Trade Cases

NAFTA Round Two: Rules of Origin

September 5, 2017

Round two of NAFTA negotiations wound up today, with no resolution in sight. Among the many issues being debated, the topic of rules-of-origin is proving to be contentious for Canadian and Mexican negotiators, as well as auto producers.

U.S. negotiators are proposing that U.S. content in NAFTA-eligible vehicles be raised to between 35-50 percent, according to sources cited by Reuters. A lobbyist told Reuters that at least 35 percent content would be necessary to meet Trump administration requirements. “Anything less would not be a political victory” for Trump, the lobbyist said.

Any additional increase in U.S.-specific content is being met with resistance by automakers, which rely on automotive parts from all three of the NAFTA nations. A more creative solution to tracing origin could be achieved by acknowledging research and development as a contribution to the percentage of origin content. Most of the R&D for the U.S. auto industry is based in Detroit. Automakers would like to avoid expensive retooling and geographic shifts in parts manufacturing that could occur should origin rules be changed.

To be considered a NAFTA product, content origin must be must be at least 62.5 percent North American. Canadian labor leader Jerry Dias said Commerce Secretary Wilbur Ross wants to increase that percentage “significantly.” A percentage of 70 to 80 percent has been suggested by the administration, according to World Trade Online.

The U.S. has proposed a December deadline for a renegotiation of the terms of the NAFTA agreement—before American midterm congressional elections and the Mexican presidential elections. Few believe the deadline can be accomplished given the lack of written details and firm policy statement by U.S. negotiators.

“Personally, I don’t think we can make a deal because we have been so badly taken advantage of,” Trump said Aug. 23 during a rally in in Arizona. “I think we’ll end up probably terminating NAFTA at some point.”

Whether that statement is bluff or a serious assertion is yet to be determined.

Negotiators will meet Sept. 23-27 for a third round of talks in Ottawa.