MONTREAL -- Canadian auto officials were cautiously optimistic Saturday that progress could finally be made on the North American Free Trade Agreement’s automotive rules of origin, a key provision that has been a stumbling block in previous rounds of renegotiation.
Canadian trade officials this week laid out a framework for rules of origin, used to determine the amount of North American content in light vehicles, that would include the value of software, engineering and emerging technologies. Such a proposal would increase the percentage of vehicle components determined to have originated in the United States, a key priority of the Trump administration.
While officials and auto executives were hopeful the proposal would allow talks to progress, it likely will not become clear if that is the case until Monday, when U.S. Trade Representative Bob Lighthizer is likely to discuss the proposal with his counterparts in Canada and Mexico.
“Everybody, including government, is looking at this with a lot of cautious optimism,” said Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, which represents the Detroit 3 in Canada. “It’d be premature to say whether the U.S. is even inclined to accept them or further discuss them. We don’t know at this point. But my sense is that we’re in listening mode. And when we’re listening, when we’re talking, we’re in a better place.”
The optimism comes just a day after Mexico hinted that an additional round of talks could be added.
Flavio Volpe, president of the Automotive Parts Manufacturers Association, said the Canadian proposal would help address demands from the Trump administration that more of the content in vehicles built in North America be sourced from the United States to qualify for tariff exemptions.
The Trump administration has proposed raising the minimum amount of content sourced from within NAFTA countries to 85 percent, up from 62.5 percent. He also wants a 50 percent American-made requirement, which the auto industry and Canadian trade representatives have viewed as untenable. U.S. President Donald Trump has blamed NAFTA for a decline in U.S. manufacturing jobs since its enactment.
“We think the ideas are good and that they’re workable,” Volpe said. “We think that [the Canadian team] moved the conversation along on things the Americans have signaled are very important to them, including American content. It gets the American objectives without having to cross the red lines like U.S. domestic content.”
The sense of cautious optimism stands in contrast to previous rounds of negotiations, which were marked by a lack of significant progress on a host of major issues.
‘Long way from finish’
To be sure, negotiators are far from reaching any sort of framework for a final deal. Most major issues, such as automotive, dairy and a proposed “sunset clause,” have yet to be settled, and uncertainty remains about what Lighthizer and the White House think of the Canadian proposal and about what Trump might say about NAFTA during his State of the Union address next week.
“There is some constructive, intelligent discussion on how these things can come to ground on new terms,” Volpe said. “We’re a long way from the finish, but we’ve probably made more progress, at least academically, than many of us anticipated.”
Should the three countries agree to the framework Canada laid out on rules of origin, Volpe said it would be crucial for Canadian suppliers to reach out to the negotiating teams between rounds to sort out details regarding the value of different components on content.
“If we agree on a framework, we’re going to have to start putting real fine terms on them and quantifying what things are worth,” Volpe said. “It’s incumbent on the industry that we all speak up. What’s trending in this industry and what are the real opportunities on the material side and the software, r&d side? We need to tell our negotiating teams where our best interests lie with an eye toward mutual benefits between the countries.”
Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo will hold a news conference on Monday to discuss the next steps in the renegotiating process.
“We’re moving in a slightly more positive direction,” Steve Verheul, Canada’s chief negotiator, told reporters. “We’ll take that encouragement where we can.”
In remarks to Reuters, Verhuel said Canada has “demonstrated we have engaged” on major issues.
“We’ve made progress on some of the smaller ones, so I think [it was] not a bad week,” he said.
Reuters contributed to this report.