Written on behalf of Feigenbaum Consulting
Ongoing NAFTA discussions resumed today, with a continued focus on the automotive sector. Canada’s Foreign Affairs Minister, Chrystia Freeland, met with U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo today, told the media that she believes strongly that the rules of origin for autos in the highly integrated industry lie at the heart of the negotiations.
Rules of Origin for Autos
Freeland predicts that the parties getting these rules right will be the key to reaching an agreement for a modernized NAFTA.
She acknowledged that rules of origin, which regulate how much North American content vehicles that are made in NAFTA nations must contain, are “fiendishly complex” but noted that the “creative ideas” put forth by the U.S. in March opened a path for Canada on the issue. Pressure to finalize discussions has intensified and all three countries remain committed to strong ideas and workable details.
Canada and Mexico have been struggling with Washington’s insistence for tougher rules of origin, after the Trump administration initially demanding that cars built in North America have 85% content, by value, made in a NAFTA country. That demand represented a significant increase from the current 62.5% content rule. However, the U.S. has since considerably softened their stance. Content below the agreed amount will avoid a tariff.
Negotiators are apparently working on a deal that will set the regional content standard at 75% and which will help car companies get incentives if they meet the standard, invest in research, and pay workers more than $15/hour.
Timing of a New Deal
Mexican and American officials are foreseeing that a new deal may be possible “within weeks”, while Freeland herself will not provide her own estimate on timing, saying that she is simply working for the best deal possible that will benefit all three countries.
The auto sector is not the only remaining point of contention for the ongoing talks. Five more days of negotiation are scheduled with sessions on agriculture, the environment, labour, investment, temporary entry, and pharma to come.
As always, 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.