nafta

NAFTA: 3 Tips for Car Origin Rules

The Trump trade team has made jaw-dropping demands in the NAFTA renegotiations, but has yet to offer any specifics how to achieve them. If the Americans don’t come up with something concrete, the talks and NAFTA could collapse. On autos, I have three tips; take them for what they’re worth. Trump wants the NAFTA content threshold for cars to increase from 62.5% to 85%, with no less than 50% to come from the US alone. My suggestions would provide a more accurate measure of how much NAFTA content is in a car; use origin rules already in NAFTA for most other manufactured goods; and modernize NAFTA to conform to most of the rest of US FTAs. (1) Eliminate “tracing” and restore cumulation so that all NAFTA originating inputs: materials and jobs get proper credit.

(2) Allow “intermediate processing”, so that the contribution of parts and subassemblies made in the same factory as the finished vehicle and all the associated jobs get their rightful due.

(3) Finally, allow “transaction value”, which looks at prices paid for inputs, to be used in addition to the more cumbersome Net Cost method, which relies on analysis of production costs from accounting records. Adopting these changes may seem cosmetic, but they are consequential. Yet, by going to already extant rules that are familiar and tested, they stand a good chance of being accepted by the Canadians and Mexicans, who have been anxiously waiting for the Americans to put some skin into the game.

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