Canadian objectives and what a “win” means for us, for example, better, more certain market access.

But Mr. Trudeau should also be firm with Mr. Trump about what demands will be show-stoppers. He should make it clear that we do not naively believe that any agreement is better than none. Mr. Trudeau should resist any pressure to make unilateral concessions while signalling that he reserves the right to say, “No thanks.” Given the propensity for protectionist, U.S. trade “remedy” measures, the dispute-settlement mechanism is more vital than ever and should be a “show stopper.”

The Prime Minister has a strong hand. There is a presidential election in Mexico next year and Mr. Trump’s failure to secure a new deal will have a negative impact on Republicans in the 2018 congressional elections. If Mr. Trump decides unilaterally to abrogate NAFTA, unscrambling the NAFTA omelette will require congressional approval as well as time-consuming legislative change, which will be much harder if the Democrats win either or both houses.

As demonstrated more than two decades ago in both the negotiation of the Canada-U.S. free-trade agreement (FTA) and NAFTA, success depends upon deep political engagement and linkage at the top leadership level. On the FTA, for example, when negotiations were deadlocked, it took direct intervention by former prime minister Brian Mulroney with former president Ronald Reagan to break the impasse. Mr. Mulroney did the same with former president George H.W. Bush in 1990 when the Americans tried to shut Canada out of NAFTA negotiations with Mexico. North America’s leaders then had a common pro-trade vision. That is not the case today and represents the biggest obstacle to success.

Mr. Trudeau’s message when he goes to the White House should be friendly, but also prudently calculated to impress upon Mr. Trump that it takes two to tango and, in this case, three to make a deal.

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U.S. Chamber of Commerce urges Trump to back off ‘dangerous’ protectionist NAFTA demands

ADRIAN MORROW AND BARRIE MCKENNA
WASHINGTON/OTTAWA — The Globe and Mail
Published Friday, Oct. 06, 2017 3:47PM EDT

The top American business lobby group is calling on the Trump administration to back off its “highly dangerous” demands in the renegotiation of the North American free-trade agreement with Canada and Mexico.

The U.S. Chamber of Commerce fired a stunning shot across the administration’s bow on Friday, arguing that President Donald Trump’s tough demands, including for a U.S. content requirement on cars and trucks made in the NAFTA zone, risk destroying the trade pact and throwing hundreds of thousands of Americans out of work.

“We see these proposals as highly dangerous,” John Murphy, the chamber’s senior vice-president for international policy, told a roundtable with reporters at the organization’s Washington offices. “These proposals, if adopted, will do harm, most likely leading to a failed negotiation that we just can’t afford.”

The stark warning comes ahead of the fourth round of NAFTA talks, next week in the Washington suburb of Arlington, Va., when the United States is expected to present some of its toughest proposals to the other two countries.

Prime Minister Justin Trudeau is also meeting with Mr. Trump at the White House that day, and hunkering down with the powerful House of Representatives ways and means committee.

Mr. Murphy said the chamber is particularly alarmed by the administration’s demands for increased barriers to Canadian and Mexican companies bidding on American government contracts; a sunset clause that would automatically terminate NAFTA in five years unless all three countries reached an agreement to keep it; and a major toughening of the so-called rules of origin on autos.

A source with knowledge of the rules-of-origin demands said the U.S. is mulling a proposal that 50 per cent of the value of any auto made in the NAFTA zone come from the United States in order to be shipped tariff-free between the three countries.

The proposal would also boost the required amount of North American content to 85 per cent from 62.5 per cent, the source said.

Mr. Murphy contended such policies are not only bad for business but could unravel the talks because Canada and Mexico would not agree to them. Mr. Trump has repeatedly threatened to tear up NAFTA if he cannot get the other countries to accept major changes.

“Withdrawing from NAFTA would immediately blow up in the face of the administration,” Mr. Murphy said, pointing out that Republican states in the U.S. Midwest rely heavily on trade with Mexico and Canada. “Those who would feel the pain most thoroughly and immediately are in states that voted for the President, and they would know who brought this about.”

But one powerful congressman said Canada is responsible for thwarting progress in negotiations by dragging its feet. Michael Conaway, a Texas Republican and chairman of the House agriculture committee, said Canada must take “meaningful” steps to open its protected dairy and poultry markets to foreign imports as well as address U.S. complaints involving wheat, potatoes and lumber.

“Our side is real serious, and we need the Canadians to be serious as well,” Mr. Conaway said in an interview Friday in Ottawa, where he is leading a delegation of farm-state members of Congress pushing for a speedy NAFTA renegotiation. “One of the reasons why we’re up here … is to try to communicate a sense of urgency to our Canadian counterparts.”

He rejected the notion that the Trump administration’s hardline demands are jeopardizing the talks.

“We are all going to get our feelings hurt. But the deal is too important to let that squirrel it,” said Mr. Conaway, who is slated to meet Canadian Agriculture Minister Lawrence MacAulay on Sunday. “If Canada doesn’t want to negotiate and change anything, our President has shown himself to be a pretty good negotiator.”

While U.S. business has long been largely aligned with Canada and Mexico in wanting to preserve as much of NAFTA’s market access as possible, it has so far mostly chosen to press the administration behind the scenes, making Mr. Murphy’s blunt public warning extraordinary.

The auto industry fears tougher rules of origin would be too onerous a burden on manufacturers, putting them at a cost disadvantage compared with their overseas competition. Matt Blunt, president of the American Automotive Policy Council, said in a statement Friday that he was concerned the administration’s approach “would be harmful to the short- and long-term competitiveness of the North American auto industry.”

Geronimo Gutierrez, Mexico’s ambassador to the U.S., reiterated that his country was “prepared” for the possibility the U.S. will pull out of NAFTA. “Mexico’s position will continue to be serious and constructive, but we have also been very clear about the fact that we [would] rather leave the negotiating table than accepting a harmful deal,” he told The Globe and Mail.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, suggested the response of U.S. business to Mr. Trump’s proposals could ultimately rein them in. “The most important consideration is what the feedback will be from the domestic industry in the U.S., and how that will effect what is tabled this week.”

But Mr. Murphy said Friday that companies’ warnings have often seemed to fall on deaf ears. “The expert analysis and the view of industry have too often been just brushed aside,” he said.

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NAFTA further imperilled by U.S. demand for stringent American auto content

JOAN BRYDEN / THE CANADIAN PRESS
OCTOBER 6, 2017 03:17 PM

OTTAWA — Pessimism about the fate of NAFTA is mounting amid dismay that the U.S. wants to impose stringent new American content requirements on vehicles that are allowed duty-free movement across North America.

The United States is set to propose that cars and trucks must have at least 85 per cent North American content and at least 50 per cent specifically American content to qualify for duty-free status, according to a report by Inside U.S. Trade.

The rules of origin proposal is expected to be tabled next week in Washington during the fourth round of negotiations to rewrite the North American Free Trade Agreement.

Canada and Mexico have, from the outset of talks, been adamant that they won’t agree to a specific American content requirement that would bolster the U.S. industry at the expense of automobile and auto parts manufacturers in the other two countries.
And Canada’s automotive industry agrees.

“You can’t have protectionism within a free trade agreement. It’s an oxymoron,” Flavio Volpe, president of the Automotive Parts Manufacturers Association, said Friday.

Studies have found that Canadian-produced vehicles already contain 63 per cent American content, while those produced in Mexico contain 40 per cent, Volpe noted. But he said casting an American content requirement in stone would handcuff the industry’s ability to pivot to suppliers in other countries — including Canada and Mexico — should they be able to offer a better product at a better price.

“If the U.S. becomes less competitive and you’re tied to doing it in the U.S., then you are less competitive,” Volpe said, adding that in the meantime the industry’s global competitors, like China, will be “eating your lunch.”

“It’s goofy.”

Even without a specific American content requirement, the reported proposal to hike the North American content requirement to 85 per cent — up from the current 62.5 per cent — is stoking fears in all three countries that their fully integrated supply chain would be disrupted, manufacturing costs would skyrocket and the North American automotive industry would be left unable to compete with auto makers in Europe and Asia.

“We are such a highly integrated industry, I think numbers of this nature would be highly problematic … and it would really tend to undermine our competitiveness as an industry within North America, let alone Canada,” said Mark Nantais, president of the Canadian Vehicle Manufacturers Association.

Matt Blunt, president of the American Automotive Policy Council and former Missouri governor, echoed that concern.

“We share the goals of the (Trump) administration to strengthen the U.S. manufacturing sector, grow the U.S. economy and American jobs,” he said in an email statement to The Canadian Press.

“We, however, are concerned the approach they are taking would be counterproductive to achieving those shared goals, including significant changes to rules of origin that would be harmful to the short and long-term competitiveness of the North American auto industry.”

Unifor president Jerry Dias, whose union represents Canadian auto workers, said he sympathizes with what the U.S. is trying to do: stop the exodus of manufacturing jobs, particularly in the auto industry, to low-wage Mexico.

But he said imposing stringent North American and American content requirements, without simultaneously raising the 2.5 per cent tariff on vehicles imported to the U.S. outside NAFTA, would backfire. He predicted auto makers would forgo their duty-free status under NAFTA, move their operations to Mexico and pay the tariff.

“Ultimately, unless they deal with the 2.5 per cent tariff, it’s all worthless.”

As for a specific American content requirement, Dias said that simply “won’t fly.”

“For the U.S. to think that Canada is somehow just going to be bullied and is going to roll over and not protect their key industries while the U.S. is trying to do the same makes no sense,” he said, noting that autos remain Canada’s top export.

The protectionist line on auto rules of origin comes after the U.S. tabled an equally unpalatable proposal on government procurement at the third round of negotiations last week in Ottawa. The U.S. is looking to severely restrict the ability of Canadian and Mexican companies to win contracts on government-funded infrastructure projects in the U.S.

The mood among stakeholders during the third round was glum but Dan Ujczo, an Ohio-based trade lawyer with clients in both Canada and the U.S., said it’s about 10 times worse now, with most expecting the talks to end in failure.

While the political leaders still talk about creating a “win-win-win” for all three countries, Ujczo said the only ‘Ws’ on stakeholders’ minds during the fourth round will be “who will withdraw” and “when will withdrawal” occur.

A senior Canadian government official, not authorized to speak publicly on the matter, said Canadian negotiators will keep meeting and talking, even if it means repeatedly rejecting hardline American proposals.

Adam Austen, a spokesman for Foreign Affairs Minister Chrystia Freeland, declined to comment on the auto content requirement issue because an American proposal has still not been put on the table.

“We will continue to work for a good deal, but not just any deal. We will continue to make clear, reasoned arguments based in fact.”

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NAFTA’s auto rules must be negotiated on fact, not fiction

FLAVIO VOLPE
CONTRIBUTED TO THE GLOBE AND MAIL
October 3, 2017

Flavio Volpe is president of the Automotive Parts Manufacturers’ Association of Canada.

Trade negotiations are always a mix of politics and commercial reality. Those affected in the negotiations sometimes overstate their potential injury. In the end, negotiators usually back up their rhetoric with statistics as a means to identify their national interests and focus on the priorities identified by their respective governments.

Recently, U.S. Commerce Secretary Wilbur Ross spoke about the relationship between the Canadian, U.S. and Mexican automotive sectors using arguments focused on trade deficits, which he pointed out were not in the United States’ favour. Lately, to some, this is an important metric in judging bilateral and trilateral relationships. Others have countered this new argument by pointing out that those deficits are offset by a lot of embedded U.S. content coming back the other way. Unbowed, Mr. Ross’s department produced a new report that argues that the United States is getting a continuously diminishing portion of this coming from the other two countries since the signing of the North American free-trade agreement.

The data, which he noted ended in 2011, was presented as the key metric in establishing why NAFTA in his mind was bad for the U.S. automotive industry. The only problem with the argument was that the figures were wrong.

Canadian-based manufacturers know that a tremendous amount of content in the goods we produce originates in the United States. Mr. Ross quoted a figure of 15 per cent U.S. content in Canadian-manufactured automotive goods, down from 21 per cent at the signing of NAFTA. However, a recent Scotiabank Economics report put that figure at almost 60 per cent. Furthermore, since the restructuring of the industry after the global crisis in 2010, auto makers operating in North America have increasingly centralized their purchasing functions in the United States. The result is that, since 2011, Canadian suppliers have faced increasing pressure to supply their customers from their U.S. footprints or face additional scrutiny to demonstrate the competitiveness of their Canadian-based manufacturing facilities.

The pressure to supply from the United States has undoubtedly resulted in an increase in U.S. content in Canadian goods since 2011. The picture is equally accretive to the U.S.-content level in goods sourced from Mexico. According to Michigan’s Center for Automotive Research, U.S.-content in Mexican manufactured automotive goods has risen from 5 per cent before NAFTA to 40 per cent in 2014. In both cases, the U.S.-based automotive sector has increased its share of the pie, and that pie is bigger than the way the U.S. Commerce Department reports it.

In 1999, the peak year for automotive production in Canada, our industry manufactured 3.05 million vehicles while the United States produced 13 million. Ensuing years have witnessed an incredible globalization of automotive origin, design and manufacturing that has featured the dramatic rise of China, South Korea and Eastern Europe. Canada has sought to hold its own, but by 2016, that annual production figure had declined by 29 per cent. Over that same period, the U.S. production number has stayed relatively stable with a decrease of less than 8 per cent. Far from taking business away from U.S. industry, the Canadian automotive industry has looked at the relative American success with envy.

The North American automotive sector has benefited from the rise of skills, infrastructure and commercial activity in Mexico. This has resulted in a third global automotive manufacturing power in the NAFTA region. The emergence of Mexico has allowed for U.S. and Canadian manufacturers to count on Mexico’s competitiveness as their lower-cost jurisdiction to help bolster their fortunes against the rise of other global threats that boast such a partner. With Canadian firms operating 120 factories with more than 43,000 employees in Mexico, the future of our automotive industry is increasingly as interwoven with that country’s as it is with the United States.

As we move through the coming rounds of NAFTA negotiations, it is very important that all parties seek accurate counsel and up-to-date research to best serve the interests of the people and industries they represent. Canada, the United States and Mexico make great cars together. The industry in all three countries have supported this argument by making investments that know no borders and have strengthened their common value proposition against common external threats. It serves no one in any of the three countries to ignore the facts as we chart the next generation of success and prosperity. We are stronger together.

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Canadian auto sector unfazed by U.S. tough talk on NAFTA

DOUG SCHMIDT, WINDSOR STAR
Published September 28th, 2017

Despite few details being made public so far, domestic auto sector players and observers appear much more upbeat on the NAFTA renegotiation effort that wrapped up its third round of talks in Ottawa Wednesday.

“We’re not worried,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.

That was the message he and a handful of other automotive sector executives delivered at a meeting with Foreign Affairs Minister Chrystia Freeland and Innovation, Science and Economic Development Minister Navdeep Bains on the eve of the latest round of NAFTA talks.

Following a period of auto industry nervousness when freshly elected U.S. President Donald Trump vowed to tear up the trilateral free-trade agreement, Canada’s auto sector and its politicians appear to be satisfied now that the new U.S. government at least understands the importance of cross-border integration within North America’s most important manufacturing sector.

The Trump administration recognizes that “America First hurts American interests and American corporate investments,” said Volpe, adding the types of big investments made by the automotive sector in Canada, the U.S. and Mexico are both expensive and meant for the long term.

Shortly after Trump’s inauguration, Volpe said members of his association, an important part of which is centred in the Windsor area, were “nervous” about the sudden uncertainty within “the world’s most integrated supply chain.”

The feeling now? “We’re slightly positive,” said Volpe.

Bains said he’s been getting positive feedback from industry sources. Piggybacking off a meeting in Turin, Italy, this week with his counterparts among the G7 group of economically powerful nations, the minister said he met with automotive company executives, including Fiat Chrysler Automobiles CEO Sergio Marchionne.

With the new CETA trade deal between Canada and the European Union, as well as a more “inward-looking” political approach by Trump in the U.S., Bains said the Liberals are touting Canada’s openness and increased opportunities for global investment.

“While others are building walls, we’re opening doors,” said Bains. He said his message to the G7 and to industry leaders is that Canada’s promotion of diversity, its immigration strategy focused on newcomers with skills and its emphasis on “strategic innovation,” all present opportunities for global investors.

“There’s probably room for optimism,” said Tony Faria of the Office of Automotive and Vehicle Research at the University of Windsor’s Odette School of Business.

“In respect to auto investment, the conversations were very positive,” said Bains.

The close to $2.6 billion in new investment announced recently by the Detroit Three auto companies “speaks volumes to how important Canada is — that bodes well for the sector,” he added. Marchionne — who, like Bains, earned an MBA degree at the University of Windsor — “spoke very positively about Canada,” the minister said.

“That’s always been an advantage for Canada … qualified, skilled people have always been welcome here, but not always so in the United States, and especially under Trump,” said Faria.

Windsor West MP Brian Masse, the NDP critic in the innovation, science and technology portfolio, agreed the current political climate in the U.S. provides Canada with a competitive edge and presents “a great opportunity to seize upon our diversity.”

But Masse, who accompanied Bains to this week’s G7 conference, described as “ghastly frightening” the fact Canada has been unable in recent years to lure a new automotive assembly plant. As for the billions in new automotive assembly plant investments touted by Bains, Masse said much of that was the result of Unifor’s contract demands at the bargaining tables.

At a time of record vehicle sales in Canada, “it’s been a pretty lopsided score,” said Masse, comparing domestic auto investment to that in the other two NAFTA countries.

While “still a good place for the parts industry,” Faria said Canada is “not top-of-mind” for any auto company looking for a place to build a new assembly plant. The country remains strong in the multibillion-dollar auto parts sector, but he said the trend that saw nine of the last 10 North American automobile assembly plants going to Mexico — and the 10th to the U.S. — is unlikely to change.

“There’s not much clarity about what’s going on,” Matt Marchand, president and CEO of the Windsor-Essex Regional Chamber of Commerce, said of the NAFTA talks that resume in Washington in two weeks.

Even after several rounds of talks, Canada’s negotiators were still waiting this week for their American counterparts to present more detailed positions about what it is they’re after, for example on the rules-of-origin requirements for automobiles.

“We don’t know if that’s a tactic (of the Americans) or a strategy,” said Marchand.

When it comes to the parts sector, Volpe said Windsor and Essex County’s interests are “acutely tied to the fortunes of Detroit and Michigan,” and that’s still the centre of the North American automobile industry.

“There’s always a risk (in international trade talks) … but the last thing you want to do is hurt your own,” he said of the Trump team’s likely auto strategy in the current negotiations.

dschmidt@postmedia.com

twitter.com/schmidtcity

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NAFTA, IL SETTORE AUTO ASPETTA LA PROPOSTA AMERICANA

September 27th, 2017
Author: Francesco Veronesi

TORONTO – Il settore automobilistico canadese è in fibrillazione in attesa delle proposte americane nel negoziato sul Nafta. Ad animare le discussioni dietro le quinte tra gli addetti ai lavori è il tema del “local content”, la percentuale del materiale usato nella fase di produzione necessaria per far sì che un’auto sia considerata prodotta in Nord America e non debba quindi pagare i dazi doganali. Per ora rimane in vigore la regola del 62.5 per cento per le automobili e il 60 per cento per la componentistica auto, ma gli Stati Uniti – come avevano già fatto durante i negoziati della Trans Pacific Partnership, accordo commerciale poi accantonato dal presidente Donald Trump – sono in pressing per dare un giro di vite e far salire la percentuale. Ma non solo. Tra le ipotesi al vaglio c’è anche quella – caldeggiata dall’inquilino della Casa Bianca – di inserire una sorta di sotto clausola che fissi una quota minima di materiale prodotto non solo nei Paesi Nafta, ma addirittura negli Stati Uniti. E questo – è la tesi dell’amministrazione statunitense – per garantire posti di lavoro negli States ed evitare che la delocalizzazione della produzione porti le aziende a spostare i propri stabilimenti in Messico e in Canada. Per ora è solo un’ipotesi, che “non è stata ancora formalizzata” rivela al Corriere Canadese Flavio Volpe, presidente dell’Automotive Parts Manufacturers’ Association (APMA). Ma se gli Usa decidessero di percorrere quella strada, sarebbe un evidente passo indietro nel processo di integrazione delle economie dei Paesi Nafta. “Non possiamo più parlare di singolo interesse statale – aggiunge il presidente dell’AMPA – ma di interesse continentale”.

E lo dimostra la presenza di aziende che decidono di investire in stabilimenti e fabbriche negli altri Paesi Nafta. Il settore della componentistica auto canadese, ad esempio, dà lavoro a più di 42mila persone negli Stati Uniti e a oltre 43mila lavoratori in Messico. Anche la linea dei rifornimenti è prettamente nordamericano, con le grandi compagnie automobilistiche – Ford, General Motors e Chrysler – che fanno affidamento sulla rete della componentistica su scala continentale. Se si decidesse di inserire una clausola sul “content” americano, si andrebbe a sconvolgere completamente l’equilibrio raggiunto in questi anni in un comparto produttivo chiave per le economie dei tre Paesi che hanno dato vita al Nafta. Il governo canadese, dal canto suo, è pronto a dare battaglia su questo fronte: per adesso è in attesa che i negoziatori Usa presentino la proposta formale.

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Former Chrysler CEO digs into rules of origin with auto parts group head

September 27th – Tom LaSorda, Former CEO of Chrysler and Flavio Volpe, President of the Automotive Parts Manufacturers Association (APMA) dig into NAFTA’s Rules of Origin and outlook for the auto part marketplace.

Click here for video.

U.S. fails to deliver demands for next round of NAFTA talks

The U.S. has stated one of its key objectives is to raise the amount of North American content in automotive vehicles made and sold within the North American free trade zone, but has yet to say what number it would like to see. It also wants changes in agriculture and “rules of origin.”

By TONDA MACCHARLES
Ottawa Bureau reporter
Sat., Sept. 23, 2017

OTTAWA—The head of Canada’s autoworkers union predicted NAFTA renegotiation talks would end in failure after U.S. negotiators arrived Saturday for Round 3 without setting out precise demands for how exactly the Trump administration wants to boost the made-in-America manufacturing sector.

“I’m convinced that the U.S. doesn’t want a deal, not before Christmas,” Unifor president Jerry Dias told the Star. “It is impossible … they’re too far apart” more than a month and a half after negotiators first sat down for in-depth discussions in Washington, he said.

Steve Verheul, the chief Canadian negotiator, said it was too early to say whether significant progress overall could be made in the Ottawa round, a comment echoed by Mexico’s chief negotiator, Kenneth Smith Ramos. “We’re just starting,” Ramos told reporters. “I have no comments on the actual meetings.”

Dias predicted the deal would come together in 2018, closer to the U.S. congressional mid-term elections in November. Meanwhile, he said, the Trump administration talks tough for show, to curry political popularity, but is unlikely to get Canada or, for that matter, Mexico to “capitulate.”

Canada didn’t put higher labour standards (which would also affect Mexico as well as so-called “right-to-work” states that curb collective bargaining rights in the U.S.) on the table “just to fill time,” Dias said. And Mexico is determined not to change its rock-bottom labour and environmental standards, which underpin its low-wage non-unionized work force, he said, “so we are heading on a philosophical collision course.”

Trade lawyer Lawrence Herman disagreed that the U.S. was deliberately stalling. “These are very complex issues,” he said, and the U.S. Trade Representatives office is obliged to consult with the U.S. Congress and its “complex constituencies” along the way.

“The Americans have to show that they put, from their perspective, a serious proposition on the table on every issue, they can’t play games … I would think it’s more a question of sorting out the details of what they want to ask and ensuring they’ve lined up all the various constituencies in Washington.”

Regardless, Herman, one of Canada’s top experts on international trade, also sounded a pessimistic note about the prospect for success, given the “egregious” comments by Donald Trump about NAFTA to date. “He’s basically saying we’re going to walk if you don’t agree to our position. The other two parties are saying, ‘OK, what’s your position?’”

“At some point,” Herman said, “the Americans will put some extremely tough demands responding to an America-First agenda and that’s going to cause significant difficulty in completing these negotiations.”

“I think these will become extremely nasty and difficult negotiations as things continue.

Besides the lack of exact demands about the manufacturing sector, the U.S. team has also not presented specific demands regarding Canada’s supply-managed agricultural sectors — dairy and poultry — despite those also being high on the U.S. hit list for a new NAFTA, said Gary Stordy, a spokesperson for the Canadian Pork Council. Agriculture is on the agenda for detailed talks Tuesday and Wednesday.

Canadian government officials downplayed the significance of the lack of clarification from the U.S. side. They said with four more days remaining, there was time left for the U.S. to provide more specifics.

Verheul told reporters Saturday he did not expect the American team to lay out specific text for new “rules of origin” for the auto sector during this round. And Verheul said he was “doubtful” the three-way negotiations will close or sign off on a final version for a chapter on the environment either, despite a U.S. official’s earlier suggestion that “significant progress” had been made and could be finalized in Ottawa.

Those are two of the contentious issues on the agenda at the Ottawa round. A copy of the schedule of negotiations, obtained by the Star, shows a range of Canada’s top priorities will be dealt with this week, including digital trade, environment, labour and gender.

But there is no negotiating table devoted to another Canadian objective: a chapter to recognize Indigenous rights within a new trade agreement.

And two of the big U.S. priorities are up for detailed discussion only later in this round. Negotiators will do a deep dive on “rules of origin” and “trade remedies and dispute settlement” only on Tuesday and Wednesday.

Rules of origin for the auto sector — NAFTA now requires 62.5 per cent of autos and auto parts to be made in North America for tariff-free status — “will be a subject for discussion, but we’re not expecting to see anything radically new at this point,” Verheul said.

U.S. Commerce Secretary Wilbur Ross wrote an opinion column Friday in the Washington Post saying the top priority was boosting American jobs in the auto sector.

“The declining U.S. share of content in imports from Canada and Mexico puts those jobs at risk. The United States accounts for an overwhelming share of the total NAFTA auto market today — 83 percent, in fact — yet American workers are not reaping the benefits of that purchasing power,” Ross wrote.

“If we don’t fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the trade imbalance. Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth. That is going to change under President Trump, and rules of origin are just the beginning.”

Flavio Volpe, of the Canadian Auto Parts Manufacturers Association, disagreed with Dias’s assessment, saying, “The longer they take the better we feel about it.” He said the U.S. Trade Representative’s office is working hard with American industry to understand the dynamics of tougher U.S. content rules, and Volpe said it will realize its own workers would suffer from them.

Dias is not a fan of NAFTA and wouldn’t shed crocodile tears over its demise because he believes it has favoured Mexico to the detriment of Canadian and U.S. autoworkers. He suggests a Canada-U.S. free trade agreement would be the default backstop if NAFTA fails, and that would provide better protection for workers.

Nevertheless, Unifor is a key stakeholder and Dias is in close consultation with the Canadian government as talks proceed.

Dias said Canadians expected more as this round got underway.

“From what I understand they (the U.S.) were supposed to drop the entire text this time around,” Dias said. “They haven’t dropped one piece of paper yet.”

“They’ll want a deal, but not before Christmas, just leading up to the (congressional) elections, so they’re going to show they were tough, they cancelled NAFTA, they walked away, and that’s all completely loaded in the U.S.’s favour. So this thing is going nowhere and if I’m the Canadian government, I’d just relax, there’s no need bargaining with themselves.”

For now, the negotiating teams are racing through talks on an accelerated schedule. Usually weeks or months can pass between rounds of international trade negotiations.

In the case of NAFTA, there are just two or three weeks scheduled between meetings.

Mexico’s lead negotiator, Ramos, said he expects successive NAFTA negotiation rounds to go ahead as scheduled despite devastating earthquakes that have hit Mexico City.

“Unfortunately, it’s been a traumatic experience for the country, but we haven’t had any impact in terms of the negotiations,” Ramos said. “Fortunately all of the negotiating teams and their families are okay and we’re working on that basis.”

“We have our schedule from now till the end of the year and that will be maintained for now.”

Ramos was part of Mexico’s negotiating team on the original NAFTA agreement.

Emily Davis, a spokesperson for the U.S. Trade Representative’s office, said “significant progress” has already been made in the areas of the environment, small and medium-size enterprise and competition.

“How many chapters will actually close is to be determined but there are areas where significant progress has been made and so that’s part of the goal of this round,” Davis said.

Here are the topics at the negotiating table at Round 3 in Ottawa.

Saturday: Customs, sanitary and phytosanitary measures, cross border trade in services, government procurement, digital trade, anti-corruption, environment, gender, and small and medium size enterprise, financial services

Sunday: customs, textiles, sanitary and phytosanitary measures, cross border trade in services, government procurement, digital trade, environment, state-owned enterprises, financial services, good regulatory practices, legal and institutional issues

Monday: textiles, goods, competition, telecoms, state owned enterprise, temporary entry rules, environment, good regulatory practices, technical barriers to trade, legal and institutional issues

Tuesday: rules of origin, goods, agriculture, energy, investment, intellectual property, telecoms, temporary entry, labour, technical barriers to trade

Wednesday: rules of origin, agriculture, investment, intellectual property, trade remedies and dispute settlement, labour, sectoral annexes

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NAFTA talks intensify; U.S. seen putting off key demand on autos

By David Ljunggren & Adriana Barrera
September 23, 2017

OTTAWA (Reuters) – Talks to update the North American Free Trade Agreement intensified on Saturday although U.S. negotiators looked set to once again withhold proposals for one of the Trump administration’s most challenging issues.

Teams from the United States, Mexico and Canada kicked off the third of seven planned rounds of discussions in Ottawa amid warnings from trade experts that time was quickly running out to seal a deal by the end of the year as planned.

One key issue is the U.S. desire to strengthen rules of origin for autos, which dictate how much of a vehicle’s components must originate from within North America to qualify for tax free status.

The American side did not mention a specific goal in the first two rounds and Canada’s chief NAFTA negotiator on Saturday said he did not think the United States would provide more details during the Ottawa round.

“We’re not expecting that, no,” Steve Verheul told reporters, predicting the pace of the talks would nonetheless quicken.

According to a schedule of the talks obtained by Reuters, rules of origin will be discussed on Tuesday and Wednesday.

U.S. President Donald Trump wants more U.S. content in autos, citing trade deficits of $64 billion with Mexico and $11 billion with Canada. Trump, who says NAFTA is weighted against his country, has threatened to walk away from the agreement.

Flavio Volpe, president of the Canadian Automotive Parts Manufacturers’ Association, said late on Friday he felt it was too early for detailed rule of origin proposals given that U.S. officials were still talking to the domestic industry.

“It’s fine for us if they take a little longer so we all understand what our interests are and we make the right deal. We don’t need an early deal,” he said.

U.S. chief negotiator John Melle said ahead of the talks that his team would introduce the difficult provisions in Ottawa talks that are due to last for five days.

Another tricky issue is labor, given complaints from U.S. and Canadian unions that Mexico’s low wages give it a manufacturing advantage.

The United States is also expected to present proposals on intellectual property and investment, sources with knowledge of discussions said. Other areas of disagreement include dispute settlement mechanisms.

Canadian and Mexican officials, as well as U.S. businesses, have already rejected a proposal by Washington to include a five-year sunset provision in the updated agreement, saying it added uncertainty to investment planning.

Additional reporting by Alastair Sharp in Toronto; Editing by Marguerita Choy and Franklin Paul.

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On NAFTA, The Trump Administration Is Using The Wrong Yardstick

Phil Levy , Forbes CONTRIBUTOR

On the eve of the third round of renegotiation talks for the North American Free Trade Agreement, Commerce Secretary Wilbur Ross upped his attacks on the deal. He still errs, but he does so in interesting ways. The data, and Ross’ arguments, highlight a core Trump administration confusion on trade: they are trying to comprehend a global trading landscape while blinkered by a focus on bilateralism.

First, the interesting new data. Sec. Ross, in the Washington Post, claims that a new report from his department vindicates NAFTA skeptics’ critiques. To Ross’ credit, the new data does present a more sophisticated look at trade flows between NAFTA countries (Canada, Mexico, and the United States) and the rest of the world. Rather than looking at the gross value of trade flows, the new report works with “value added” figures.

Depending on what argument one is trying to make, this can be a substantial improvement. To see why, imagine that the United States sends $4k of auto parts to Mexico, which then uses those parts to build a $10k vehicle that is exported back to the United States. In gross terms, the United States has imported $10k in this transaction; in value-added terms, only $6k.
Ross uses the new Commerce Department study to argue that there is less U.S. content in imports from NAFTA partners than we previously thought. Focusing on a single sector, he writes: “Hundreds of thousands of Americans go to work every day in the automobile manufacturing industry. The declining U.S. share of content in imports from Canada and Mexico puts those jobs at risk.” He takes the falling share of U.S. content in imports as an indictment of NAFTA’s provisions.

What can we actually glean from the data? The report covers the 1995-2011 time period and shows (Table 1) that the NAFTA share of value added in U.S. manufactured imports (not just autos) fell from 26.9% in 1995 to 22.1% in 2011. However, it is interesting to break that time period down. In the immediate aftermath of the 1994 NAFTA agreement, the NAFTA share rose; it climbed to 29.0% by 2000. The aforementioned drop came only after the turn of the century.

And here the plot thickens. That turning point was roughly when China joined the World Trade Organization – the start of a period that has become popularly known as the “China shock.” Could the declining NAFTA share be due to China grabbing market share? China goes from 4.2% in 2000 to 15.5% in 2011. That would more than explain the NAFTA share drop.

Here we get our first glimpse of the problems with a bilateral fixation in a multilateral world. China’s share did grow, but most of that net share increase appears to be China’s displacement of other Asian countries. From 2000 to 2011 East and Southeast Asia (including China) rose only from 32.4% to 34.7% as a share of U.S. manufactured imports.

The part of the world with the biggest net jump 2000-2011 was not East and Southeast Asia; not the European Union; not South and Central America. It was “Rest of World,” which climbed from 13.2% to 18.8%. To the extent we want to interpret this rise, the most likely explanation is that this reflects a world of ever greater integration and diversification – global supply chains.

Later breakdowns in the report seem to tell a similar story. The U.S. share of manufactured imports from Mexico falls from 1995-2011, but so does the Mexican share! The same is true for the U.S. and Canadian share of manufactured imports from Canada.

So we have interesting new data demonstrating what we already suspected – that manufacturers are distributing production globally to get the best quality they can for the lowest price.

As an aside, there is an intricate question here about “rules of origin” – how much North American content is required to secure NAFTA preferences. Note that the new data does not specify which goods came in under NAFTA preferences, so it is not especially informative in this regard.

Now, we come back to Sec. Ross’ policy arguments. He interprets the data as demonstrating NAFTA’s failure. As he puts it, “We cannot forget that the point of a free-trade agreement is to advantage those within the agreement — not to help outsiders.” There are two key errors here.

The first mistake is to assume that value added in manufacturing imports is a sufficient measure of the well-being of the United States, Mexico, and Canada. It is a slightly more sophisticated measure than bilateral trade balances, but still far from meaningful. There are careful studies about the overall effects of NAFTA; they generally find small positive effects. That’s unsurprising, since U.S. tariffs on Mexico and Canada pre-NAFTA averaged only 2.7 percent and these studies look at the effects of tariff changes.

The second mistake is the narrowness of the goal for NAFTA. In fact, two major U.S. objectives extended well beyond bilateral U.S.-Mexico trade flows (there was already a trade agreement between the U.S. and Canada). The United States wanted an economically-stable partner on its southern border, and it wanted the global propagation of rules that worked to its advantage. NAFTA achieved both.

In the wake of NAFTA, Mexico signed free trade agreements with Chile (1999), the European Union (2000), the European Free Trade Area (2001), Uruguay (2004), Japan (2005), Colombia (2011), Israel and Peru (separately, 2012), Central America (2013) and Panama (2015). Mexico was thus following a pattern set by the United States, which also pursued a series of trade deals over the same time span. This has turned Mexico into a viable manufacturing hub. It has helped achieve the U.S. goal of a stable southern partner. It also means, incidentally, that if the United States blocks imports, Mexico has options.

As to the propagation of favorable rules, the trade deals pursued by the United States and its partners did just that. This process was to culminate in the Trans-Pacific Partnership, until President Trump torpedoed U.S. participation. Mexico and the other 10 erstwhile TPP countries are proceeding without the United States.

Supporters of President Trump sometimes argue that he is playing 4-dimensional chess against more limited opponents. Sec. Ross’ latest arguments and data on trade show they are struggling to deal with even two dimensions. They are making bilateral policy in a multilateral world.

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U.S. to demand higher American auto content in NAFTA talks, Ross warns

ROBERT FIFE , STEVEN CHASE , GREG KEENAN AND ADRIAN MORROW
September 22, 2017 – Globe and Mail

Commerce Secretary Wilbur Ross is warning that Washington will push for higher U.S. content in auto manufacturing as NAFTA renegotiations enter the third round in Ottawa.

Mr. Ross brandished a study on Friday that he commissioned, which said the share of U.S. manufacturing content in imports has dropped significantly since the North American free-trade agreement took effect in the 1990s. His contention goes to the heart of thorny trade talks surrounding what is known as rules of origin.

“If we don’t fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the [U.S.] trade imbalance,” Mr. Ross wrote in a recent opinion piece in The Washington Post. “That is going to change under President [Donald] Trump, and rules of origin are just the beginning.”

The U.S. study was immediately refuted by Canadian auto-industry executives during a meeting with Foreign Affairs Minister Chrystia Freeland late Friday afternoon.

“The U.S. has fared better than Canada over the last 16 years,” Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada, told The Globe and Mail.

Canada-U.S. trade is effectively in balance with Canada posting a sizable deficit in auto parts and running a surplus in finished vehicles.

Auto-industry officials estimate that there is between 60 per cent and 70 per cent U.S. content in Canadian-assembled vehicles. U.S. content in Mexico-assembled vehicles is estimated at 40 per cent.

“Since 2011, the U.S. position vis-a-vis Canada has improved materially from numbers that are already wrong,” Mr. Volpe said.

Right now, NAFTA rules require that at least 62.5 per cent of a vehicle’s content must be made in North America to qualify for duty-free access between the United States, Canada and Mexico.

Jerry Dias, the powerful head of Unifor, which represents Canadian auto workers, and a member of Ms. Freeland’s NAFTA advisory council, said Mr. Ross has told him the demand for greater U.S. content is aimed more at Mexico than Canada.

“I met with [Ross] twice and each time we met we both agreed the problem was Mexico and he understands that,” Mr. Dias said, who noted that Mr. Ross is the owner of a U.S. auto-parts company. “He knows that the majority of the parts that go into a Canadian-built car, including steel, come from the United States.”

Mr. Ross’s study says U.S. content of manufactured goods imported from Canada dropped significantly – from 21 per cent to 15 per cent. U.S. content in goods imported from Mexico fell even more – from 26 per cent to 16 per cent.

His salvo was a key topic on Friday as the Foreign Affairs Minister sat down with her NAFTA advisory council of business and labour leaders, and with former prime minister Brian Mulroney and the team he assembled to negotiate the 1989 Canada-U.S. free-trade deal.

One senior Canadian official, who was not authorized to speak on the record, said Canada will take a “wait-and-see” attitude until U.S. negotiators actually put concrete proposals on the table with regard to rules of origin and other controversial topics, such as trade dispute-resolution mechanisms.

Canadian negotiators have been waiting since the first round of talks in August for the United States to submit the country’s negotiating demands. At the time, U.S. Trade Representative Robert Lighthizer, who will be in Ottawa on Wednesday for ministerial talks, said rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content.

There are reports that the Trump administration wants to raise the NAFTA content to more than 70 per cent and add a requirement that anywhere between 35 per cent and 50 per cent must be made specifically in the United States.

Canadian auto workers are supportive of higher North American content but they also want Ottawa to press for tougher labour laws in NAFTA to push up wages in Mexico.

“I told [Ross] I want it raised to 70. He said he wanted it raised higher,” Mr. Dias said. “I have no problem raising the rules of origin, but rules of origin in itself won’t fix the problem because if they relocate auto-parts plants from Europe and Asia, they will just go to Mexico because their minimum wage is 65 cents an hour. An average auto worker probably makes a little over $2 an hour. So rules of origin will just to go to Mexico unless we fix the Mexican problem.”

As negotiators sit down, a survey by the Angus Reid Institute shows that Canadians’ top priority in the talks is to ensure labour standards are equal across all three countries.

Mexican leaders have been defensive on tougher labour laws but the poll shows 69 per cent of Canadians believe they are necessary.

The poll also shows that 67 per cent of Canadians are strongly in favour of making sure that Chapter 19 in the NAFTA pact – that deals with anti-dumping and countervailing duties – is maintained. Prime Minister Justin Trudeau has made clear that Canada would walk away from the talks if the Americans insist on scrapping this provision.

“This data certainly gives the Canadian negotiators a road map in a sense of priority for the Canadian public,” Shachi Kurl, executive director of the Angus Reid Institute, told The Globe.

The Sept. 18 poll of 1,534 Canadians shows there is less concern about including gender-equality and Indigenous-rights issues in a renegotiated NAFTA. The poll is considered accurate within 2.5 percentage points 19 times out of 20.

The Trump administration believes erasing the U.S.’s trade deficit – the amount that imports exceed exports – should be the country’s top trade priority. Canada, Mexico and many economists argue trade deficits are not a problem and that overall economic growth is all that matters. The U.S. ran a $55.6-billion (U.S.) trade deficit with Mexico last year. Trade between the U.S. and Canada is balanced, with the U.S. having a surplus in services and a deficit in goods trade.

Dan DiMicco, a former steel executive and author who served as a trade adviser to Mr. Trump’s presidential campaign, said the United States will have to see major concessions from Canada and Mexico at the bargaining table or it will quit the deal. Mr. DiMicco is the former CEO of Nucor and author of American Made: Why Making Things Will Return Us to Greatness.

“One of two things is going to happen: A deal that is significantly better for the American worker and the American manufacturing sector and the American economy will be worked out, which means people will move significantly from their current positions – and I don’t mean the U.S. Or we will walk away from NAFTA and start all over.

“The President is committed to having free and fair trade with our trading partners … but we’re not going to be taken advantage of.”

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Canada’s auto industry anxiously await U.S. NAFTA proposal on content rules

The Canadian Press

September 22, 2017

OTTAWA – The Canadian automotive industry is anxiously waiting to see if the next round of NAFTA negotiations will provide some clarity on American demands that vehicles must have “substantial” U.S. content to qualify for duty-free movement within North America.

Rules of origin – one of the most complicated and contentious issues on the table, particularly when it comes to the auto sector – is on the agenda for the third round which starts Saturday in Ottawa.

David MacNaughton, Canada’s ambassador to the U.S., acknowledged Friday that the clock is ticking on the talks overall – and that negotiators won’t be able to take a passive approach if they want the best deal possible.

“We do have an opportunity to be a real powerhouse in the world, and keep our citizens prosperous and happy, and we can’t do that simply by playing defence,” MacNaughton said following an event in Banff, Alta.

“We’ve got to really iron out some of the difficulties that have emerged, or some of the things that weren’t thought of in 1994, but also look forward 10 years and say, ‘Where we want to be there?’

“The one thing that I can absolutely assure you of: I am 100 per cent confident, in terms of these discussions, that there will be some drama before they’re over.”

But while Canadian officials had been hopeful the U.S. would finally put some flesh on the bones of its auto-sector position over the course of the five-day session, they say it’s now uncertain whether American negotiators are ready to show their hand.

Flavio Volpe, president of the Automobile Parts Manufacturers Association, said everyone in government and industry is ready to spring into action the moment the U.S. tables its position but, in the meantime, they’re all “circling the airport.” He suspects they’ll have to continue circling for some weeks yet.

As far as Canadian officials are concerned, automobiles – specifically, the exodus of auto industry jobs and investment to low-wage Mexico – are at the root of President Donald Trump’s threat to rip up the North American Free Trade Agreement. And resolving the problem will be the key to the success, or failure, of efforts to rewrite the trilateral trade pact.

Hence, the eagerness to find out precisely what is the American bottom line on rules of origin.

“We’re waiting with bated breath, I guess, like our Canadian negotiating team and probably the Mexican negotiating team, as to what the U.S. is actually going to propose,” says Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association.

U.S. Trade Representative Robert Lighthizer opened the first round of negotiations in Washington last month with the aggressive pronouncement that “rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content.” Moreover, he said there must be a way to verify that content.The U.S. has not gone into any further detail since then. But it’s bound to be controversial when they do.

“Trade negotiations are based on the concept of a balance of concessions and the United States explicitly wants an imbalanced result (that favours the U.S.),” says Ted Alden, senior fellow with the Council on Foreign Relations in Washington.

“That’s going to be a pretty hard thing for Canada and Mexico to swallow and I’ve never seen a trade negotiation conducted where that was the starting point.”

Under the current terms of NAFTA, at least 62.5 per cent of a vehicle’s content must be made in North America to qualify for duty-free access between the U.S., Canada and Mexico – which is already “the highest content requirement of any trade deal we’re aware of,” according to Nantais.

Reports in the U.S. suggest the Trump administration wants to raise that to more than 70 per cent and add a requirement that anywhere between 35 and 50 per cent must be made specifically in the United States.

Moreover, the U.S. reportedly wants to add steel and electronics, which aren’t currently included, to the list of components whose country of origin must be traced.

Automakers on both sides of the border contend the U.S. position would disrupt their fully integrated North American supply chain, add costly red tape and ultimately weaken the North American industry’s competitiveness.

Automakers on both sides of the border contend the U.S. position would disrupt their fully integrated North American supply chain, add costly red tape and ultimately weaken the North American industry’s competitiveness.

And trade experts on both sides of the border are warning that it could backfire.

In a paper published Thursday, Scotiabank Economics argues that there is no need to tighten rules of origin for the auto sector; more than 75 per cent of vehicle parts are already made in North America.

That could drop, the paper acknowledges, with the rapidly increasing computerization of cars and trucks since the electronic components are primarily produced in China, Japan and Germany. But tightening the NAFTA content requirement wouldn’t necessarily result in those components being made in the U.S.

More likely, Scotiabank says automakers would move more production to Mexico or even opt to conduct trade outside NAFTA altogether, preferring to pay the 2.5 per cent tariff on auto imports to the U.S.

Dionisio Perez Jacome, Mexico’s ambassador to Canada, warned Friday of precisely such a scenario if the requirement for U.S. content is increased.

“We have to look at it very carefully, in order not to have it backfire,” he said. “Certain companies, if we increase it too much, might just opt to import cars directly and pay the 2.5 per cent tariff and we would lose that production. So that is an element that needs to be discussed.”

Unifor president Jerry Dias, whose union represents Canadian autoworkers, supports hiking the North American content requirement, but warns it can’t be done in isolation.

“Unless you fix the rest of the mess, it’s meaningless,” says Dias, who “absolutely” expects to see more detail on the American position during the next few days.

The rest of the mess includes, in his view, more stringent labour standards that would significantly hike wages for Mexican auto and auto parts workers and an increase in the low U.S. and Canadian tariffs on imported vehicles outside of NAFTA.

Without those two additional measures, he says more jobs and investment will simply wind up flowing to Mexico or outside North America altogether.

— With files from Armina Ligaya in Toronto and Ian Bickis in Banff, Alta.

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The story of NAFTA, as told from a Canadian auto plant in Mexico

September 10, 2017
9:40 AM EDT – Canadian Press via National Post

SAN JUAN DEL RIO, Mexico — Looming above a Canadian auto-parts plant, keeping watch over workers, is a painting of the Virgin Mary. This same plant plans a celebration of its latest expansion with a party featuring a mariachi band.

It’s far from Windsor. It’s close to Mexico City.

The story of the Exo-s factory is the story of NAFTA: manufacturing booming in Mexico, while surviving in the north; supply chains that are internationally interconnected and extra-efficient; and a Mexican workforce seeing the most modest gains and longing for more.

Canadian auto-parts companies have more than 120 plants and 43,000 employees in Mexico, and this Quebec-based plastics-maker is among them. It has grown a bit in Canada, but exploded here: when it opens a new warehouse on its property, its Mexican workforce will have nearly tripled to 300.

While workers hammer and weld together the new warehouse frame, the plant manager explains why Mexico was a must.

His company’s customers — GM, Cadillac, Fiat Chrysler — are here and need plastic products. They opened plants here because of Mexico’s low costs, government incentives, and free-trade agreements with 47 countries allowing tariff-free shipment throughout Latin America.

“For us it was a no-brainer,” Francois Ouellet said.

“When (our customers) open a new plant they want us to be close to them. If not we would have put at risk our actual business we have in Canada and the United States… We would have a problem to keep our business (without Mexico).”

The company’s U.S. and Canadian branches are still adding jobs, albeit more modestly. Canada has about 127,000 auto jobs today, the same the year before NAFTA was signed in 1993.

But something dramatic then happened. Canada’s long-term trendline looks like a steep mountain: employment climbed toward a peak in 2000, dropped, then plunged catastrophically after the 2008 recession and is now slowly inching back to early 1990s levels.

The Great Recession was a near-death experience for many companies, including the precursor to Exo-s. It relied upon GM for three-quarters of its revenues — and that giant’s near-collapse almost pulled down an entire ecosystem of suppliers.

Exo-s responded by diversifying. It not only spread operations to Mexico; it spread beyond the auto sector, beyond its core business of under-the-hood plastics like engine covers and coolant tanks.

On the same Mexican plant floor that produces car parts, an overhead machine spits down black, plastic trash bins. Someone strips away excess plastic, then hands the bins to Nataly Jacobo.

She grabs one bin to insert a wheel, then another, then another. She repeats this over an eight-hour shift, six days a week. The 23-year-old usually works on car parts, producing more than 3,000 pieces a week.

Her weekly salary is about Cdn $61.

This represents a raise for her. She arrived here three months ago from a job that paid $51. She also gained benefits here: the company subsidizes half her meals, offers free transport, and built a shower with hot water which many households here lack.

Ask her whether she deserves more, and she squirms. But she answers a broadly phrased followup: What if NAFTA were adjusted, so people in your country earned more?

“Mexicans make very little,” Jacobo replied.

“(Salaries) could be a bit higher… It would be good if they kept us in mind (at the negotiating table) — the Mexicans.”

Salaries have indeed increased in this manufacturing area. Ouellet estimates that his average worker makes about $6-$7 an hour with benefits, and it’s going up because of an acute labour shortage here.

“Go around everywhere. You’re going to see signs that they need employees. All companies — hotels, restaurants,” Ouellet said. “It’s really hard to find employees. So there’s (salary) increases.”

That’s in this manufacturing area.

But the overall story of NAFTA, in Mexico, is one of flat wages. In fact, they’ve declined overall because traditional corn-farming communities have been hard-hit by U.S. competition since 1993.

The Canadian government is pushing for higher labour standards in a new agreement. It has consulted closely with union leader Jerry Dias, who has done multiple interviews in Mexico spreading the message that Mexicans deserve a pay raise.

Dias said workers across the continent would benefit if Mexicans got more independent unions, freer collective bargaining, and pay hikes. The Unifor boss repeatedly told media assembled at last week’s NAFTA talks: “Mexican workers deserve to be able to buy the products that they make.”

It’s more complicated than that, according to industry and some analysts.

For starters, it’s unclear how an international agreement would enforce local labour laws. Dias favours an international panel. But the U.S. wants to end the international panels that already exist for intra-industry disputes.

There’s also the question of unintended economic consequences.

Industry insists profit margins are tight, and big salary hikes would just steer jobs like Jacobo’s toward Asia — or to machines. Canada’s auto-parts association says these jobs simply won’t ever return to Canada.

But the association’s Flavio Volpe said Canada does benefit from being part of supply chains that include Mexico.

That includes a certain plastics maker from Richmond, Que. It is planning a party in its other home — about a 43-hour drive south, off a road lined with taco eateries and women selling colourful, hand-woven indigenous clothing.

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‘Important progress’ at NAFTA talks, ministers say

Canada, the U.S. and Mexico put a positive spin Tuesday on what sources say was a tough five-day round of negotiations to rewrite North American free trade rules.

By TONDA MACCHARLES Ottawa Bureau reporter
Wed., Sept. 6, 2017

OTTAWA—Canada, the U.S. and Mexico put a positive spin Tuesday on what sources say was a tough five-day round of negotiations to rewrite North American free trade rules.

Canada’s Foreign Affairs Minister Chrystia Freeland, U.S. Trade Representative Robert Lighthizer and Mexican Secretary of the Economy Ildefonso Guajardo presented a united front on a stage as talks wrapped up in Mexico City.

Each in turn praised the “hard work” negotiators did at the table. Lighthizer said their efforts consolidated into two dozen chapters that will form the basis for the next round of talks to be held in Ottawa Sept. 23-27.

A joint statement issued by the three after their appearance emphasized that “important progress was achieved in many disciplines” and said more is expected in the coming weeks as negotiators take a break to consult with their respective industry associations and political decision-makers.

The communiqué said all three countries “reaffirmed their commitment to an accelerated and comprehensive negotiation, with the shared goal of concluding the process towards the end of this year.”

However speaking to reporters in Mexico City, Freeland acknowledged there are disagreements even as she insisted “North American relations are fundamentally solid.”

From left, Canadian Foreign Affairs Minister Chrystia Freeland, Mexican Secretary of Economy Ildefonso Guajardo Villarreal and U.S. Trade Representative Robert Lighthizer take part in a press conference on the second round of NAFTA renegotiations in Mexico City on Tuesday.

From left, Canadian Foreign Affairs Minister Chrystia Freeland, Mexican Secretary of Economy Ildefonso Guajardo Villarreal and U.S. Trade Representative Robert Lighthizer take part in a press conference on the second round of NAFTA renegotiations in Mexico City on Tuesday.

From left, Canadian Foreign Affairs Minister Chrystia Freeland, Mexican Secretary of Economy Ildefonso Guajardo Villarreal and U.S. Trade Representative Robert Lighthizer take part in a press conference on the second round of NAFTA renegotiations in Mexico City on Tuesday. (MARCO UGARTE / THE ASSOCIATED PRESS)

“Of course this doesn’t mean we’re going to agree on all points. But our deep friendship will permit us to resolve disagreements which arise at times” she said, as negotiators focus on the “difficult task of modernizing NAFTA.”

She said all “wholeheartedly share the goal of reaching a mutually beneficial agreement.” She rhymed off data to say the North American Free Trade Agreement has benefited the U.S. to the tune of an extra $127 billion in economic activity each year since it was signed.

And in contrast to U.S. President Donald Trump’s threat to ditch the talks and kick-start the legislative process to kill NAFTA, Trump’s chief trade envoy Lighthizer agreed there was “mutual agreement on many important issues.”

But Lighthizer also stressed a new NAFTA that benefits U.S. workers and industry is a “very important priority” for Trump.

“That’s why American delegation focused on expanding opportunities for American agriculture services and innovative industry, but …we also must address the needs of those harmed by the current NAFTA, especially our manufacturing workers.”

“We must have a trade agreement that benefits all Americans and not just some at the expense of others,” Lighthizer said. “I am hopeful that we can arrive at an agreement that helps Americans workers, farmers and ranchers while also raising the living standards of workers in Mexico and Canada.”

Guajardo struck a conciliatory note after last week, saying Mexico had to work on a “plan B” and anticipate a failure of the talks. He said Tuesday that Mexico was committed to a process that accommodates “each country’s interests.”

“In the process, I recognize we have responsibility to translate our negotiations into a final result that will imply more jobs in North America, jobs that are well-paid jobs, and to strengthen basic principles in this continent,” he said.

It was a diplomatic dance that belied many of the difficulties behind the scenes. Sticking points include the U.S. insistence on gaining greater access to Canada’s dairy and poultry sectors, its demand to end independent dispute resolution processes, and its demand that “Buy American” provisions — whether for auto parts or for government procurement projects — be protected.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said in an interview that one of the difficulties is that although the U.S. insists it wants to increase American content in the automotive sector by drafting tougher “rules of origin” or stiffer tracing of the origin of auto parts, it still has not put any substantive numbers on the table. Right now, vehicles and auto parts are required to have 62.5-per-cent North American content to travel tariff-free across continental borders.

Volpe suggested the failure of the U.S. trade representative (USTR) office to put a hard number on the table may in fact be a good thing. He said the USTR may be documenting for the Trump White House data that negotiators, senators and congressional leaders, especially those with auto plants in their districts, already know, having recently gone through trade negotiations for the Trans-Pacific Partnership that also dealt with “rules of origin” debates.

“The fact that we haven’t seen a number and we haven’t seen proposals confirms for me that the USTR is doing the hard work of inventorying where the American assets are, and they’re going to get to the same conclusion that we did: the American assets and interests are all over the map in North America. It’s going to be very difficult to cleave them off.”

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The Auto Industry Is a Major Obstacle to Trump’s NAFTA Deal

David Lawder, Dave Graham, Reuters
Fortune.com
Sep 04, 2017
MEXICO CITY—NAFTA negotiators discussed rules of origin on Monday as the Trump administration’s expected demand for U.S.-specific automotive content requirements was emerging as a major obstacle to a deal, auto industry lobbyists said.

U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystia Freeland arrived in Mexico City to close out the second round of talks to modernize the North American Free trade agreement on Tuesday along with Mexican Economy Minister Ildefonso Guajardo.

U.S. President Donald Trump has repeatedly threatened to abandon the 23-year-old pact unless it can be rewritten to reduce U.S. goods trade deficits of about $64 billion with Mexico and $11 billion with Canada.

“Addressing the U.S. trade deficit is a top priority in renegotiating #NAFTA,” the U.S. Trade Representative’s office said in a tweet on Monday, breaking its silence since the talks began last Friday.

Auto industry lobbyists and government officials said they did not expect the USTR negotiators to reveal specific targets on Lighthizer’s demand that a minimum percentage of North American vehicles be produced in the United States.

One lobbyist, speaking on condition of anonymity because the proposal is still under discussion, said he believed that U.S.-sourced proposal would have to be at least 35% to satisfy Trump, who railed against automakers for moving jobs to Mexico throughout his election campaign last year.

“Anything less would not be a political victory” for Trump, the lobbyist said.

The demand may prove a bigger problem than potentially increasing the overall North American automotive value content from the current level of 62.5% for tariff-free shipments of vehicles within the region, which officials say Trump’s administration also wants to raise.

Autos are expected to be one of the most contentious parts of the talks because the sector accounts for the lion’s share of the U.S. trade deficit with Mexico.

Juan Pablo Castanon, head of Mexico’s powerful CCE business lobby, which is representing the private sector, told reporters the automotive and labor issues were among the areas least advanced in the negotiations so far.

A U.S.-specific content requirement would cause major headaches for both Detroit and international automakers producing cars and trucks in North America.

It could also slow progress in the talks much more than some of the other issues, said Flavio Volpe, president of Canada’s Auto Parts Manufacturers Association.

“That could prove problematic, because it won’t deliver the benefits to the American interests that politically they might hope for,” he added.

Volpe acknowledged that Canada and Mexico will likely have to make some concessions on autos rules of origin to meet U.S. political demands, but these could be creatively structured.

For example, content requirements could be tailored to capture billions of dollars in research and development investments primarily made in the United States, protecting high-paying engineering jobs from moving offshore, he said.
Tabling Some Texts

The talks so far have largely focused on the three countries proposing their preferred language for less controversial areas, such as digital and cross-border services trade, according to government officials and industry representatives briefed.

But negotiators have not started consolidating the language, and wording for more controversial subjects, including rules of origin and dispute resolution mechanisms, is not expected to be revealed until the next round later this month in Canada.

“The horse trading on all of this has yet to begin. That’s for future rounds,” said a government official familiar with the negotiating process. Talks were proceeding in a “workmanlike and constructive manner,” the official added.
Guajardo, Lighthizer and Freeland are scheduled to hold a joint news conference on Tuesday afternoon after talks conclude.

With additional reporting by Ana Isabel Martinez and Anthony Esposito; editing by James Dalgleish.

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U.S. goes hard on demands, soft on specifics in NAFTA talks

REUTERS

 

Minister of Foreign Affairs Chrystia Freeland arrives to where the second round of NAFTA talks involving the United States, Mexico and Canada is taking place in Mexico City on Monday.

ADRIAN MORROW – Globe and Mail
MEXICO CITY
SEPTEMBER 4, 2017

American negotiators are insisting Canada and Mexico will have to make all the concessions in the overhaul of the North American free-trade agreement while the United States will not give anything up, The Globe and Mail has learned.

A source familiar with the closed-door talks at the Hyatt Regency hotel in Mexico City, where the second round of the NAFTA renegotiation is unfolding, said the Trump administration has taken a hard line at the bargaining table.

The U.S. decision to dig in at such an early stage of discussions means there will be little fast progress, despite a packed agenda and compressed time frame: Negotiators are working on 25 different parts of the agreement, and the United States is pushing to have a deal done before the end of the year.

The United States ratcheted up the tension even further on Saturday by demanding that Canada loosen its system of supply management for dairy, eggs and poultry, said the source, who spoke on condition of anonymity in order to reveal confidential details of the discussions.

This round of discussions, which began Friday, wrap up Tuesday. According to a schedule obtained by The Globe, the final day of talks will include a second day of talks on the rules of origin.

The rules of origin govern how much content in manufactured goods must be produced within the NAFTA zone to be exported between the three countries without paying tariffs. Negotiators will also discuss environment and government procurement, a subject that could include controversial Buy American provisions.

Foreign Minister Chrystia Freeland arrived in Mexico City Monday and had dinner with her counterparts – U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo – before a series of meetings they will hold Tuesday. Two senior advisers from each country also attended the dinner.

The next round of talks will start later this month in Ottawa; future rounds will continue rotating between the three countries.

Despite the United States’ hard stand, the country did not give its negotiating partners many specifics on what it wants, government and industry sources said.

Washington has not, for instance, said exactly what it wants Canada to do with supply management, whether to loosen the rules or allocate a larger quota for U.S. farmers.

It was a similar story on the rules of origin. The United States signalled in the opening round of talks last month that it would demand more NAFTA-zone content in autos – as well as a quota of specifically U.S.-made content – but has not yet given Canada and Mexico the details on what that would be, the sources said.

One industry source said the United States’ prime imperative on rules of origin appears to be helping the domestic steel industry. But the American government is still trying to figure out how exactly to rejig the rules of origin to make that happen.

Canada’s apparent strategy has been to make large demands – including that climate change be written into the deal and that the Unites States bans states from adopting so-called “right-to-work” laws accused of gutting unions – knowing they will likely be dialled back as part of the give-and-take. Mexico, meanwhile, is tabling few detailed demands, two sources said, waiting for the United States to reveal its positions before responding.

Armando Ortega, a former Mexican trade negotiator, said the United States’ intransigence is unusual at the early stage of talks: Normal negotiations usually begin with all sides putting their best foot forward and trying to reach common objectives. The tough American stand, he said, might be politically motivated posturing. President Donald Trump won last year’s election largely by attacking Mexico on trade and border security.

“If you are Lighthizer, you need to play to the audience. Your boss being who it is, you certainly would like to be very tough, especially if you’re in the country that has been your pinata,” he said in an interview.

Mr. Ortega, president of the Canadian Chamber of Commerce in Mexico, said it is ironic that the United States – which demanded the negotiations and wants them done by the end of the year – hasn’t laid out all the details of its demands.

“They’re the demandeur, they should be putting things on the table,” he said.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said rules of origin will be the key issue for the United States in talks because they will give it something straightforward to take back to its supporters.

He said he believed the United States is still trying to sort out how much North American content the domestic industry could realistically produce to figure out what it can ask for without inadvertently driving production outside of the NAFTA zone.

“That number is the most easily analyzed success or failure point for the U.S. administration. So I think we won’t see a solid number until much later in the process,” Mr. Volpe told The Globe in the lobby of the Hyatt.

Mr. Volpe said the United States’ hard line at the opening of the talks was likely an “on the moment tactic,” and doesn’t mean the negotiations are doomed.

“The waters are going to boil some times more than others,” he said. “But it’s just language.”

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TLCAN en México: sin acuerdos, pero con certeza de que amenazas de Trump son retórica

La segunda ronda de negociaciones del TLCAN, que se lleva a cabo en la CDMX, comenzó el viernes 1 de septiembre y concluirá el martes 5.

04/09/2017 4:01 PM CDT |

Juan Tolentino Morales

En la extrema derecha, Enrique Solana, residente de la Confederación de Cámaras Nacionales de Comercio, Servicio y Turismo (Concanaco).

En la cuarta jornada de la negociación del Tratado de Libre Comercio de América del Norte (TLCAN), que se realiza en la Ciudad de México, las pláticas continúan a puerta cerrada, y a decir de los partícipes, lo único en lo que se coincide es que la amenaza de Estados Unidos de abandonar el acuerdo es sólo parte de su estrategia de negociación.

Según Flavio Volpe, presidente de la Automotive Parts Manufacturers’ Association (APMA) de la delegación de negociación canadiense, uno de los principales problemas es que no se conoce cuáles son los objetivos de los negociadores estadounidenses.

Flavio Volpe, presidente de la Automotive Parts Manufacturers’ Association (APMA) de la delegación de negociación canadiense

“No sé qué es lo que quieren. Creo que debemos controlar nuestras expectativas; esta es la segunda ronda, y este tipo de negociaciones comerciales usualmente toman años y estamos tratando de acelerarlo a meses, por lo que debemos primero establecer el proceso y las propuestas”, dijo a medios el representante del sector automotriz.

Aunque a principios de agosto se firmó un acuerdo de confidencialidad entre los tres países sobre las pláticas del Tratado, incluyendo a los empresarios y otros sectores, entre los negociadores resulta imprescindible conocer las necesidades de los tres países para llegar a un acuerdo, dijo.

En cuanto a la amenaza de Estados Unidos de abandonar el acuerdo, Flavio Volpe consideró que, por el momento, sólo se trata de una retórica que tiene por objetivo que los estadounidenses lideren el proceso de negociación.

Al respecto, Enrique Solana Senties, presidente de la Confederación de Cámaras Nacionales de Comercio, Servicios y Turismo (Concanaco Servytur), coincidió en que Estados Unidos no va a dejar el TLCAN debido a la mutua importancia que hay entre los tres países en materia comercial.

“Es parte de una estrategia de negociación, pero no se va a levantar (Estados Unidos de la mesa del TLCAN); somos demasiado importantes los unos para los otros”, dijo a medios.

Por otra parte, Enrique Solana previó que sea luego de mañana, la última jornada de negociaciones en México, que pueda comenzar a hablarse sobre los primeros borradores.

“Va a ser vital la reunión de mañana (…) Se están moviendo varios temas pero todavía a nivel muy incipiente de propuestas, está muy frío”, dijo.

En tanto, Flavio Volpe consideró que las reglas de origen es de los primeros temas que podrían tomar forma, a pesar de su controversia.

CANADÁ, A FAVOR DE MODERNIZAR REGLAS DE ORIGEN EN EL TLCAN

La industria de autopartes está de acuerdo en aumentar el contenido regional de las mercancías que intercambian los tres socios comerciales.

Lunes, 4 de septiembre de 2017
Expansion

Dainzú Patiño
Actores de las industrias de autopartes y automotriz de Canadá se pronunciaron a favor de modernizar el tema de reglas de origen e incrementar el contenido regional de las mercancías que intercambian los países del Tratado de Libre Comercio de América del Norte (TLCAN).

“No suena descabellado pensar en revisar las reglas de origen para modernizarlas”, dijo Flavio Volpe, jefe de la Asociación de Manufactura de Autopartes Canadiense, entrevistado en el hotel Hyatt de la colonia Polanco, donde se lleva a cabo la segunda ronda de negociaciones para modernizar el TLCAN.

Explicó que entre los actores de la industria de los tres países se analiza cómo pueden quedar las reglas para satisfacer a los socios americanos.

“Estamos en el mismo negocio, en el mismo curso del consumo americano. Es una buena expectativa que al terminar este proceso podamos modernizar las reglas de origen”, dijo Flavio Volpe.

Una de las propuestas de Estados Unidos en la modernización del TLCAN ha sido endurecer las reglas de origen exigiendo que los productos elaborados en la región tengan más insumos de los tres países.

Volpe detalló que dentro de la industria automotriz, los contratos se modernizan cada cuatro a siete años, por lo que se requieren reglas más modernas que las de hace 23 años, cuando entró en vigor el acuerdo trilateral.

“Hoy un automóvil se mira distinto al uno del 94, las condiciones en el mercado han cambiado”, dijo Volpe a medios durante el penúltimo día de la segunda ronda de negociaciones para modernizar el Tratado..

Apenas ayer, Jerry Dias, presidente del sindicato de Unifor, uno de los más grandes de la industria automotriz en Canadá, refirió que el porcentaje de contenido regional en esta industria puede subir a 70%, en la actualidad es de 62%.

Especialistas en comercio exterior consultados por Expansión han referido que en el corto plazo subir el contenido significaría menos competitividad para las exportaciones de México, pues al no cumplir con este porcentaje se les cobrarían aranceles.

Pero en el largo y mediano plazos representa una oportunidad para el desarrollo de proveedores nacionales y generar incentivos para la inversión extranjera en territorio mexicano.

VAN POR COMERCIO ELECTRÓNICO

A la Confederación de Cámaras de Comercio Servicios y Turismo (Concanaco) de México le interesa que el tema de comercio electrónico se aborde en las negociaciones del TLCAN, y ya estudia los cambios que pueden venir.

“Estamos interesados en el tema de comercio electrónico que es un tema nuevo, vemos que el comercio avanza a ser más intenso, más fuerte, de mayor intercambio”, dijo a medios al salir del hotel Hyatt Regency.

Explicó que el sector de comercio y servicios aún no llega a presentar propuestas concretas, pero las preparan tomando experiencias en otros países como Argentina.

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“Ceder ante demanda de EU”, reconoce sector automotriz en Canadá

Canadienses y mexicanos entendemos que hay que ceder un poco para satisfacer a nuestros socios americanos, pero ellos deben puntualizar lo que quieren, consideró Flavio Volpe, presidente de la Asociación de Fabricantes de Partes Automotrices

04/09/2017 18:49 | Ivette Saldaña y Miguel Pallares

Los mexicanos y canadienses entienden que es necesario ceder “un poco” para satisfacer la demanda de Estados Unidos de pedir un incremento del porcentaje del contenido regional de automóviles superior al 62.5%, dijo Flavio Volpe, presidente de la Asociación de Fabricantes de Partes Automotrices de (APMA) de Canadá.

“Los canadienses y los mexicanos entendemos, que tenemos que ceder un poco para satisfacer a nuestros socios americanos. Ahora les corresponde a los socios estadounidenses describir sustancial y puntualmente qué es lo que ellos quisieran”, comentó el representante del sector automotriz canadiense.

Durante el cuarto día de la segunda ronda de negociaciones del Tratado de Libre Comercio de América del Norte (TLCAN), el titular de la APMA explicó que las recientes crisis automotrices y las elecciones en Estados Unidos trajeron el tema a la actual discusión, por lo que ya están familiarizados con una perspectiva a grandes rasgos de la intención de Estados Unidos.

Para el empresario canadiense las propuestas de aumentar las reglas de origen son parte del discurso de “retórica”, que en ocasiones se presenta como una agenda agresiva que usan las partes, pero no necesariamente será el resultado de las negociaciones.

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Latest Nafta Talks Near End Without Major Breakthroughs

By Josh Wingrove and Eric Martin
September 4th, 2017.
Bloomberg.com

The latest Nafta talks are nearing conclusion without a major breakthrough or agreements on even the least-contentious topics, officials familiar with the negotiations say, fueling doubts among observers that a deal can be reached this year.

U.S. Trade Representative Robert Lighthizer is scheduled to speak publicly alongside Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland Tuesday to conclude the second round of talks toward a new North American Free Trade Agreement. Their appearance will cap a five-day session in Mexico City.

While negotiators have made some progress, they have yet to agree on any major contentious issue and are far from a deal on individual Nafta chapters, the officials said, asking not to be identified discussing private matters. On some topics, discussion has been verbal with no specific text proposals submitted, they said.

The talks came after U.S. President Donald Trump threatened outright withdrawal from the agreement. While slow progress is normal in most trade negotiations, the nations have been seeking an unusually quick timeline for Nafta, and officials expressed doubt a deal could be reached by the target date of December. That sentiment is shared by many observers and stakeholders who say the U.S. has been slow in detailing its actual demands.

“They can’t possibly finish. The Americans haven’t started negotiating yet,” said Peter Clark, a trade strategist and former Canadian official. Jerry Dias, a Canadian labor leader, said he’d “be shocked if it gets done before Christmas.”

Lighthizer Meetings

Clark said the earliest possible date for a deal is February or March, and even then it would likely be an agreement-in-principle that wouldn’t be finalized until after Mexican and U.S. elections. “It’s not really a negotiation. What you have is a president who says he’s been robbed for years,” Clark said. “He wants to break a contract without any penalty.”

Juan Pablo Castanon, the leader of the Mexican business chamber known as CCE, told reporters on Monday there had been progress on topics including small and medium businesses, trade facilitation and telecommunications, while others — including autos and labor — were less advanced. The next talks, expected for Ottawa later this month, will be key to knowing if a deal can be reached this year, Castanon said.

“It’s what we all want,” Castanon said. “If we begin to close chapters and advance very fast, then we’ll be able to say there’s a possibility to find solutions by the end of the year.”

Over the first four days in Mexico City, government officials had said progress was being made on subjects such as the digital economy, a topic on which the three countries largely already agree. Controversial subjects like rules-of-origin and dispute settlement were discussed Monday by negotiators, according to a schedule obtained by Bloomberg.

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“There’s a will of the three countries” to get a deal, Bosco de la Vega, the head of Mexico’s agriculture chamber, told reporters. In the original Nafta negotiations in the early 1990s, when de la Vega represented the interests of potato farmers, “we met every four or six months,” he said. “Now we’re meeting every two or three weeks.”

David Wiens, a farmer and vice president of the Dairy Farmers of Canada, said he’s been surprised by the lack of written and firm policy proposals put forward by the U.S. government. That makes him believe it’s “a bit unrealistic” to get a deal by December.

“What we’re hearing on the ground here is the Americans have still not posted all the texts for the different chapters,” Wiens said in an interview in Mexico City. “If there’s a strategy behind all of that, I’m certainly not recognizing it.”

Auto Sector

One key issue without a firm policy proposal is what threshold the U.S. is seeking for the so-called rules of origin on the auto sector — the share of a vehicle that must be sourced within Nafta countries to receive the pact’s benefits. The current level is 62.5 percent and Dias said U.S. Secretary of Commerce Wilbur Ross wants a “significantly” higher figure.

The auto threshold is “the heart of the American objective,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association in Canada. “Negotiators will be very careful before pegging a rate that would drive assessments of success or failure.

The outlook isn’t entirely gloomy. One official described a two-track process — a political one dominated by Trump’s threats, and a more constructive and technocratic track with negotiators plodding forward in search of agreement.

The fast pace for Nafta is spurred by a Mexican presidential election in July 2018 and American midterm congressional elections in November. Canadian officials are said to also favor a quick deal to put an end to economic uncertainty created by the talks, officials said.

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NAFTA talks: Union leaders make their case in Mexico

Alexander Panetta, The Associated Press – CTV News
Published Saturday, September 2, 2017 10:01AM EDT

MEXICO CITY — Everyone talks about a new NAFTA that will help the working class: Donald Trump was elected on it, the Canadian government calls it a priority and the Mexican government says it’s open to improving labour conditions.

Labour leaders want to hold them to their word.

Hundreds of people gathered in a street rally organized by unions in Mexico City, while across town negotiators from the three countries huddled in a hotel Friday and began the second round of negotiations for a new North American Free Trade Agreement.

A Canadian auto-workers leader addressed the crowd as people cheered and chanted slogans amid a sea of banners and street-food vendors peddling Mexican delicacies. Jerry Dias of Unifor derided the original NAFTA as a corporate scam, where companies shifted jobs to Mexico, then kept wages low there.

He shouted out a series of suggested improvements: Easier unionization rules for Mexico; the end of a Mexican practice where auto companies insist upon a long-term contract guaranteeing low wages before building a plant; a higher minimum wage in Mexico; an end to right-to-work laws in the U.S.; and an international mechanism to enforce new NAFTA labour standards.

“It’s our time to fix the wrongs of the past,” Dias said.

“The promise of NAFTA — that it would improve the standard of living for workers in all three countries — that was a lie….. The Mexican workers that work in your auto plants can’t afford to buy the cars that you build. And that is an absolute disgrace.”

He asked the crowd through a Spanish-language interpreter whether people agreed that if workers in Canada and the United States earn $35 an hour, perhaps a Mexican worker might make the equivalent 525 pesos an hour.

Many in the crowd burst out laughing when they heard the latter number. A salary that high is inconceivable for the average Mexican factory worker. Speakers at the event shared stories about intimidation of labour and even the murder of Mexican workers.

Several heaped scorn on their own national government, deriding it as corrupt and indifferent to working people.

“It’s the end of a six-year term marked in blood, in political pressure, in reforms that hurt the Mexican people,” said Gonzalo Martinez of the national education workers’ union, referring to national elections next year, as a new left-wing populist party leads the polls.

A woman in the crowd said most Mexicans didn’t feel NAFTA’s benefits. Indeed, while wages have generally gone up in Canada and the U.S. since 1993, they have stagnated and even declined in Mexico.

“We don’t see it,” said Patricia Perez of the Institute of Social Investigations, which researches working conditions at Mexico’s National Autonomous University.

“Things are worse in the fields. Agriculture workers feel abandoned.”

She said many earn the minimum of about $6 per day. Auto workers are better off, she conceded.

And that’s an important distinction. Supporters of NAFTA point to it all the time. While Dias is correct that Mexican salaries haven’t grown overall, stats also show that the workers seeing the biggest gains are in parts of the economy exposed to trade.

That includes the auto sector.

One industry representative rejected the idea of a silver-bullet solution. A sudden, dramatic growth in labour costs would simply risk moving production to Asia, leaving all of North America worse off, said Flavio Volpe of Canada’s auto-parts manufacturers’ association.

He said Canada and the U.S. have maintained their overall auto work force, and what’s moved to Mexico are low-skilled tasks — like stitching seat belts and making windows: “You can quote me on this one: nobody in southern Ontario is going to be making seat belts and windows,” Volpe said.

The fact these jobs are in Mexico — and not Asia — is good for Canada, he said: it creates spinoff effects up north, as vehicle parts criss-cross the border.

As for using a trade deal to increase wages, one Mexico analyst says that’s hard to do. That’s because any salary increase, or new labour rules, would have to be enforced by the national government — and Mexico’s has a poor track record.

Duncan Wood says there’s a simpler solution: demographics.

He pointed out that Mexico’s population growth has plummeted in recent decades, and is now barely one-third its pace of the 1970s. Young workers will soon find themselves in higher demand, he said.

“The first thing is to recognize that Mexico’s demographics are changing,” said Wood, of Washington’s Wilson Center.

“This question of having a lot of cheap labour is going to solve itself, in the medium term.”

CONFLICTING VIEWS MARK OPENING OF TALKS TO REMAKE NAFTA

U.S. trade representative says agreement ‘failed many Americans’; Canadian, Mexican officials stress strong continental ties

By William Mauldin and Paul Vieira
Updated Aug. 16, 2017 5:54 p.m. ET

WASHINGTON—The Trump administration launched the renegotiation of the North American Free Trade Agreement Wednesday by laying out a starkly different vision from that of its two continental trading partners of how the pact has worked and how radically it should be rewritten.

The wide gap between the administration’s opening rhetoric and the positions of Mexico and Canada suggests a difficult road ahead in redoing the 23-year-old accord, even discounting for the posturing at the opening of any negotiation.

“We believe that Nafta has fundamentally failed many Americans and needs major improvements,” U.S. trade representative Robert Lighthizer said at the opening of talks in Washington. “We need to assure that the huge trade deficits do not continue.”

Mr. Lighthizer said Mr. Trump, who vilified Nafta in the 2016 presidential campaign, isn’t interested in just modernizing the pact and “tweaking” commercial rules, but rather wants new features to reduce the U.S. trade deficit with its two neighbors.

The disparate approaches have worried some business leaders, who see a risk that political leaders could dig in on opposing positions and hurt the ability of negotiators on the ground to strike a deal. Mr. Trump has repeatedly warned he could pull the U.S. out of Nafta.

“Canada doesn’t view trade surpluses or deficits as a primary measure of whether a trading relationship works,” Canadian Foreign Minister Chrystia Freeland said, noting that the U.S. has a surplus in trade of goods and services with Canada. Ms. Freeland touted the “deep friendship our countries share.”

Mexico’s Economy Minister Ildefonso Guajardo said his country considers Nafta “a strong success for all parties” and suggested that achieving a consensus on changing it won’t be easy. “For a deal to be successful, it has to work for all parties involved,” he said. “Otherwise it is not a deal.”

U.S. trade representative Robert Lighthizer said the Trump administration isn’t interested in merely ‘tweaking’ Nafta, but instead wants changes to reduce the trade deficit.

U.S. trade representative Robert Lighthizer said the Trump administration isn’t interested in merely ‘tweaking’ Nafta, but instead wants changes to reduce the trade deficit. PHOTO: POOL/GETTY IMAGES

Mr. Lighthizer pointed to Nafta’s success for many U.S. farmers, but he said it has hurt many others. The U.S. wants to boost rules to protect intellectual property, guard against currency manipulation and make changes to dispute-resolution mechanisms in Nafta to “protect our national sovereignty,” he said.

Given Mr. Trump’s fiery rhetoric on trade, Mr. Lighthizer’s tone “isn’t going to shock anyone, but is the kind of posturing you expected to happen privately,” said Mark Warner, a trade lawyer who practices in New York and Toronto.

The benchmarks for success Mr. Lighthizer laid out suggest a tough path ahead. The rising U.S. trade deficit with Mexico and the sharp drop in American manufacturing jobs are particularly difficult issues to address in trade agreements. Economists and former officials point to broader macroeconomic forces as playing far larger roles than trade does in creating deficits and jobs.

Mr. Lighthizer has yet to define exactly how the U.S. intends to negotiate a new pact that reduces trade imbalances among Nafta partners. Advisers to the Trump administration have discussed injecting some specific deficit-reduction benchmarks into the pact or demanding new provisions that officials believe could have that effect.

One of the main ways Trump officials are looking to move the needle on deficits is by tightening the “rules of origin,” the requirements governing what portion of a product has to come from within the trading bloc to qualify for tariff-free treatment. In his opening remarks, Mr. Lighthizer seemed to suggest the U.S. could set a standard not only for North American content, as Nafta currently does, but also for U.S.-specific content.

The trading partners are resistant such a demand for a specific level of U.S. content in Nafta-traded cars and auto parts. The opening comments were “kind of a signal from Ambassador Lighthizer that he has in mind some type of a national content,” Mr. Guajardo said. “That’s not part of trade agreements anywhere in the world.”

“Canada is not in favor of specific national content,” Ms. Freeland said late Wednesday.

Auto-parts makers from all three countries have warned officials about the risks to the industry’s integrated supply chain if changes to Nafta make it harder to ship parts across the continent’s borders. Still, said Flavio Volpe, head of the Automotive Parts Manufacturers’ Association, a Canadian lobby group, “you are going to have to give a little bit, otherwise there’s no victory for the American administration side.”

“The good part of this is that we initiated the dialogue,” Mr. Guajardo said. “Eventually we’ll start closing some of the differences that we have.”

The Trump administration is still working with U.S. lawmakers and business groups in many key areas and isn’t expected to propose new Nafta text this week on automotive rules of origin, currency manipulation or a controversial form of arbitration known as investor-state dispute settlement, according to people familiar with the U.S. negotiating position.

The three countries opened the talks in a Washington hotel ballroom with flags from each nation lined up behind the ministers and chief negotiators.

Mexico, whose economy has been transformed the most by Nafta, was represented by a large delegation including formal and informal advisers and members of the Mexican Senate who flew in for the event.

Ms. Freeland, the senior Canadian official, made a point of giving some of her remarks in Spanish, in an apparent show of solidarity with the Mexicans also facing U.S. demands.

The ballroom was also filled with industry lobbyists—officially designated “stakeholders”—with interests in the talks, from farm groups to retailers, as well as groups representing consumers and labor.

Officials hope to hold several rounds of talks this fall and complete negotiations as soon as early next year, before the political season heats up in Mexico and the U.S. Following the current first round, officials are expected to meet in coming weeks in Mexico City for the next round.

—Jacob M. Schlesinger contributed to this article.

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AUTO GROUPS SIDE WITH CANADA, MEXICO ON NAFTA ORIGIN RULES

THU AUG 17, 2017 / 5:39 PM EDT

David Lawder and Anthony Esposito

(Reuters) – Auto industry groups from Canada, Mexico and the United States are pushing back against the Trump administration’s demand for higher U.S. automotive content in a modernized North American Free Trade Agreement.

At talks underway this week in Washington, automaker and parts groups from all three countries were urging negotiators against tighter rules of origin, said Eduardo Solis, president of the Mexican Automotive Industry Association.

But U.S. Trade Representative Robert Lighthizer confirmed the industry’s fears that the administration of President Donald Trump was seeking major changes to these rules to try to reduce the U.S. trade deficit with Mexico.

“Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content. Country of origin should be verified, not ‘deemed,’” Lighthizer said on Wednesday in opening remarks.

Mexican Economy Minister Ildefonso Guajardo and Canadian Foreign Minister Chrystia Freeland both said they were not in favor of specific national rules of origin within NAFTA – a position that the industry agrees with.

“We certainly think a U.S.-specific requirement would greatly complicate the ability of companies, particularly small- and medium-size enterprises, to take advantage of the benefits of NAFTA,” said Matt Blunt, president of the American Automotive Policy Council. The trade group represents Detroit automakers General Motors Co (GM.N) Ford Motor Co (F.N) and Fiat Chrysler Automobiles (FCHA.MI).

His comments were echoed by Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association.

“Anytime you say this list or a part of this list has to come from one specific country you’re going to hurt all three countries,” he said.

The United States had an autos and auto parts trade deficits of $74 billion with Mexico and $5.6 billion with Canada, both major components of overall U.S. goods trade deficits with its North American neighbors — deficits that Lighthizer said could no longer continue.

Lighthizer’s mention of tightening verification requirements is a reference to expanding the parts tracing list, which is used to determine whether companies meet the 62.5 percent North American content requirement for autos and 60 percent for components.

Devised in the early 1990s, the tracing list covers almost none of the sophisticated electronics found in today’s cars and trucks, most of which come from Asia. Putting these on the tracing list could force suppliers to source these components from North America or pay tariffs on them.

Volpe said any changes to this must also capture the North American system design work and software content for these components that is not currently included.

“A car today probably has 25 to 30 percent advanced electronics, software content in it. In 1994, it had zero or 1 percent,” Volpe said. “Could you address the tracing to help you get to NAFTA compliance level by capturing some of the work that’s being done in Silicon Valley or Waterloo, Canada? Yes.”

John Bozzella CEO of the Association of Global Automakers, which represents international-brand carmakers, said NAFTA has allowed a major expansion of auto exports, with more than 1 million more vehicles built annually in the United States than in 1993.

“Negotiators should be mindful of this success as they work to modernize the agreement,” Bozzella said, whose organization represents international brand carmakers with U.S. plants, including Toyota Motor Corp (7203.T), Honda Motor Co Ltd (7267.T) and BMW (BMWG.DE).

(Reporting by David Lawder; Editing by Lisa Shumaker)

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U.S. DEMANDS STEEP CONCESSIONS, NOT ‘MERE TWEAKING’ IN NAFTA TALKS

ADRIAN MORROW AND GREG KEENAN
The Globe and Mail
Published Wednesday, Aug. 16, 2017 10:57AM EDT

The Trump administration will demand steep concessions from Canada and Mexico in NAFTA talks, including a US-content requirement for cars and trucks made in the free-trade zone.

Robert Lighthizer, President Donald Trump’s trade czar, delivered this stark message on the opening day of NAFTA talks in Washington.

“We feel that NAFTA has fundamentally failed many, many Americans and needs major improvement,” Mr. Lighthizer told a hotel ballroom full of trade negotiators from the three countries, adding that the trade pact has caused 700,000 Americans to lose their jobs.

Mr. Trump, he said, “is not interested in a mere tweaking of a few provisions and a couple of updated chapters.”

Mr. Lighthizer’s tough opening speech served notice that the U.S. will not accept the Canadian and Mexican strategy of turning the NAFTA talks into an exercise in simply updating the deal to cover the digital economy.

Instead, Mr. Trump intends to make good on his campaign pledge last year to bring in protectionist measures in a new era of economic nationalism. The President was elected in part on a promise to tear up or renegotiate free-trade deals in a bid to bring factory jobs back to the US rustbelt. The NAFTA talks are the first serious test of that promise.

“We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives — intended or not — in the current agreement,” Mr. Lighthizer said.

He laid out a series of demands, including slashing the U.S.’s trade deficit – the country imports more from Mexico than it exports; writing tougher labour standards into the deal; fighting currency manipulation, which the Trump administration blames for making foreign imports cheaper; revamping dispute-settlement provisions; and getting more market access for US agricultural products.

Mr. Lighthizer’s toughest specific demand was a toughening of the rules of origin, which dictate how much content in manufactured goods must be produced within the NAFTA zone to be sold within the zone without paying tariffs. The rules are particularly important for the auto sector, which currently must have 62.5 per cent of its content made in the NAFTA zone.

Mr. Lighthizer said he wants that per centage jacked up – and a US content requirement added on top of it.

“Rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content,” he said.

Such a move would severely disrupt the integrated network of the auto industry, which operates the way it does because of the rules set up when NAFTA came into force almost a quarter century ago. Vehicles and parts are made in all three countries and shipped among them duty-free.

The components that make up the 62.5 per cent can come from any combination of the three countries or a single one of them.

“If it was U.S. content [rules] then Canada and Mexico would be arguing that they would want specific content as well,” said David Worts, executive director of the Japan Automobile Manufacturers Association of Canada, which urges maintaining the rules of origin at 62.5 per cent and having no country-specific level of content.

“It goes against the way the deal has been operating for 23 years where there has been uniform regulations across the three countries,” Mr. Worts said. “That has supported the development of supply chains and the nature of the industry.”

NAFTA has led to a system where parts that are labour-intensive, such as wiring harnesses and fabrics for seats, are made in Mexico and shipped to assembly plants or seating plants in the United States and Canada.

“It would start to unravel a pretty complicated but pretty well understood way the industry works,” said Mr. Worts, whose organization includes Honda of Canada Manufacturing and Toyota Motor Manufacturing Canada Inc.

“There’s a whole lot of U.S. content in Canadian-made vehicles because everybody relies on imports from the U.S.”

Both auto makers and their parts suppliers have urged the Canadian government to insist that the 62.5 per cent threshold remain in place.

Flavio Volpe, President of the Automotive Parts Manufacturers’ Association, expressed hope that Mr. Lighthizer’s demand was only an opening gambit and would be bargained down over the course of talks.

“I understand that’s the objective – to raise some of the US activity in the supply sector – so I wasn’t surprised to hear it,” said Mr. Volpe on the sidelines of the speech. “I think, maybe, at the final draft we’ll see other ways to get there.”

Mr. Volpe said it makes sense to update the list of auto components subject to the NAFTA content requirement to include such things as software, an industry that is already strong in Canada and the U.S. But he said it would do nothing to add such things as hard electronic components which are not currently made in the US; even if the rules were tightened on those products, he said, it would not lead to factories moving to North America. Instead, it could simply lead to higher prices for consumers.

“If you add components to the tracing list that aren’t actually made in the US, you’re not going to inspire a sector to show up,” he said.

The first round of talks lasts until Sunday, and is expected to pack in discussions on at least 27 different elements of NAFTA. These include such controversial subjects as Chapter 19, the dispute resolution system that has helped Canada in the long-running softwood lumber dispute to the anger of the U.S.

The largest single blocks of time have been set aside for discussing investment, which includes Canada’s desire to roll back a NAFTA chapter that allows businesses to sue governments for unfavourable policy decisions; and the digital economy, including a U.S. push for Canada to raise its $20 “de minimis” amount – what consumers can buy online across borders without paying duty – to the $800 US level that American consumers enjoy.

Canada and Mexico struck a completely different tone from the US at the opening session.

Foreign Minister Chrystia Freeland opened by showing photographs of American and Mexican firefighters heading to battle wildfires in British Columbia and spoke of the “deep relationship” the three countries have.

She said trade is “not a zero-sum game” and Canada does not believe the trade deficit – Mr. Trump’s personal economic fixation – is important in evaluating if trade is working.

Ms. Freeland described trade between Canada and the U.S. as “balanced and mutually beneficial” and pointed out that Canada buys more U.S. goods than China, the United Kingdom and Japan put together.

“We pursue trade, free and fair, knowing it’s not a zero-sum game,” she said. “Canada does not view trade surpluses or deficits as a primary measure of whether a trading relationship works.”

Mexican Economy Secretary Ildofenso Guajardo, for his part, said any changes to the deal have to ensure more trade and not less.

The talks, he said, must not be “about going back to the past.”

“Mexico believes NAFTA has been a strong success for all parties,” he said.

The primary goal for both Canada and Mexico at the talks will be resisting any attempt by the US to claw back the current open market, while also seeking opportunities to broaden the agreement. Ms. Freeland has said she wants to pursue stronger environmental protections, for instance, while Mexico is focused on such things as expanding digital trade.

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NAFTA: EARLY INDICATIONS SUGGEST AUTOS WILL EMERGE AS U.S. PRIORITY NO. 1

The Canadian Press via National Post

August 16, 2017
4:47 PM EDT

WASHINGTON — Early indications are pointing to a potential No. 1 issue for the U.S. in a renegotiated NAFTA: automobiles. What’s not clear yet is whether it will go from being important to being an irritant.

The issue came close to prompting an immediate public debate between the countries on the first day of the talks, after remarks from the lead U.S. official were interpreted by some as floating the idea of a Made in America quota.

Both Canada and Mexico pushed back against the idea of an American-made quota in auto manufacturing — the lead ministers for both countries warned of damaging unintended consequences to the industry.

Auto production was the issue mentioned first, at greatest length, and in most detail by Donald Trump’s trade czar as talks got underway Wednesday.

Robert Lighthizer pointed to the carnage in the manufacturing sector as the reason so many Americans view NAFTA as a failed agreement.

“Thousands of American factory workers have lost their jobs because of these provisions,” Lighthizer said in his opening remarks.

He cited priorities for the sector, designed to boost production of parts in North America, and in the United States. Industry members are warning Lighthizer to handle the matter with care as the details are complicated, and any wrong moves could either drive up vehicle prices.

There’s also a risk that changes could make North American producers less competitive, or even force them to just ignore the new rules and simply pay a tariff that would be passed along to consumers.

Lighthizer listed four priorities for the sector:

— A “higher” North American content requirement to avoid a tariff. The current rule of origin calls for 62.5 per cent of a car’s parts to be made in North America.

— “Substantial” U.S. content in cars. It was unclear whether he was advocating a new, specific requirement for U.S. content — a move that would surely be controversial — or whether he was simply stating that the desired changes should positively affect the region, with more cars being made in the U.S.

— Stricter monitoring to make sure companies comply with the rules of origin. Lighthizer said country of origin “should be verified, not deemed.” Labour provisions should be included in the agreement and be as strong as possible.

— Tougher labour standards. Some insiders in Canada and the U.S. suggest better worker conditions in Mexico, and more pay, would not only be good for Mexicans but also for making non-Mexican production more cost-effective and preserving vehicle production in Canada and the U.S.

A Canadian auto-industry representative at the talks said he’s not worried by what he heard: “There’s no anxiety about it with us,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association.

For example, Volpe interpreted Lighthizer’s words to mean that he’s hoping for more production in the U.S. as a spinoff effect of a stronger North American industry, not as a demand that plants move there from other countries.

But he urged negotiators to be very careful when touching the current rules. He warned of ample possibilities for unintended consequences.

“It’s not simple,” Volpe said. “If you make it too onerous, does a company or supplier say, ‘Forget about compliance. I’ll just pay the tariff.”‘

That means production would actually shift abroad: companies would simply pay the tariffs, ranging from 2.5 to 6.1 per cent, as a cheaper alternative to following complicated new rules.

It’s also risky to try requiring companies to produce certain products at home, Volpe added: some industries that produce certain types of electronics for automobiles simply don’t exist in North America.

Finally, damaging Mexican competitiveness can boomerang on companies from the other countries.

He said Canadian auto-parts companies have 43,000 employees in Mexico.

Foreign Affairs Minister Chrystia Freeland pushed back when asked about the idea of a U.S. content requirement.

“Canada is not in favour of specific national content in rules of origin,” she told a news conference later Wednesday.

“We’re also very aware of the extreme complexity of rules of origin. It’s going to be very important… to take very great care in any changes that are made to ensure they don’t disrupt supply chains.”

Mexico’s economy minister, Ildelfonso Guajardo, said: “It’s not good for American companies, it’s not good for Mexican companies. So I think we should find other policy tools… It would be highly complicated.”

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HOW DONALD TRUMP COULD CLAIM VICTORY ON NAFTA

CAMPBELL CLARK
The Globe and Mail
Published Wednesday, Aug. 16, 2017 8:18PM EDT

Not tweaking. Not a minimalist modernization. U.S. officials opened NAFTA talks with a declaration that it is out for major changes to the deal that shifts the balance of trade.

U.S. Trade Representative Robert Lighthizer, in his opening statement before negotiations began, insisted this isn’t going to be cosmetic. After years of politicians promising Americans they would renegotiate the North American free-trade agreement, President Donald Trump is finally going to do it, he said.

The big question that follows is more about politics than trade: How can Mr. Trump claim victory at the end?

It’s a tough question, because there’s no way that a rewriting of NAFTA can do all the things the U.S. President has promised, such as eliminating trade deficits, bringing back lost manufacturing jobs and restoring lost national sovereignty.

But it’s a key question for Canadian officials and business leaders. They want Mr. Trump to feel he can declare victory in a way that doesn’t destroy NAFTA or disrupt North American trade.

One way that some suggest is to deflect Mr. Trump’s target elsewhere, to non-NAFTA countries such as China – another key target of his trade rhetoric – and to use NAFTA as a tool aimed at those other countries.

The three NAFTA countries, for example, could work together to investigate unfair trade practices such as “dumping” of product by Chinese manufacturers – selling the product in North America at artificially low prices to win market share – and taking action against it.

“That would be of interest to all three countries,” said Dennis Darby, president of Canadian Manufacturers & Exporters.

You could imagine how it might be of interest to Mr. Trump, if he could tell American workers that he had turned NAFTA – a term many Americans see as a synonym for unfair trade – into a tool to fight unfair competition from Chinese makers of steel or plastics or machinery. That may play well in Ohio.

But it’s not easy. It would be hard to find a way to have all three countries retaliate together against dumping or subsidies using measures like countervailing duties. All three countries would have to show they have suffered the same injury because of the unfair trading practices, and that’s hard to do when all three have different duties and regulations, Toronto trade lawyer Larry Herman said. It would be extraordinarily complex to arrange a joint NAFTA retaliation process unless all three countries formed a common customs union, Mr. Herman said – and that’s not a real possibility.

However, Mr. Herman argued there are some less-muscular NAFTA tools that could be used. The original NAFTA created a little-used North American free-trade commission that could be mandated to monitor third-country imports, and unfair practices, and co-ordinate trade-remedy action – even if they can’t apply a common retaliatory measure. That might have some political value for Mr. Trump.

Others suggest Mr. Trump could claim a win in the auto sector with a rewriting of the rules of origin – the complex rules that dictate what percentage of a car is considered North American.

Under NAFTA, a car must contain 62.5 per cent North American content in order to be exported duty free within North America. Because of the way the rules are written, it might really be 55 per cent in practice. The United States wants to make the rules more stringent.

Auto makers warn that reducing their ability to use parts from non-NAFTA countries such as India and China would make their vehicles less competitive.

Flavio Volpe, president of the Automotive Parts Manufacturers Association, said if rules are too stringent, it will raise costs and hurt jobs. But he said it may be possible to tighten and update the rules somewhat in a way that won’t have a big effect on Canadian companies. It might have a little more impact on Mexican ones. If the tighter rules are phased in over a period of years, that would minimize the disruption, he said.

That might be a political winner for Mr. Trump. He could argue that he stopped Mexico from serving as a back door for Chinese steel or parts – an allegation he has levelled.

But is it enough? Is tinkering with the complex rules of origin, or mandating a commission to keep a watch on Asian imports, big enough to match Mr. Trump’s NAFTA rhetoric? The hard question in these talks is what it will take for Mr. Trump to claim a win.

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U.S. EYES CHANGES TO NAFTA’S RULE OF ORIGIN, POTENTIAL DISRUPTOR FOR AUTO SECTOR

The Trump administration says it wants to strengthen rules of origin in NAFTA, a move that didn’t come as a surprise to the auto industry but some experts say could potentially disrupt the industry’s supply chain.

By: Alicja Siekierska, Financial Post

July 18, 2017

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The Trump administration is using “careful language” when it comes to its desire to strengthen the rules of origin in the North American Free Trade Agreement, industry experts say, something that could bode well for any potential impact on the automotive supply chain.

In the document released Monday outlining the United States’ objectives when it comes to NAFTA renegotiations, the U.S. trade representative said it wants to “update and strengthen the rules of origin, as necessary, to ensure that the benefits of NAFTA go to products genuinely made in the United States and North America.”

The U.S. also wants to ensure rules of origin “incentivize the sourcing of goods and materials from the United States and North America” and establish procedures that streamline rules of origin certification and promote strong enforcement.

NAFTA’s rules of origin currently stipulate that vehicle must have at least 62.5-per-cent North American content in order to gain duty-free access to all three member countries.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said the list of objectives did not contain any surprises to the auto parts industry.
“We’re seeing careful language around rules of origin as the administration and the industry south of the border has substantive conversations about how regulatory change would affect the industry,” he said.

“I think they have a very good understanding of how intertwined the three countries interests are in this sector and, very specifically, how deeply the American interest flows across both borders.”

While the objectives do not point to any specific changes that could potentially be made to rules of origin, U.S. Commerce Secretary Wilbur Ross has previously said the rules were “far too lenient.”

“Rules of origin are a loophole that allows material from outside to come in and yet be counted as though it was NAFTA-produced,” Ross said in a CNBC interview in March.

OBSOLETE PROVISIONS

“One of the many problems with the rules of origin in NAFTA as presently drafted is that in the case of say autos, it went specifically part by part…. Many of those parts are no longer even used in cars…. It’s an obsolete provision, and it’s essentially a back door way for a non-NAFTA good to take advantage of NAFTA.”

Potential changes to the rules of origin could mean raising the North American content level past the 62.5 per cent threshold, said international trade lawyer Mark Warner.

“The sense of it is that Trump probably wants to raise it higher than the 62.5 per cent, and that could mean raising it substantially to 80 per cent or playing around with the way it’s calculated so that, in effect, it’s closer to the 62.5 per cent,” Warner said.

“Another question is, based on the wording (in the document), whether you could have a second rule of origin that is U.S.-specific and would exist alongside that North American rule. It’s not clear that’s something they would want, but clearly it’s an indication that they want to move the content number up.”

Eric Miller, the president of Rideau Potomac Strategy Group who was an advisor during the 2009 auto bailout, said while he doesn’t anticipate specific country-by-country rules of origin to be implemented, changes to content levels and enforcement policy could disrupt the auto manufacturing industry.

SUPPLY CHAIN

“When you scramble those rules by either raising the overall North American content level, or tightening some of the accounting requirements that are out there, that will inevitably create impacts on the supply chain which, in my view, would likely mean potentially greater economic activity in North America but potentially higher cost for vehicles,” he said.

Volpe, however, said he is less concerned about renegotiations affecting the auto industry’s supply chain.

“Americans do well to have Mexican and Canadian supply when we compete against other major jurisdictions around the world,” he said.

“I’m not that concerned that anybody is going to shoot themselves in the foot when it comes to the automotive industry.”

THE NAFTA FIGHT: HOW CANADA CAN WIN

As U.S. President Donald Trump threatens to tear up the key trade agreement, Greg Keenan travels to the industrial heartland of North Carolina and discovers Canada’s secret weapon.

GREG KEENAN
ARDEN, N.C.
THE GLOBE AND MAIL
LAST UPDATED: SATURDAY, JUL. 08, 2017 9:39AM EDT

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The engine blocks creeping along the line at the Linamar Corp. plant in Arden, N.C., provide a cast-iron example of how the North American free-trade agreement has created an integrated economic ecosystem.

Blocks weighing 317 kilograms arrive by truck from Mexico at the factory in southwestern North Carolina, where the thump and hum of 13 machining and drilling processes prepare them for shipment to Hagerstown, Md., for installation in heavy-duty trucks made by Sweden-based AB Volvo.

“We get the blocks from Mexico because of NAFTA,” plant manager Thomas Grein says.

Engine block LNC 1300694, which bears the signature of former U.S. president Barack Obama, did not make the final leg of the journey along the continental assembly line.

Instead, it sits on the floor of the Canadian-owned factory – a memento of Mr. Obama’s visit to Linamar North Carolina in 2013 and a symbol of an outward-looking United States that was seeking to expand global trade.

That signed engine block is also a potent reminder that current U.S. President Donald Trump rejects the idea of expanding global trade. Mr. Trump has turned the country inward by pulling the United States out of the Trans-Pacific Partnership and has promised on several occasions to retrench even further by tearing up NAFTA.

Those threats have energized the federal government and provincial premiers, leading to a flood of Canadian politicians to Washington and state capitals.

But there’s a secret weapon – Canada Inc., the country’s manufacturing and resources giants and other companies that are significant employers in a multitude of U.S. congressional districts in more than one-third of the 50 states. Many of them are the largest private-sector employers in their districts or dominate a local economy.

Their investments give these members of corporate Canada the influence and opportunity to echo the argument federal and provincial politicians are making in Washington and state capitals – that significant changes to NAFTA could affect U.S. jobs in cities and towns from Georgia to Michigan to Alaska.

If those arguments can convince enough state politicians that their own interests will be harmed, Canada could emerge from the NAFTA renegotiations relatively unscathed.

The politics and the economics of NAFTA converge in this corner of the Carolinas, which is dominated by the Great Smoky Mountains and is the site of a Canadian manufacturing insurgency whose health depends on a smoothly functioning trade system.

In the 11th congressional district of North Carolina, Linamar and two other Canadian multinationals are large employers and, in the case of Linamar, growing. Across the state line, bordering on the North Carolina 11th, the third district of South Carolina is home to a Magna International Inc. plant with 1,200 employees.

The future of NAFTA will be meted out at the negotiating table beginning late this summer now that Mr. Trump has officially notified Canada and Mexico that he wants a new deal. He has publicly excoriated companies for shifting jobs to Mexico and appears to believe that renegotiating the trade deal and imposing a border tax will repatriate those jobs.

But Canadian companies such as Linamar in the suburbs of Asheville; recreational vehicle maker BRP Inc. in the mountain town of Spruce Pine; and textiles giant Gildan Activewear Inc. along the Interstate 40 corridor; are located in the United States largely because of NAFTA. That presence gives the companies the clout to urge Representative Mark Meadows and North Carolina’s senators to vote against substantial changes to the agreement.

“The government of Canada has been leaning on industries to do more,” says Laura Dawson, director of the Canada Institute of the Woodrow Wilson International Center for Scholars in Washington.

“We really need to see Canadian businesses in particular going into Gary, Ind., into Buffalo, to Seattle, all the border communities, and reminding folks in their home districts that Canadian trade is important – the Canadian economic relationship is vital to your livelihood,” Ms. Dawson told a NAFTA discussion panel presented by The Globe and Mail last month.

Some of the companies are lobbying local members of the House of Representatives and the Senate to make sure changes to NAFTA don’t disrupt their operations or supply chains, or indeed, the U.S. economy on a scale similar to the turmoil blamed on the original 1993 agreement.

Linda Hasenfratz, chief executive officer of Guelph, Ont.-based Linamar, has started at the top, making the pro-NAFTA case directly to Mr. Trump at a meeting at the White House in February. Ms. Hasenfratz sat across the table from the President as Canada and the United States established a joint council for the advancement of female entrepreneurs and business leaders.

The question of NAFTA’s future arose during the discussion, she says, including how Canadian innovation is benefiting consumers in all three countries and why it’s vital to preserve seamless collaboration in the continent’s auto sector. One of her fears is that a renegotiation of NAFTA will lead to added cost that will make North America uncompetitive against Europe and Asia.

Increased costs on a North American vehicle “will follow the consumer and the consumer stops buying and we make less cars and that’s a hell of a lot less jobs across the board,” she says. “That doesn’t help anybody.”
The North Carolina 11th occupies a picturesque, waterfall-sprinkled corner of the Tar Heel State, with Tennessee on its western and northern borders and Georgia and South Carolina to the south.

It’s bisected by the Blue Ridge Parkway, which bills itself as “America’s Favorite Drive” and lives up to that reputation with stunning mountain vistas before the Depression-era make-work project terminates near Great Smoky Mountains National Park in the northwest corner of the district.

Linamar’s Mr. Grein finds the southern climate and lifestyle much more appealing than in New York, where he spent his student days at New York State University in Oswego, N.Y., which was pounded with snow every winter while he was earning his industrial science degree.

“If I were to be interviewing someone to move from Detroit to here, I could probably do that a lot easier than flipping it,” he says.

Thomas Grein, plant manager at the Linamar factory in Arden, N.C.

The largely rural district delivered an overwhelming plurality to Mr. Trump in the 2016 election. He won every county except Buncombe, which includes many of the suburbs of the traditional Democratic bastion of Asheville, the heart of which was gerrymandered out of the district, making it one of the safest Republican congressional seats in the country.

In rural Graham County, perched in the mountains up against the Tennessee border, Mr. Trump captured 80 per cent of the vote. In the extreme southwest corner of the district, he won 77 per cent of the vote in Cherokee County. The margins of victory in all the counties he won far exceeded his 3.8-per-cent statewide defeat of Hillary Clinton.

Some of that support came as a result of Mr. Trump’s stated position that NAFTA is one of the worst trade deals ever made and that it bears the blame for declines in the textile and furniture industries that dominated the economy of this part of North Carolina – and elsewhere in the state – for generations.

“You have a community that can point and say, ‘Here’s a big negative cost that we’re bearing. Okay, why?’” says Sean Mulholland, an economics professor at Western Carolina University, located in the 11th district.

“They scan the place and say, ‘There’s a big shock that happened, NAFTA,’” Professor Mulholland says over lunch on the university campus in Cullowhee, a winding, leafy, one-hour drive west of Asheville that takes travellers past Old Grouch’s Real Military Surplus and billboards extolling the virtues of Hazelwood Gun & Tactical.

But there were also huge productivity gains in manufacturing that coincided with the first few years of NAFTA, adds Edward Lopez, another Western Carolina economics professor.

That makes it hard to determine to what degree the trade deal can be blamed for local job losses.

It’s also important to note, Prof. Lopez adds, that trade was vital to the creation of the local manufacturing sector in the first place.

“We wouldn’t be the economy we are without international trade – moving from agricultural to manufacturing – and the same is true as we transition from manufacturing to more service and knowledge-based jobs,” he said.

Data from Mexico’s Economic Secretariat underline that statement. North Carolina’s largest and second-largest export markets in 2016 were Canada and Mexico, which soaked up 31.2 per cent of the state’s total exports.

Compared with other congressional districts across the country, the North Carolina 11th fared relatively well in terms of job losses caused by the U.S. trade deficit with Mexico, according to a study by the Economic Policy Institute, a Washington-based think tank that examines the impact of economic trends on working Americans.

The district ranked 256th out of 437 in jobs displaced, the study showed. Ten Michigan congressional districts were in the top 20 in terms of numbers of jobs lost. Four of those Michigan districts voted for Mr. Trump, making a strong contribution to his pivotal win in that traditionally Democratic stronghold.

But plant closings are amplified in the small towns that dominate the North Carolina 11th. Many of those were typically home to a single large manufacturer.

Whether the closings were caused by NAFTA, increased productivity, automation, the rise of China or the other global forces that transformed the U.S. economy in the 1990s and 2000s, the trade agreement gets the blame.

In Andrews, population 1,762 in 2014, the shutdown of the VF Jeanswear plant in 2002 – caused by a shift in jobs to Mexico – vaporized about 500 jobs at the biggest employer in the town and in Cherokee County.

“It was terrible,” recalls Joe Gibson, who started work at the maker of Lee and GWG jeans in 1979 and was plant manager when it closed.

“We drew people from three counties. It took a toll on all the small towns,” Mr. Gibson said.

He recalls his father-in-law telling a story about how the plant that became VF Jeanswear was lured to Andrews in the first place in the 1950s. Employed people throughout the area donated 25 cents (U.S.) from every paycheque to help the town buy 50 acres of land that were offered to a company that built a hosiery factory.

There is still manufacturing in some of the small towns of the 11th district, including Spruce Pine, where BRP, maker of Ski-Doos, Sea-Doos, all-terrain vehicles and motorcyles, operates a foundry that employs 150 people making parts that go in Evinrude boat engines.
Any trade moves that reduce jobs “would be a negative, that’s for sure,” says Darla Harding, mayor of the town, which has a population of 2,123.

“We’re a rural area with a population of about 2,000, so the job aspect of that [plant] is very important to this area,” Ms. Harding said.

If any Canadian manufacturer has an interest in making sure that the status quo remains in place it’s BRP, the company now manufacturing a product invented by Quebec entrepreneur Joseph-Armand Bombardier and still controlled by his descendants.

BRP, which is based in Valcourt, Que., operates two assembly plants in Chihuahua, Mexico and an engine and transmission facility in Queretaro.

“The big dark cloud above our heads is everything related to NAFTA,” chief financial officer Sebastien Martel said on the company’s third-quarter financial results conference call in December, shortly after Mr. Trump was elected.

On the same call, however, Mr. Martel noted that the financial impact of slapping tariffs on products built in Mexico would be slight – between $20-million (Canadian) and $25-million on $1-billion worth of transactions. Making plants more efficient, passing on costs to suppliers and increasing prices would be ways of addressing those added costs, he said.

On the company’s fiscal year-end results call in March, CEO Jose Boisjoli said the company is optimistic that economic measures Mr. Trump is considering are designed to create economic growth, which would help BRP.

On June 1, BRP underlined its confidence that NAFTA will not be dismembered by saying it will invest $25-million in its Mexican operations to reduce bottlenecks.

The company did not respond to requests for comment on what lobbying efforts it is undertaking in regard to NAFTA.

In Hildebran, on the eastern edge of the 11th district, 205 people owe their jobs at Peds Legwear to Montreal-based Richelieu Group, which bought assets from a struggling textile company and won a contract to sell socks to Wal-Mart. It’s now part of the Gildan global manufacturing footprint, after Montreal-based Gildan took over Peds Legwear in 2016.

Senior executives of Gildan say they think the company’s presence in several low-cost countries and trade agreements between Canada and those countries will insulate the Montreal-based company from any major changes that might happen to NAFTA.

“One day they’re renegotiating, one day they’re tweaking,” CEO Glenn Charmandy said of the Trump administration’s public broadsides about NAFTA. “At the end of the day, it’s a little bit out of our control.”

Gildan is not hiring lobbyists in Washington because it’s not worried about the outcome of the negotiations, Mr. Charmandy added.

Gears at the Linamar factory in Arden, N.C.

Linamar’s Ms. Hasenfratz says her position as chair of the Business Council of Canada gives her access to members of Mr. Trump’s cabinet, while auto industry organizations such as the Motor and Equipment Manufacturers Association lobby members of the House and Senate.

She and other members of the Council met with U.S. Commerce Secretary Wilbur Ross earlier this month in Washington.

While Linamar lobbies, it’s also doubling down in the 11th district. The engine-block plant and an adjoining factory that makes gears and other engine and transmission parts employ 215 people and are hiring more.

The company is also building a new plant just southwest of Asheville in Mills River. The Canadian company and joint venture partner Georg Fischer AG of Switzerland are spending $200-million (U.S.) to build an aluminum casting plant that will eventually employ 350 people.

Aurora, Ont.-based Magna, which is Canada’s largest auto parts maker, operates in 11 states and also has 30 plants and 28,000 employees in Mexico. The company is working hard to make sure U.S. governors and state representatives are well aware of its sprawling presence.

Misti Rice, Magna’s director of government affairs, says her No. 1 priority is to educate politicians in those states about the company’s activities.

Ms. Rice has met with all but two of the 11 governors – all of whom are Republican – and has invited 51 members of the House and Senate to tour Magna facilities located in their districts and states. She has visited South Carolina, where Governor Henry McMaster was one of the first U.S. politicians to endorse Mr. Trump’s candidacy for the presidency, five times in four months.

“There’s a very tight relationship there and South Carolina is very important to us,” Ms. Rice says.

Magna has three factories in South Carolina and is constructing a fourth in the state to supply BMW of North America Inc., whose Spartanburg, S.C., assembly plant is less than an hour’s drive from the southern edge of the North Carolina 11th.

A plant operated by Magna’s Cosma metal forming division is located in Piedmont, which is in South Carolina’s 3rd congressional district, represented in the House of Representatives by Republican Jeff Duncan, whom Ms. Rice met with in May.

When she has finished what she calls the education phase of her meetings with politicians, she will turn to an advocacy campaign.

At some U.S. plants, she notes, Magna has added several hundred jobs because of NAFTA.

“Any kind of radical changes [to NAFTA] are inevitably going to change how we do business, which could negatively impact how we operate,” she says.

“We’re a very nimble company and adjust to any changes, but there could be a cost to that.”

North Carolina was not on the list of states being visited by federal cabinet ministers as part of Canada’s lobbying blitz, even though annual two-way trade between the state and Canada totals more than $10-billion (Canadian).

But given the investment by Canadian companies in the 11th district and elsewhere in the state – and local politics – it would be a good place to make the case for NAFTA, says Chris Cooper, who heads the faculty of political science and public affairs at Western Carolina University.

Prof. Cooper points to Mr. Meadows, who has represented the 11th since first being elected in November, 2012, and is now the head of the Republican Party’s Freedom Caucus in the House.

“From a Canadian lobbying perspective, I think it is a smart move,” Prof. Cooper says.

“In a way, he is the perfect person to make this argument to. If he’s in a competitive district where people are anti-NAFTA, he doesn’t have any room to move, but he’s in an overwhelmingly Republican district where if something catastrophic doesn’t happen, he’ll be re-elected.”

Mr. Meadows has already engaged in a public battle with Mr. Trump over health care and Prof. Cooper notes that he has much better access to the President than a third-term congressman from a mainly rural district in North Carolina would normally be expected to have.

The Congressman told The Globe that he has not heard from the Canadian companies with big operations in his district.

“But I’ve talked to the Canadian ambassador at length, had a great conversation with the Canadian ambassador about our mutual interests and I believe that we’ll find some common ground.”

Back at the Linamar plant, Jeff Brower takes a moment from working on a gear assembly line to recall Mr. Obama’s visit and the opportunity he had to speak with the former president on the importance of education.

Nonetheless, Mr. Brower cast his vote for Mr. Trump last November in Leicester, just northwest of Asheville.

He’s well aware of the trade links that are vital to the future of the Linamar facility, but believes that Mr. Trump’s most extreme comments on the deal don’t represent the path U.S. negotiators will take.

“It’s kind of hard to stomp on all that,” he says, adding a thought that seems to be driving much of the thinking on the issue in corporate Canada: “I know he’s made a lot of promises he’s not going to uphold.”

With files from Nicolas Van Praet in Montreal, Adrian Morrow in Washington and Josh O’Kane in Toronto.

 

CANADA’S TRUMP STRATEGY: GO AROUND HIM

By MAX FISHER JUNE 22, 2017
New York Times

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TORONTO — As President Trump disrupts alliances across the map, nearly every level of government in Canada has taken on new duties in a quietly audacious campaign to cajole, contain and if necessary coerce the Americans.

Prime Minister Justin Trudeau’s strategy for managing Mr. Trump is unlike anything tried by another ally. And he has largely succeeded where even experienced leaders like Angela Merkel of Germany have fallen short.

More than perhaps any other country, Canada relies on the United States, which accounts for 70 percent of its trade. Its sizable manufacturing industry is tightly integrated with American production, meaning even a slight hardening of the border or prolonged trade negotiations could put its economy at risk.

Laid in the first days after Mr. Trump’s election win, the plan even enlists Brian Mulroney, a former Conservative prime minister and political nemesis of Mr. Trudeau’s father, who had also been prime minister. Mr. Mulroney knows Mr. Trump and his commerce secretary, Wilbur Ross, from social circuits in southern Florida, where all three keep vacation homes.

Mr. Mulroney’s former chief of staff and ambassador to Washington, Derek Burney, said they urged Mr. Trudeau’s government to “cultivate access, but not just within the White House. To work the American system as never before.”

By organizing a grass-roots network of American officials, lawmakers and businesses, Canada is hoping to contain Mr. Trump’s protectionist and nationalist impulses. Though emphasizing the benefits of harmony, the Canadians are not above flexing muscle, with a provincial government at one point quietly threatening trade restrictions against New York State.

“We don’t have the luxury that the Germans have of an ocean between us,” Mr. Burney said. “And we don’t have a Plan B.”

The War Room

In the weeks before Mr. Trump’s inauguration, Mr. Trudeau reorganized his government to focus on his now uncertain ally.

His new foreign minister, Chrystia Freeland, a former journalist with long experience in the United States and an unapologetic champion of the global liberal order, is seen as able to coax the Americans when possible and defy them when necessary.

Ms. Freeland’s team of America-whisperers includes Andrew Leslie, a former lieutenant general and Afghanistan veteran who knows many of the American generals filling out Mr. Trump’s administration.

Mr. Trudeau established a “war room” dedicated to the United States, headed by Brian Clow, an operative with the governing party who had worked on some of its most important election victories.

The new office sought to cultivate the people around Mr. Trump. During a February visit to the White House, Mr. Trudeau and Mr. Trump’s daughter Ivanka led a panel on women in business. The two later attended “Come From Away,” a Broadway play about Canada sheltering travelers whose flights were diverted after the Sept. 11 terrorist attacks.

The efforts initially paid off. Mr. Trump’s February address to Congress mentioned only one foreign leader: Mr. Trudeau, whom he praised for his panel with Ms. Trump.

A few days later, the White House exempted the Keystone XL pipeline, overseen by the Canadian firm TransCanada, from Mr. Trump’s executive order requiring pipelines in the United States to be built with American steel.

But the honeymoon did not last. Mr. Trump accused Canada of unfair trade practices and threatened to exit the North American Free Trade Agreement, which would devastate Canada’s economy. Though he agreed to renegotiate instead, officials here fear the uncertainty could scare off investors or prompt factories to relocate.

Other foreign leaders found their administration allies similarly unable to temper Mr. Trump. Many shifted from absorbing his attacks to returning them. The Canadians felt they could not afford such a downturn.
Catherine McKenna, Canada’s environment minister. The Canadian federal government is working directly with American states and cities on climate change. CreditMax Rossi/Reuters
The Doughnut Strategy

So Canada turned to courting every other level of government, forming something like a doughnut around a White House-shaped hole.

Canadian officials have fanned out across the United States, meeting with mayors, governors, members of Congress and business leaders on matters from trade to the environment.

Ministers’ schedules resemble those of rock bands on summer tours. They travel armed with data on the precise dollar amount and number of jobs supported by Canadian firms and trade in that area.

“They’re going to great lengths, going into parts of America that few cabinet ministers from Canada have gone to,” Mr. Burney said.

Hints of this network emerged when Mr. Trump announced that the United States would leave the Paris climate agreement. Canadian officials said they would instead seek climate deals with American states, many of which were already in progress.

“Something snapped in the last few weeks,” said Roland Paris, a former foreign policy adviser to Mr. Trudeau. With trade threats looming, Mr. Trump’s break on climate convinced Canadian leaders of the need for drastic steps.

Since then, Mr. Paris said, “the approach has been to maintain cordial relations with the White House while going to extraordinary lengths to activate American decision makers at all levels of the political system.”

Mr. Trudeau hinted at the shift in a tweet, writing, “We are deeply disappointed that the United States federal government has decided to withdraw from the Paris Agreement.”

The phrase “federal government” was intended to signal Mr. Trudeau’s plan to cut his losses with Mr. Trump and focus instead on state and local governments, according to a Canadian official close to policy decisions toward the United States, who asked to remain anonymous because of the sensitivity of relations between the two countries.

The official said Canadian leaders plan to individually contact every lawmaker in Congress.

An early test came in New York, where Gov. Andrew M. Cuomo introduced a “buy American” budget provision on all state contracts worth over $100,000.

Officials here, sensitive to Mr. Trump’s influence on politics, feared the measure could inspire more protectionist policies. But they also saw an opportunity to demonstrate Canada’s growing muscle.

Provincial governments in Ontario and Quebec, which border New York, sent high-level delegations to Albany, where they hired the lobbying firm Bolton-St. Johns. New York-based business leaders were urged to intervene.

Premier Kathleen Wynne of Ontario, the province’s equivalent of governor, said she led with positives, like the benefits of cross-border manufacturing, under which plants from both countries collaborate on a single product.

But as Mr. Cuomo pressed forward, Ms. Wynne issued a quiet warning: If the measure passed, Ontario would reciprocate, imposing similar restrictions on trade with New York.

It was a powerful threat. New York’s annual exports to Ontario are worth $10 billion. Plants in Buffalo, near the border, are already struggling. New York firms would probably have been shut out of Ontario’s planned infrastructure investments, budgeted at $160 billion.

“If this was going to go ahead, we had to be prepared to protect our industry,” Ms. Wynne said in an interview. “Nobody wants a trade war, but we also have to be clear on what we will and won’t stand.”

The gambit paid off, with state lawmakers stripping the provision hours before passing the budget. Mr. Cuomo’s spokesman acknowledged Canadian lobbying had played a major role. Mr. Cuomo this week persuaded lawmakers to adopt a far more limited “buy American” measure. It is largely symbolic, underscoring how far Ms. Wynne was able to push the third-richest American state so as to protect Canadian interests.

Ms. Wynne is working against another “buy American” measure, in Texas, and proactively building ties. Last week, she spoke with Gov. Roy Cooper of North Carolina, the 13th governor she has been in touch with since the inauguration. She will meet the rest in July, when she attends the National Governors Association meeting in Rhode Island.

Other provincial governments are doing the same, as is the federal government, chiefly to recruit allies for the big one: Nafta renegotiations.

Should Mr. Trump seek to withdraw from or significantly weaken the trade deal, American governors, mayors and members of Congress can expect a call or in-person visit from their Canadian counterparts, asking them to pressure Mr. Trump to keep the deal in place.

Canada’s secret weapons appear to be proximity and language.

Allies of the United States typically work with the White House and federal agencies. Those have proved less reliable under Mr. Trump, leaving many adrift. Only the Canadians enjoy such easy access to mayors and governors.

American news and entertainment are ubiquitous in Canada, giving officials a nuanced understanding of political and cultural issues.

Whereas flights from Europe or Asia take a full day, forcing allies to visit selectively, Canadian leaders can be in Washington for breakfast and home by lunch.

Domestic politics have also helped. Mr. Trump polls poorly in nearly every allied country. Leaders, particularly those up for re-election, feel pressure to respond to slights. Mr. Trudeau, who is popular at home and faces little organized opposition, is freer to politely ignore Mr. Trump’s outbursts.

Still, Ms. Wynne acknowledged that little could solve for Mr. Trump’s unpredictability.

“I’m anxious about how all this could change if there’s a decision that puts up an insurmountable barrier,” she said, adding, “There’s a lot of uncertainty, and I will say quite candidly, our businesses here in Ontario are very nervous.”

 

RENEGOTIATING NAFTA COULD IMPROVE TRADE RELATIONS FOR PROVINCE, PROPONENTS SAY

Sarah Sacheli, Windsor Star
Published on: May 19, 2017 | Last Updated: May 19, 2017 7:57 PM EDT

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Premier Kathleen Wynne says a renegotiation of the North American Free Trade Agreement is an opportunity to improve trade relations for Ontario, and players in the province’s auto industry agree.

The United States officially served notice Thursday of its intention to renegotiate the agreement, triggering a 90-day consultation window before starting talks late this summer with Canada and Mexico.

Unifor president Jerry Dias said Friday he has already met with Wilbur Ross, U.S. Secretary of Commerce. “There’s a real recognition that Canada is not the problem in the trade agreement,” Dias said of his discussions with Ross. Rather there’s a need to change labour standards in Mexico to even the playing field.

The average wage in a Mexican assembly plant is $6 a hour, Dias said. In parts plants, it’s $3 an hour.

“They can’t even afford the cars they are making,” he said, calling NAFTA, in its current form, “a colossal disaster.”

The president of the Automotive Parts Manufacturers’ Association of Canada, said NAFTA works for the auto industry, but there is room for improvement.

“NAFTA works for us right now,” Flavio Volpe said. But when the agreement was negotiated 25 years ago, it couldn’t contemplate technological advances in the industry.

NAFTA’s “rules of origin” don’t include may of the components that exist in automobiles today — GPS and advanced driver-assistance systems such as lane sensors, Volpe said. Not including those components skews the percentage of components coming from a particular country.

Renegotiating NAFTA could also improve mobility for specialists working for a particular company. This is Canada’s chance to reopen categories of specialists who can get special H1 visas to work in the United States without needing a green card.

“We see this as a great opportunity,” Volpe said.

Wynne noted that Ontario is the main customer of 20 U.S. states and the second largest of eight more.

She said nearly nine million U.S. jobs depend on trade and investment with Canada.

The premier said the government is working in Washington and in state capitals across the U.S. to address issues that could affect Ontario-U.S. trade and ensure the province’s interests are represented.

Wynne also said the province has retained legal experts and trade advisers to support ongoing efforts to improve trade with the U.S.

“We are not satisfied to take a wait-and-see approach when it comes to any renegotiation of NAFTA,” Wynne said Thursday in a statement. “We see this decision as an opportunity to look at how NAFTA could potentially be improved to make the agreement even more effective for the people of Ontario, our workers and businesses.”

Wynne said she will continue to travel to the U.S. to meet with governors, legislators and businesses in states that have strong trading partnerships with Ontario.

— With files from The Canadian Press

ssacheli@postmedia.com

Twitter.com/WinStarSacheli

 

TRUMP TRIGGERS NAFTA RENEGOTIATIONS

May 18, 2017

APMA President Flavio Volpe talks to CBC about the upcoming NAFTA talks.

TRUMP READY TO RENEGOTIATE NAFTA AFTER CALLS FROM PENA NIETO, TRUDEAU

READ MORE HERE

ADRIAN MORROW, STEVEN CHASE AND GREG KEENAN
WASHINGTON, OTTAWA and TORONTO — The Globe and Mail

Published Apr. 27, 2017

Donald Trump says he was ready to “terminate” the North American free-trade agreement by the end of this week until Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto talked him out of it in a pair of emergency telephone calls.

Now, the U.S. President is ready to “give renegotiation a good, strong shot” and is confident of reaching agreement. But he warned he would still shred the agreement if he cannot get a “fair deal.”

The President said on Thursday that he had been prepared to take a hard line the previous day, when White House officials had anonymously told U.S. media that Mr. Trump was considering an executive order to start the process of U.S. withdrawal from NAFTA.

Explainer: NAFTA, dairy and softwood: What’s going on with Trump? A guide to the trade file

“Well, I was going to terminate NAFTA as of two or three days from now. The President of Mexico, who I have a very, very good relationship, called me, and also the Prime Minister of Canada, who I have a very good relationship with, and I like both of these gentlemen very much, and they said: ‘Rather than terminating NAFTA, could you please renegotiate,’” the President said during an unrelated Oval Office photo opportunity. “I said: ‘I will hold on the termination. Let’s see if we can make it a fair deal.’”

He acknowledged that pulling out of NAFTA unilaterally would be “a shock to the system,” but said the option is still on the table if negotiations fail.

Mr. Trump’s new-found collegiality was the latest development in a week of NAFTA whiplash, in which the President suddenly launched a barrage of attacks on Canada’s trade practices, considered unilaterally pulling out of the deal, then abruptly backed down and declared himself ready to start talks.

It remained unclear whether the world’s most powerful leader really reversed himself on a major file based purely on persuasive conversations with two other leaders or if the entire thing had been a high-stakes bluff all along.

It also showcased the power of an emerging alignment between Canada and Mexico, which both want to preserve as much of NAFTA’s open market as possible.

Canadian government sources said Ottawa viewed Mr. Trump’s prospective executive order as pure posturing. They also understood the move to be a way to put pressure on the U.S. Congress, which has held up the confirmation of Mr. Trump’s trade czar, Robert Lighthizer, delaying the start of NAFTA talks. Still, Canada took the threat seriously enough to have Mr. Trudeau call the President.

Mr. Trudeau said on Thursday that Mr. Trump told him he “was seriously considering withdrawing from” NAFTA. But Mr. Trudeau said he warned Mr. Trump that pulling out would cause “a great deal of suffering” on both sides of the Canada-U.S. border.

Pulling out of the trade deal would result in tariffs on goods entering Canada and Mexico from the United States, leading to a drop in U.S. exports and increasing production costs for manufacturers and other companies with supply chains that cross international borders, such as the automotive industry.

“For now, we’re trying to keep this on a positive and co-operative level, and in fact the President himself said that he wanted the same thing, in our discussion,” Mr. Trudeau told reporters during a visit to Saskatchewan.

Mr. Trudeau said he sought common ground with Mr. Trump during the conversation, noting that “he, like me, got elected on a platform of helping people, helping the middle class, growing the economy in ways that bring along people who don’t always feel like they’ve had a fair shake.”

Foreign Affairs Minister Chrystia Freeland also spoke with her Mexican counterpart, Luis Videgaray, to compare notes after the reports of Mr. Trump’s NAFTA withdrawal surfaced on Wednesday, Mr. Videgaray told Radio Formula.

And Mr. Trudeau spoke with Mr. Pena Nieto on Thursday. A summary of their call released by the Prime Minister’s office said the pair “welcomed” Mr. Trump’s decision the previous day to renegotiate NAFTA and “reiterated their respective readiness to do likewise.”

Both Canada and Mexico adopted similar play-it-cool strategies, opting not to escalate the dispute by hitting back publicly at Mr. Trump.

Now, attention will turn to the negotiations themselves. Senate Republicans and Democrats reached a deal earlier this week that will likely mean Mr. Lighthizer can be confirmed within the next two weeks. After that, the White House will formally notify Congress of NAFTA talks, triggering a 90-day countdown to negotiations.

Robert Holleyman, the number two U.S. trade official under president Barack Obama, said the United States cannot realistically pull out of NAFTA because it would be so economically damaging. This means the countries will have to reach an agreement all three can live with.

“Withdrawal is not a viable option,” he said. “Walking away from a deal only works if you don’t need the deal or if you have a different viable option. Neither of these exist with NAFTA. When you have an integrated economy, withdrawing would be painful. The United States does not have another option to make up for the loss of NAFTA.”

Canadian industry leaders and analysts gave high marks to Mr. Trudeau’s strategy for handling Mr. Trump before negotiations. They said the country should ignore the day-to-day rhetorical flourishes coming from the White House while continuing the vigorous lobbying campaign to impress upon U.S. politicians how important NAFTA is to their economy.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada, likened Canada to a hockey goalie in a shootout. “The shooter’s coming at you. He may have 100 moves, he may have one move. At one point that puck leaves his stick. You’ve got to keep your eye on the puck.”

Patrick Leblond, a professor in the graduate school of public affairs at the University of Ottawa who specializes in trade, said senior Canadian business leaders should join the government’s back-door diplomatic efforts.

“There are a lot of North American companies, American companies, Canadian companies that are big on either side of the border and those companies need to bring that message to Washington and explain that the world has changed,” Prof. Leblond said.

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Ontario premier, auto execs discuss strategy ahead of NAFTA talks

March 23, 2017

READ MORE HERE

TORONTO — Ontario Premier Kathleen Wynne met with Canadian automotive executives and labour leaders in Toronto on Friday to strategize about how best to approach a potential renegotiation of the North American Free Trade Agreement.

The group, which also included Minister of Economic Development and Growth Brad Duguid, discussed the importance of emphasizing the interconnectedness of the North American automotive industry. The approach has emerged as a key tactic in countering trade pressures from the United States government.

While the possibility that the United States may attempt to negotiate separate trade deals with Canada and Mexico has been raised, Volpe said that Canadian stakeholders see the tripartite arrangement of NAFTA as being an important one for the industry at large.

“I think everybody is committed to trilateralism unless the Earth moves, and then we’ll deal with it differently if the need arises,” he said. “But we’re all looking at this as all three countries help to manufacture cost-competitive vehicles in competition with the other major regions in the world. Ideally, we maintain that balance.”

Survey by Canadian parts makers launches NAFTA offensive

Canada invested in U.S. ‘success and in the employment of their citizens,’ APMA says

READ MORE HERE

March 21, 2017

Canada’s auto parts suppliers want U.S. lawmakers to realize how integrated the North American automotive industry is, so it’s currently taking stock of all Canadian companies that have operations in the United States.

The Automotive Parts Manufacturers Association is conducting a survey it calls Measure of Canadian Companies Having a U.S. Manufacturing Footprint.” Its goal is to determine how many facilities Canadian companies operate in the United States, the number of Americans they employ, and in which U.S. electoral districts those plants are located.

“Not only will your submission assist our efforts, but it will also assist your company as we take the aggregate State statistical information to Washington and remind individual congressional representatives that while companies in their jurisdictions may be Canadian owned, the jobs created are American (voters),” the APMA says on its note to members.

The information will help ensure that healthy trade relations between Canada and the United States stay strong.

“As a country, we’re a pretty big international investor,” APMA President Flavio Volpe said. “Canadian parts suppliers are one of the biggest employers, employing Americans and Mexicans. It’s important for us — ‘us’ being the industry at large and the provincial and federal governments, who advocate on our behalf — to understand what Canadian investment across NAFTA looks like.”

 

Chrystia Freeland wins praise from Canada’s auto parts makers

As appeared on BNN, February 27, 2017

WATCH HERE

Automotive Parts Manufacturers’ Association (APMA) hosted a roundtable discussion with Prime Minister Justin Trudeau on Monday.  APMA president Flavio Volpe is impressed with Trudeau’s approach to the auto industry, and how much Foreign Affairs Minister Chrystia Freeland brings to the sector.

APMA hosts Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland

CP24 Coverage, February 27, 2017

WATCH HERE

Trudeau talks trade with auto parts manufacturers

February 28, 2017

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Prime Minister Justin Trudeau met with representatives from automotive parts manufacturers on Monday afternoon in Toronto for a roundtable discussion on their industry.

The meeting, held at the Automotive Parts Manufacturers’ Association head office in Toronto, included representatives from companies such as Magna International, Martinrea International, ABC Group and The Woodbridge Group.

Part of the discussions were over President Donald Trump’s campaign pledges to tear up or renegotiate the North American Free Trade Agreement. However, representatives at the meeting say their concerns are lessening.

“I think that the Prime Minister and the President [Trump] had a good first date,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association. “We’re not really worried.”

Trudeau meets Canadian suppliers to lay groundwork for NAFTA talks

February 27, 2017

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A meeting Feb. 27 between Prime Minister Justin Trudeau and key players in the auto supply industry suggested possible federal-industry collaboration in efforts to shield Canada’s auto industry from disruptions threatened in the United States.

The roundtable discussion with high-ranking officials from the auto parts sector included Automotive Parts Manufacturers Association (APMA) President Flavio Volpe, Martinrea International Executive Chair Rob Wildeboer, Magna International CEO Don Walker and others. Trudeau brought with him Chrystia Freeland, Canada’s point person on NAFTA.

Auto sector praises Ottawa’s NAFTA tact

Published Monday, Feb. 27, 2017 5:47PM EST; Last updated Monday, Feb. 27, 2017 5:47PM EST

READ MORE HERE (SUBSCRIBERS ONLY)

GREG KEENAN – AUTO INDUSTRY REPORTER
TORONTO — The Globe and Mail

The federal government is doing the right things so far as it gears up for negotiations with the United States and Mexico on a new North American free-trade agreement, senior executives of Canada’s automotive-parts makers say.

The government – and major players in the industry – are in the midst of gathering facts about the impact a new NAFTA deal, border taxes or tariffs on vehicles would have on the auto sector and that should continue, executives said after a roundtable discussion in Toronto on Monday with Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland.

Discussions on the auto industry will be a critical part of any NAFTA renegotiation – in part because three-way free trade in vehicles and parts underpins the entire industry in North America. Vehicles are assembled in each of the countries and shipped duty-free across borders while U.S., Canadian and Mexican components that go into those vehicles also enter each of the countries without tariff.

The sector also appears to be at the top of U.S. President Donald Trump’s hit list after his tweets earlier this year, and during the election campaign last year, that castigated various auto makers for building assembly plants in Mexico and then planning to ship the vehicles into the U.S. market.

But the relationship between Mr. Trudeau and Mr. Trump seems to have started well with “a good first date,” earlier this month when they met in Washington, said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada (APMA), who played host to the meeting.

The federal government has moved early to make sure Canada’s views are known and “I think the language you hear out of Washington about Canada reflects the fruits of that,” Mr. Volpe said.

Mr. Trudeau told the industry leaders in a brief comment before the one-hour, closed-door meeting began that, because NAFTA matters to the auto industry, it matters to all Canadians.

“The high level of integration between our economies, particularly in the auto sector, needs to be continued and protected and recognized as a tremendous driver of jobs and opportunity on both sides of the border,” he said. He refused to answer questions from the media.

Don Walker, chief executive officer of Magna International Inc., said NAFTA as a region needs to remain competitive when compared with Europe and Asia.

“If you look at NAFTA, Europe and China and the rest of Asia, we shouldn’t be doing anything to damage the competitiveness of NAFTA,” Mr. Walker said.

Both Magna and Martinrea have made significant investments in Mexico – and the United States – reflecting how the industry has grown since NAFTA took effect.

Global auto makers have invested billions of dollars in assembly plants in Mexico in recent years. Mexico’s vehicle production has doubled to about four million units a year since 1994 and is projected to top five million by 2020.

Justin Trudeau meets with auto industry as concerns mount over NAFTA

February 27, 2017

READ MORE HERE

With a possible renegotiation of the North American Free Trade Agreement looming, Prime Minister Justin Trudeau sat down to reassure representatives from the auto industry on Monday.

Trudeau and foreign affairs minister Chrystia Freeland visited the Automotive Parts Manufacturers Association’s Toronto office for a closed-door meeting with business leaders. Earlier this month, the Prime Minister met with U.S. President Donald Trump, who has promised to renegotiate NAFTA on terms more favourable to the U.S.

….

APMA president Flavio Volpe said he was feeling optimistic following Trudeau’s trip to the White House. During the visit, Trump acknowledged he was more concerned about trade with Mexico than with Canada and called it a “wonderful meeting” on Twitter.

“The more we hear from the president’s nominees, the less anxious anybody is,” Volpe said. “They understand the dynamic and I think they understand Canada is a full partner. We’re not really worried.”

Corporate Canada takes comfort after Trump talks of ‘outstanding trade relationship’

Feb 14, 2017

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The sigh from the C-Suite was one of relief as Canadian business leaders took comfort Monday in the positive tone on trade struck by Prime Minister Justin Trudeau and President Donald Trump.

From the forestry industry to the automotive sector to the oilpatch, Corporate Canada kept a close eye on the first one-on-one meeting between the two leaders, parsing every word they uttered for clues on the future of trade between the two countries.

Trump, who won the U.S. election campaigning on a promise to renegotiate the North American Free Trade Agreement, beamed about America’s “very outstanding trade relationship with Canada.”

The president of the Automotive Parts Manufacturers’ Association, which represents companies that are acutely integrated across North America, said Trump’s comments were a welcome affirmation of what he’s been quietly hearing from U.S. officials over the last couple of months.

“We were pleasantly surprised that the president would have used as many superlatives when discussing his view on Canada as a trading partner,” Flavio Volpe said.

Volpe said that going forward, he’ll be emphasizing how much America — and American consumers — have benefited from one of the most integrated industries in the world.

“We’re happy to share any and all data and give them a sense of how American interests have been well-served in all three countries.”

Justin Trudeau and Donald Trump Try to Bridge Some Gaps While Avoiding Others

FEBRUARY 13, 2017

READ MORE HERE

WASHINGTON — Despite sharp differences on immigration, refugees, trade and climate change, President Trump and Prime Minister Justin Trudeau of Canada struck a cordial tone on Monday in their first meeting, alternating between attempting to bridge those gaps and steering clear of them ….

Flavio Volpe, the president of the Auto Parts Manufacturers’ Association, a trade group, said that it was important for his members to hear Mr. Trump’s message that he is not planning to dramatically remake the United States’ trade relationship to Canada ….

Trudeau’s meeting with Trump in Washington will set tone for years

Thu., Feb. 9, 2017

READ MORE HERE

Prime Minister Justin Trudeau heads to the White House Monday for his first face-to-face meeting with U.S. President Donald Trump, a high-stakes session that will set the tone for relations between the two nations for years to come.

Personal relationships between leaders matter, says David Wilkins, former U.S. ambassador to Canada.

The upcoming meeting is “immensely important” for the two leaders “to meet and develop a good working relationship,” said Wilkins, past envoy for Republican president George W. Bush in Ottawa. “I think the key is to find middle ground, and there’s plenty of middle ground to find.”…..

Flavio Volpe, head of the Automotive Parts Manufacturers’ Association, one of many stakeholders the Trudeau government has consulted, said in an interview, “You can’t make a car, you can’t do a final assembly in any of the three countries without sourcing parts from the other two.”

“Part of the discussion is to make sure everyone understands that in our business there are no borders. And the American interest exists in all three countries, as well as the Mexican and Canadian interest.”

APMA speaks to “As it Happens” on Trump, NAFTA and the Canadian Auto Sector

“You will harm American interests if you thicken the border between Michigan and Ontario”

January 11, 2017

READ MORE HERE (Begins after shaded transcript)

JD: It’s becoming kind of a familiar pattern: Donald Trump tweets, and the stock market reacts. Today, the President-elect’s call for General Motors to bring Mexican jobs over to the U.S. wobbled the automaker’s share price. In a tweet he threatened the company with a quote, “big border tax for any cars that are made in Mexico and shipped to U.S.” Ford, meanwhile, has dropped its plan for a plant in Mexico. And, of course, Mr. Trump has pledged to renegotiate the North American Free Trade Agreement (NAFTA). In an effort to prevent American jobs from leaving the country and all of this has Canadian auto manufacturers worried. Flavio Volpe is the president of the Canadian Automotive Parts Manufacturers’ Association. We reached him in Toronto.

HM: Mr. Volpe, what are your thoughts today about Donald Trump’s tweets and the reaction we’re seeing from the auto industry?

FLAVIO VOLPE: It’s tactics, certainly the President-elect has made clear what he expects from American automotive manufacturers. And it’s just a tactic that we’re not used to seeing.

Read the full transcript here (Begins after shaded transcript)

Trump administration understands the importance of the U.S.-Canada trade relationship

January 20, 2017:  BNN speaks with Flavio Volpe, president at Automotive Parts Manufacturers’ Association.

WATCH HERE

Canada need not worry as long as American interest is addressed.

Volpe says the Trump administration understands the importance of the U.S.-Canada trade relationship and that the latest protectionist rhetoric targeting the auto sector is simply Trump trying to ensure American interests are met.

APMA on making Canada’s auto industry more attractive for investment

November 24, 2016: BNN speaks with Flavio Volpe, president at Automotive Parts Manufacturers’ Association.

WATCH HERE

As Canadian businesses brace for the policies that U.S. President-elect Donald Trump brings in on NAFTA and climate change, BNN speaks with APMA President, Flavio Volpe about how this will affect investment in Canada.

Reuters, “Canada manufacturers put U.S. ahead of Mexico if Trump ends NAFTA”

November 17, 2016

READ MORE HERE

But Canada’s auto sector, which is heavily integrated with both the U.S. and Mexican industries, said only a trilateral deal would work for Canadian automakers and parts suppliers.

“It (the North American auto industry) really only works if there are no borders,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, which represents Canadian independent parts makers.

“A revision of NAFTA for the auto sector – there’s likely zero support for it.”

The Hill Times, “Lobbyists mobilize to remind U.S.: shutting out Canada means hurting Americans”

November 16, 2016

READ MORE HERE (Subscribers only) 

“There isn’t a binary decision that he can make that can solve that problem [of lost jobs],” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association.

Many of North America’s biggest manufacturers have supply chains stretching across all three countries, with products crossing borders multiple times before they are ready for sale. Changes to the NAFTA that complicate that flow could cost jobs in the U.S., as well as in Canada and Mexico, said Mr. Volpe.

“You’re going to hurt American interests, at some point, with any move you make. And those auto workers that voted for him, maybe, they work for those companies,” he said. …

The Canadian and U.S. auto industries are “almost completely aligned” on the NAFTA and free trade, said Mr. Volpe. That’s unsurprising, given that the same large automakers operate in both countries.

Mr. Volpe and the companies he represents will be delivering their message to existing allies in Congress, and relying on Canada’s embassy in Washington for introductions to new Representatives and Senators, said Mr. Volpe.

Ottawa Citizen, Windsor Star “Trump victory worries local auto sector”

November 9, 2016

READ MORE HERE or HERE

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said suppliers and tool makers with assets in the U.S. and/or Mexico have spent the last few months trying to determine the impact of a Trump presidency.

“It’s too early to express practical concerns, but we will have to be vigilant in telling the auto industry integration story in Washington,” said Volpe. “The challenge for Ontario and Canada’s auto industry is to make sure the new administration understands that any protectionist measures against imports equally affect the profitability of American companies. We’re so integrated, you can’t supply operations on either side of the border efficiently if that border gets thicker.”

CBC “Why Donald Trump’s presidency could hurt GTA businesses”

November 9, 2016

READ MORE HERE

Flavio Volpe, President of the Automotive Parts Manufacturers’ Association, is also concerned about NAFTA being repealed, and what that would mean for a business that routinely ships parts across the border.”You can’t make a car in Michigan without parts from Ontario and you can’t make a car in Ontario without parts from Michigan, everyone knows that,” Volpe said.

For now, his organization will keep an eye on Trump. If the president-elect does move to repeal NAFTA, Volpe said his group will work with governments on both sides of the border to make sure Ontario’s industry isn’t damaged.

Automotive News “NAFTA could be replaced by Canada-U.S. trade deal, experts suggest”

November 9, 2016

READ MORE HERE

Flavio Volpe, head of the Canadian Automotive Parts Manufacturers’ Association, told Automotive News Canada the elimination of NAFTA, or at least a revised version of the deal, could be good for Ontario. However, the province would need help from Rust Belt states like Michigan, Ohio, Indiana and Pennsylvania, all of which voted for Trump.

“If the Great Lakes states and the Midwest States can explain to Washington that Ontario is essentially a part of that region, then it’s good for Ontario,” Volpe said. “But it will come down to state-to-state, province-to-state co-support and the articulation of how integrated we are.”
For example, 30 per cent of the parts used at the more than 10 auto assembly plants in Michigan come from Ontario, Volpe estimates.

Automotive News Canada “Canadian auto industry was prepping for Trump win

November 9, 2016

READ MORE HERE

As the vote grew closer, the auto industry started planning, APMA President Flavio Volpe said.

“People were starting to model what it would look like if a Trump victory meant a new look at NAFTA,” Volpe told Automotive News Canada, Nov. 9. “I think everyone was prudently saying, ‘If he wins, what does it mean for us?’

“I heard that in Washington, D.C. when we went there [in September] and we met with Congressional leaders and manufacturing leaders. I heard that in Detroit.

“And I certainly heard it up and down Highway 401 on this side of the border.”

That could bode well for Ontario if its partnerships with states like Michigan remain strong, Volpe said.

An estimated 30 per cent of the parts used in Michigan assembly plants alone are Canadian made, Volpe previously told Automotive News Canada.

“You can’t take for granted who may or may not advise the president,” Volpe said, “but certainly Michigan’s Congress representatives and Senate representatives will be able to very quickly state how important it is that the border stays fluid and those [Canadian] relationships don’t get disrupted.

“If we’re successful in doing that, I think Ontario and Canada is in a relatively better position than any number of Mexican states.”

Volpe said “a deep dive and debate on what NAFTA 2.0 looks like” is likely now that Trump won the presidency.

“I imagine there will be some compromises before they crystallize their position on NAFTA,” he said. “If the Republican Congress thinks pulling out of NAFTA is a bad thing, and assuming that’s where he wants to go, they have the ability within their jurisdiction, to put a fence around him.”

Automotive News “NAFTA: Free trade, with uneven effects”

September 18, 2016

READ MORE HERE

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada, says the auto parts business operates on slim margins: “A 35 percent tariff would be a reckless instrument that would put an immediate chill on anybody’s investment in any of the three countries.”

Industry officials such as Volpe credit NAFTA with allowing North America to be competitive in an increasingly global industry. “The rise of Mexico as a free trading zone in my opinion is one of the catalysts that allow automakers to profitably go to a global product platform,” Volpe says.

Volpe, of the Automotive Parts Manufacturers’ Association of Canada, says Canada and other countries look to the U.S. to set an example. Recklessness on the part of the U.S. would encourage other countries to disregard world trade rules, he says. “Some of the rest of the world does cheat on those obligations,” Volpe says. “But the solution isn’t for the global trading leader to drop its standards in response.

“It’s a tough spot to be in. But you’re there for a reason. It’s like Superman getting into a bar fight. Why?”

Ottawa Citizen, Windsor Star “Trump tells Detroit audience he wants better trade deals”

August 8, 2016

READ MORE HERE

Automotive-related companies, including in Windsor, have adjusted to NAFTA and created “the world’s most integrated supply chain,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association. Severing those links, he said, would be “problematic” and could harm the very manufacturing businesses Trump promises his plan would help.

 

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