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Canada warns U.S. that NAFTA Automobile changes would backfire on America

22 Nov 17
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The Canadian government used NAFTA talks on Tuesday to warn the Trump government that Washington’s bid to rewrite the deal’s automotive department in favour of the United States would backfire and cost Americans jobs and profits.

In Mexico City, where the fifth round of North America free-trade agreement negotiations wrapped up on Tuesday, the Canadian group made a presentation outlining how damaging and self-defeating it considers the rules-of-origin proposals are.

Sources familiar with the discussions outlined the dialogue occurring behind closed doors.

The Canadians cautioned their U.S. counterparts which the Detroit Three car makers — General Motors, Ford and Fiat Chrysler — would endure the most harm if these American needs were adopted, sources familiar with the discussions said. This is because the changes would push the price of earning vehicles in america.

Canada advised the Americans it estimated that the United States would lose 21,000 jobs because the increased costs of producing reduced exports beyond the NAFTA zone by 1.4 million autos a year — equal to the yearly output of five or six plants.

The Canadian demonstration said these proposals would ultimately promote automotive interests to move manufacturing out North America and wind up profiting overseas auto makers — such as those in South Korea, Europe and Japan — that would build vehicles overseas then pay tariffs to market in the U.S., Canadian and Mexican markets.

Last month, U.S. negotiators laid down strict demands for the automotive part of a new NAFTA — suggestions which have been opposed by auto manufacturers and parts suppliers and rejected by Canada and Mexico as unworkable.

Washington said it needs to rewrite the deal so that vehicles manufactured in North American could only qualify for duty-free access to the American market if they contain at least 50-per-cent U.S. content and 85-per-cent North American content.

Foreign Affairs Minister Chrystia Freeland said the Trudeau government is pushing for Washington to deal with likelihood, supported by fact-based research, the automobile rule changes could have the opposite effect of what the U.S. plans.

“We’ve heard from the automobile sector — not just in Canada but also in the United States — that a few of the proposals … wouldn’t only be detrimental for Canada but could be detrimental for the U.S. too,” she told reporters in Ottawa on Tuesday.

Ms. Freeland said it is up to the Americans to tackle the data presented by Canada. “Do you agree with our facts or do you disagree with our facts? … These are facts we have gained from working really hard with business on both sides of the border. It is that fact-based approach that we have really been pushin”

Sources knowledgeable about the NAFTA negotiations said the Canadians prefaced their demonstration in Mexico City by imagining how healthy the U.S. car sector appears today.

The Canadians observed that labour has increased about 6 percent on a year-over-year basis throughout the past ten years, which investment in U.S. automobile plants totalled $9.5-billion (U.S.) in 2017, creating or retaining over 12,000 jobs. In 2016, the automobile sector invested $8-billion in U.S. plants and $20-billion in research and development.

Their message? This isn’t a business that is facing hard times, but rather one where production, research and employment has been climbing.

The U.S. proposal to enhance the minimum required American content and minimal North American content will amount to heavy-handed intervention in what seems to be a healthy private sector, the Canadians told the Americans.

The stricter auto-content rules would amount to dictating where providers should be found and reflect an interference in decisions now made by private investment, making geographic place the top aspect to consider when selecting sources for components, the Canadians said.

This would force businesses to break current distribution chains and replace them with components that otherwise would not be top choices when variables like price, quality and innovation are weighed.

The rigorous content rules advocated by the Americans could also lead to a situation where automobile parts that go back and forth across the Canada-U.S. boundary during production would be struck with levies several times, fostering their final price tag, the Canadian team cautioned.

1 potential outcome is that auto makers drop money on their operations in Canada and Mexico or change them to the United States, which would require tens of billions of dollars in extra capital spending. That would lead to the the price of vehicles rising in the United States since the companies want to recover losses or the costs of altering generation, one source said.

These rising prices will dampen automobile production in the USA and represent a blessing for offshore suppliers like South Korea, which already has preferential access into the United States and Canadian markets throughout free-trade deals.

1 senior Canadian industry official said the U.S. positions on the three-party trade deal are so ridiculous that his thoughts are already turning to if Canada can negotiate a return to the Canada-U.S. free trade agreement or a new bilateral deal.

Flavio Volpe, president of the Automobile Parts Manufacturers’ Association, said U.S. trade officials were whining in Mexico City earlier this week that Canada wasn’t offering a counterproposal to the automotive needs the Americans put on the table last month. The Americans had characterized that need as ” ‘take it or leave it’ and it was an extreme position,” Mr. Volpe said.

The sixth of NAFTA discussions will take place Jan. 23-28, 2018, in Montreal.

Ms. Freeland repeated Tuesday that Canada is developing contingency plans if NAFTA talks fail. U.S. President Donald Trump has threatened to rip up the bargain if he can not get it rewritten to tilt the arrangement more in favour of U.S. employees.

“Our strategy is to hope for the best and prepare for the worst and Canada is ready for every eventuality,” Ms. Freeland said.

Courtesy: The Globe And Mail

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