Key Auto Industry Concessions Made in Ongoing NAFTA Discussions
March 22, 2018
This week, U.S. negotiators abandoned their previous demand that all vehicles made in Canada and Mexico that are bound for the U.S. market must contain at least 50% American-made components. This had been a highly contentious sticking point in prior discussions and had been previously rejected by both Canada and Mexico as being completely unworkable. This critical concession in a key industry has renewed hopes that similar progress can be made in other areas.
The Canadian dollar immediately rose half a cent above 77 cents to the U.S. dollar, its biggest gain in nearly four months. The Mexican peso also rose slightly at more than 1.5 percent.
Issues Not Completely Resolved
Despite the refreshed sense of optimism, Canada’s ambassador to the U.S., David MacNaughton warns that the previous impasse on the auto industry has not been completely resolved, noting that the U.S. put some “interesting ideas” on the table that Canada is willing to work with, but that a finalized agreement has not yet been reached.
All three parties have already extended the negotiation period multiple times, but a loose deadline is pending, as both the U.S. and Mexico want to have a renewed NAFTA and all related issues sorted prior to the start of election campaigns in both countries later this year.
MacNaughton cautions that the ongoing talks should not be affected by artificial deadlines, but there has a been a good-faith effort on all sides to get as close to a final deal as possible by early next month, noting that the parties are ready to “meet seven days a week, 24 hours a day to make as much progress as we can”. Rumours indeed point to a lengthy two-week round of negotiations to take place in Washington in early April, in the run-up to which the parties have been meeting in person and communicating by phone. MacNaughton has said that these recent discussions have been among the most positive to date, that he has been encouraged by both the tone and the substance of the talks, and further noted that:
“We still have a long way to go. But certainly the environment is one which is conducive to making a lot more progress in the next short while … I’m optimistic. I am confident that we are going to move forward. … Certainly the environment is conducive to making a lot more progress in the next short while.”
Positions of the Parties Going into The Next Round
Despite some of the concessions made around the critical auto sector, some key irritants remain for the parties.
Earlier this week, U.S. Trade Representative Robert Lighthizer provided Congress with an update on the NAFTA talks, noting that Canada has “Third World” intellectual property protections, criticizing some elements of Canadian cultural policy as “mere protectionism”, attacking rules on foreign wine sales in Canadian stores, and demanding changes to the dairy trade (calling such changes high priority).
The White House has little to say in response to a public observation made by Prime Minister Trudeau that President Trump seemed to be “more enthusiastic” about finalizing a deal.
President Trump’s spokesperson noted that:
The president is always enthusiastic about making a good deal, but that would be the key caveat to any conversation, is making sure that whatever deal he makes is good for Americans, and American workers
Prime Minister Trudeau believes that there will soon be an agreement between the parties about a renewed NAFTA and that a deal is “eminently possible”.
A member of Canada’s Automotive Parts Manufacturers’ Association, the group which was recently invited to the U.S. to offer ideas on how to resolve the impasse caused by the U.S.’ previous position on American-made components notes that the group is “optimistic” and “hopeful about the timeline”, which is something they had not felt before.
Mexico’s Economy Minister, Ildefonso Guajardo, plans to meet with Lighthizer this week.
Last week, Guajardo notes that if the parties did not finalize talks by the end of April, the renegotiation process would likely drag on until the end of the year.
We will continue to follow developments with NAFTA as the talks continue and will provide updates as they become available. In the interim, if you have begun to anticipate what impact the ultimate outcome of the negotiations will have on your business in Canada or the U.S., contact the knowledgeable team at Feigenbaum Tax Law. To make an appointment, contact us online, or call our office toll free at (877) 275-4792.