"Our nation’s ballooning trade deficit has gutted American manufacturing, killed jobs and sapped our wealth," wrote Wilber Ross, the U.S. Secretary of Commerce, in a recent op-ed published in The Washington Post titled "These NAFTA rules are killing our jobs." Ross’ article focused largely on the automotive and automotive parts industry due to its large percentage of imports from Canada and Mexico as compared to other industries.
In short, he suggested that the current North American Free Trade Agreement rules of origin are outdated because the rules apply to parts no longer used. He also suggested that the rules are lenient from a content perspective due to the concept referred to as "substantial transformation," which, in some circumstances, qualifies non-NAFTA articles as originating within the territory due to further processing in the U.S., Mexico, or Canada. As a result of the current rules, he argued, the declining share in NAFTA content, as well as U.S. content specifically, in automobiles are causing the trade deficit with our NAFTA partners as well as putting jobs in the automotive manufacturing industry at risk.
Ross’ outlook on the effects of the NAFTA rules of origin is met with some opposition from certain U.S. automotive industry groups and leaders, such as the Motor and Equipment Manufacturers Association, which claim that the rules of origin were never intended to create jobs. Instead, they claim the intent was to connect supply chains and allow U.S. businesses to remain competitive in the global market, particularly with Asia and Europe.
Despite such disagreements, the Trump administration is pushing ahead and has made it clear in its published objectives for the NAFTA renegotiation that the goals are, in part, to create more stringent rules of origin in an effort to increase the total NAFTA content requirement in a given product, as well as increase the U.S. portion of that requirement.
The development of unrealistic rules, U.S. automotive industry groups argue, would increase manufacturing costs, resulting in increased consumer prices and elimination of U.S. jobs. Certain interests argue that if content requirements become too onerous, automakers will not bother to claim NAFTA preference and will simply pay the applicable duties.
One way or the other, change is coming, and it will likely have a strong impact on the future of the industry.