Trade negotiators working for President Donald Trump want the North American Free Trade Agreement to trace the history of steel parts and increase the share of a car that originates in the United States, moves that may increase costs and red tape for automakers, two officials familiar with negotiations said.
The steel proposal comes along with one of the Trump administration's most high-profile demands so far in talks aimed at overhauling NAFTA. The U.S. proposed late Thursday raising the so-called auto rules of origin to 85 percent from the current 62.5 percent, one official said, speaking on the condition of anonymity as discussions with Canada and Mexico are ongoing.
The rules govern what share of a product must be sourced within NAFTA to receive the pact's benefits. Trump's negotiators have also proposed adding a new, U.S.-only content requirement of 50 percent, meaning it wants half of every car traded under NAFTA to be built in the U.S., the official said. The 85 percent requirement would be phased in over multiple years, the official said.
Trump's team also wants to add steel to the tracing list, in effect requiring proof of where the steel comes from, two officials said Friday. The U.S. proposed vastly expanding the list to include textiles, aluminum and other metals, one official said. A spokesman for U.S. Trade Representative Robert Lighthizer declined to comment.
Brett House, deputy chief economist at Bank of Nova Scotia in Toronto, said the rules of origin proposal would be a "potentially Pyrrhic victory" for Trump. He said automakers would be more likely to just pay the United States' 2.5 percent tariff to import cars into the country rather than deal with the complicated set of rules for NAFTA.
If it were to come into force, "what you would likely see is a lot of production being shifted either offshore or to Mexico rather than creating more jobs in the United States," House said. "You wouldn't see a big increase in U.S. employment and production."
Steel currently isn't on the NAFTA tracing list, allowing cars to be traded without a pound of the metal manufactured in North America. The move, if passed, would profit domestic American steelmakers, particularly integrated producers such as U.S. Steel Corp. and AK Steel Holding Corp., which supply automakers with sheets to make hoods, doors and other parts on cars, SUVs and trucks.
Charles Chesbrough, a senior economist at Cox Automotive, called the U.S. rules-of-origin proposals an opening salvo that could change before an agreement is reached.
"If they do hold, they would be tough to meet, especially with all the high-tech components currently made in Asia, and would certainly require a reshuffling of the current supply base," Chesbrough said. "The worst situation would be withdrawing from NAFTA altogether, something no one wants."
Information for this article was contributed by Eric Martin and Joe Deaux of Bloomberg News.
Business on 10/14/2017