WASHINGTON — Last week's agreement on a NAFTA refresh eases some of the tensions between the U.S. and Mexico, but it doesn't end the uncertainty surrounding automotive supply chains in North America.
The administration is notifying Congress of its intent to update the regional trade pact, but under the law for speedy reviews, negotiators will have 30 extra days to fill in details.
Auto industry executives are on pins and needles waiting for the fine print so they can determine how much it would cost to meet aggressive new rules of origin that determine which vehicles and parts qualify for duty-free status.
Officially, the deal would require that 75 percent of auto content be made in North America, up from 62.5 percent, to cross borders duty-free. It also would require that 40 to 45 percent of auto content be made by workers earning at least $16 per hour. Passenger vehicles would also need to include a certain percentage of North American-produced steel and aluminum.
The U.S. administration's goal is to raise labor rates in Mexico, or at least discourage car companies from moving production out of the U.S. in search of lower wages.
Automakers, especially foreign brands, and suppliers preferred the status quo, but suggest they are likely to accept the higher thresholds, if grudgingly.
"Automakers, in general, have very low expectations about what is going to emerge from this process," said a former U.S. trade negotiator who asked not to be named because of ties to auto interests.
"Even though it's going to add costs and be a pain in butt, compared to the possibility of no NAFTA, they'll grit their teeth" and adapt, this person added.
Rob Wildeboer, executive chairman of Martinrea International Inc., said the Ontario supplier "can live with" the content and wage rules the U.S. and Mexico agreed to. He said that the labor provision would not entail major changes, and that the $16-per-hour figure is line with how vehicles are already produced in North America.
"I can't see the supplier base complaining a whole lot, and I think that overall we haven't increased the cost of making vehicles a lot," he said.
Wildeboer said the rules, should they be implemented, would not have a large impact on where automakers and suppliers build plants.
"If I am a European-based car company, and I find that it's cheaper to make vehicles in Mexico and those vehicles are going to be imported into the EU, I'm probably going to be as inclined to build in Mexico as anywhere else, and that's what we've seen," he said. "Similarly, those Mexican states will compete with North Carolina, South Carolina and other U.S. states to say, 'I'll make it worth your while. Here's $800 million to locate here.' I think those things are going to continue."