Mexico Makes Auto Industry Proposal: NAFTA

As NAFTA conversations continue, Mexico has presented a counteroffer on auto manufacturing rules proposed by the US with hopes that some progress will be made under looming deadlines.

Mexican economy minister Ildefonso Guajardo, Canadian foreign minister Chrystia Freeland and US trade representative Robert Lighthizer have had separate meetings in Washington this week.

Guajardo said there had been a “productive” meeting with Lighthizer where the Mexican auto sector had been discussed, but little concrete progress has been indicated.

“Each one faces a different challenge. So we are trying to accommodate the different positions,” he said according to Reuters, but also added that “all the items are on the table” with regard to the auto proposal.

The US had proposed 75 percent of all cars manufactured in Mexico consist of North American parts, up from NAFTA’s current rate of 62.5 percent. However, Mexico’s auto industry shot down the rate, saying it was “not acceptable.”

Also in the US’ pitch was a wage guarantee, which would entail 40 percent of cars and 45 percent of trucks be built in places with a minimum pay rate of US$16 per hour. However, as Mexico has low-cost production, the pay rate suggestion may not be feasible.

“[The wage proposal] is likely to price Mexico out of the market — by all accounts, Mexican negotiators are well aware of that,” Phil Levy, a former senior trade economist in George W. Bush’s Council of Economic Advisers, said in an interview with BNN Bloomberg television. “And that doesn’t actually help any of the North American producers, so it doesn’t seem like a terribly viable strategy.”

Sources close to the negotiations say that Mexico’s response instead offered 70 percent on the auto parts front, along with a 10-year implementation plan.

Despite Mexico trying to meet in the middle on the auto front, those involved in the negotiations seem to agree that the progress being made on NAFTA is steady, but certainly slow, with Freeland relating the process to childbirth.

“When I was giving birth, one of my midwives said, ‘You never know how long the labour will be, but you know that each contraction is one contraction closer to the baby being born.’ And if I could use such a personal metaphor, that seems to apply to trade negotiations,” she said.

“We are definitely making progress. I am not going to predict the day and the minute and the hour that we will be finished.”

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.