Auto Lobbyists Attempt to Soften USMCA, Look to White House [UPDATED]

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Lobbyists are reportedly seeking to soften the United States-Mexico-Canada Agreement (USMCA) now that there are some new faces in the White House. Signed in 2018, revised in 2019, and effective since 2020, the USMCA sought to restore North America’s manufacturing base with new content requirements and place the United States in a more favorable position than it held under the North American Free Trade Agreement. But industry groups are now claiming that interpretations from government agencies are gumming up the works, and accusing the U.S. of having a different interpretation from what the other nations had originally agreed upon.

“[The USCMA interpretation makes] meeting the … content provisions that much more difficult for everyone to achieve,” stated David Adams, president of Global Automakers of Canada. 

Adams is likely upset that North American manufacturers have to source so much of the materials of the vehicles they produce from local suppliers, framing the entire agreement as a decidedly U.S. approach. The Trump administration specifically enacted the USMCA to give the United States more favorable positioning than it had under the North American Free Trade Agreement (NAFTA). Signed in December of 1993, NAFTA became a sore spot for many Americans who accused it of encouraging companies to shift production out of the United States.

Actually deciding whether or not NAFTA was effective remains difficult and is often muddled by politics — everyone wants to support every policy launched by their preferred party. While we’d like to offer a definitive answer to how bad/good NAFTA was, there’s a lot of conflicting information out there. The Economic Policy Institute released a study in 2013 alleging that the deal had obliterated nearly 700,000 high-paying manufacturing jobs from states like Michigan and California in its first decade. But some experts have claimed those would have been offset by increased automation or the changing employment landscape regardless while giving smaller businesses better access to the Canadian and Mexican markets (and vice versa).

NAFTA was contentious even when it was new, with Ross Perot spending a large portion of his time on the campaign trail criticizing it before ultimately losing to Bill Clinton — who signed it into law. Bernie Sanders also bashed it during the 2016 presidential election, along with CAFTA, the Trans-Pacific Partnership, and normalized trade relations with China. He argued that the U.S. had outsourced too much of its manufacturing already and desperately needed to prioritize job retention and helping the middle and working classes. At roughly the same time, Donald Trump was calling NAFTA ” the single worst trade deal ever approved in [the United States].”

Obviously, this set the stage for Trump to push through the USMCA, which brings us back to the lobbyists. The new agreement’s rules of origin requirements stipulate that a certain portion of an automobile’s value must come from inside the governed region. Under NAFTA, that portion was 62.5 percent. But USMCA bumped the figure up to 75 percent — 10 percent less than Trump originally wanted — in a bid to secure localized manufacturing.

Content rules don’t come into full effect in 2023. But industry groups from all member nations are suggesting they don’t want to have to bother tweaking their supply lines to adhere to it. Lobbyists are also alleging confusion from Canada and Mexico on how customs are supposed to assess how these content requirements are quantified, according to Automotive News.

Adams claimed it’s far too stringent and expensive for the industry to handle: “This interpretation was entirely unexpected, and if it sticks, it will take many manufacturers time to make adjustments and potentially rejigger supply chains to avoid the tariff. Either way, there are inefficiencies, which [equal] costs,” he said.

From AN:

Matt Blunt, president of the American Automotive Policy Council, said it was “extremely important” that the three countries “work it out as quickly as possible.” Blunt’s group represents General Motors, Ford Motor Co. and Stellantis.

“We think it’s important for Canada and Mexico and the United States to resolve this and any issue related to the USMCA quickly, but certainly one as significant as this one,” he said.

“It should really be treated as a diplomatic priority, in our view, to ensure that the USMCA is properly implemented.”

Unfortunately, any changes made to appease the industry or the other two member nations by the United States ultimately weakens its own position. It would also be an incredibly bad look for Joe Biden to undo a trade agreement that took years to negotiate and hadn’t had adequate time to get off the ground. He’s used numerous executive orders to undo Trump-era policies already and would undoubtedly take flak for neutering the USMCA. But Adams said he hoped Katherine Tai, Biden’s nominee for U.S. trade representative, might be willing to take action instead. Automotive News cited an anonymous source claiming that would likely be the plan.

“It would be very hard for Biden to say, ‘No, we side with the industry and Canada and Mexico, and we want to let you roll up’ because that would mean less content [sourced from] North America,” the insider said, adding that they expected it to be “quietly resolved” by Tai.

[Update 3/15/2021: Mr. Adams reached out to us to express his displeasure regarding how we characterized him and the situation. He has asked that we issue a correction or retraction and criticized us for inserting our “own narrative on a story that is not there.” We’ve informed him that we’re inclined to let lobbyists do their own work and are awaiting his response.]

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