WASHINGTON -- The U.S. International Trade Commission hearing on Thursday was intended to gather feedback on the economic impact of the proposed U.S.-Mexico-Canada free trade agreement, also known as the USMCA.
But industry groups spent most of their time warning about the ill effects from U.S. steel and aluminum tariffs, and potential new tariffs on autos and auto parts.
The Motor and Equipment Manufacturers Association and the Alliance of Automobile Manufacturers called on the administration to exempt Mexico and Canada from the 25 percent steel and aluminum tariffs, saying that the issue must be resolved before leaders sign the provisional trade deal at the G-20 summit at the end of the month.
Automakers and suppliers say they are paying 30 to 50 percent more for domestic steel because of the tariffs, threatening sales.
The White House has justified the tariffs on national security grounds.
Some analysts expect the Trump administration to replace the tariffs on Canada and Mexico with import quotas, as it did with South Korea, but the Aluminum Association is expected Friday to repeat its call for full exemptions -- including no quotas. In a letter to President Donald Trump last week, it supported trilateral efforts to protect against transshipment of subsidized imports of Chinese aluminum but said trade measures on regional metals are not needed.
The industry groups testified that the auto rules of origin are very complicated and opaque so far, making it difficult to assess how the changes from NAFTA will impact the industry.
"It is clear that the USMCA auto origin rules will introduce unnecessary complexity, require costly changes to supply chains and potentially redundant investments," Association of Global Automakers President John Bozzella testified. "In addition, automakers will need to invest in elaborate processes to ensure compliance with these rules. Suppliers throughout the supply chain will have to establish similar costly processes. We are concerned that the combined impact of these requirements will reduce our industry's overall global competitiveness."
Overall, the regional content requirement for enjoying duty-free shipments will rise to 75 percent from 62.5 percent. In addition to the vehicle standards, there are three standards for parts -- for steel, aluminum and labor value content.
The labor provision requires 40 percent of content from plants with an average minimum wage of $16, but calculating how to comply will be tricky because of how hourly, temporary and white collar workers are averaged together across a product, plant or class of vehicles.
"No one is exactly sure how that will work, and if you can't make that happen within the four walls of your company, then you go to your suppliers to get labor value data, and they may think that's intrusive," Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research, said last week during a post-election panel discussion here.
Officials at the hearing said compliance costs and administrative burdens will vary by company.
The pending tariffs on autos and auto parts are unjustified and make it even more difficult to assess the USMCA's value, Bozzella said.
The American Automotive Policy Council, which represents the Detroit 3, took a more sanguine view of the trilateral trade deal. While calling for lifting of the metal tariffs because the agreement already encourages sourcing within North America (70 percent content), it said the rules of origin are manageable for car companies.
"We believe the new rules strike the right balance by discouraging 'free riders' who might use the USMCA as a conduit for outsourcing, while allowing those that have invested in the region to enjoy the agreement's duty-free benefits," said Matt Blunt, president of the policy council. "While the new rules will present some challenges for our industry, we believe the administration included sufficient flexibilities that will help our automakers remain competitive while they successfully transition to the new, more stringent rules of origin included in the USMCA."
The trade association, however, sided with the rest of the industry in forcefully urging the White House not to impose tariffs on automotive imports.
The trade commission has 105 days to complete its report to Congress and the White House but is not expected to take that long.