Reuters | 8 February 2018

Mexico to make regional content proposal for autos in NAFTA talks

by Adriana Barrera

Mexico will make a proposal for regional content requirements for autos at the next round of talks to renegotiate the North American Free Trade Agreement (NAFTA), a senior Mexican official said on Wednesday.

Rules of origin for autos have emerged as a crucial sticking point in talks to modernize the 1994 trade pact between Canada, Mexico and the United States.

Under NAFTA, at least 62.5 percent of the net cost of a passenger car or light truck must originate in the United States, Canada or Mexico to avoid tariffs. U.S. President Donald Trump’s administration wants to hike this to 85 percent, where half the content must come from the United States.

Asked when Mexico would weigh in on the issue, the country’s deputy minister for industry and commerce, Rogelio Garza, said a proposal was in the works for the next round of talks scheduled to be held in Mexico later this month.

But Garza said there was “very little” room to increase regional content requirements for autos, noting that the system was designed to control costs.

“Moving the rule significantly would mean big changes in costs,” he told Reuters.

AMIA, Mexico’s main auto industry group, has called for leaving the rules of origin intact, but Mexican officials have signaled greater willingness to negotiate.

“I believe that North America can rethink the model,” Mexico Economy Minister Ildefonso Guajardo said last week. “And I think it’s logical. Let’s be totally honest.”

But finding a proposal that satisfies all three nations’ concerns could prove challenging.

At the latest round of negotiations in Montreal, Canada proposed that expenses for engineering, research and development and other high-value work be taken into account when calculating regional content for autos. Mexico hailed this as “innovative”, but Trump’s trade chief rejected it.