OTTAWA—Canada's chief NAFTA negotiator delivered a stark warning to members of parliament Dec. 4, telling them that changes proposed by the U.S. would hit the North American auto industry hard.
Steve Verheul told members sitting on the trade committee the U.S. auto proposals, which include 85 percent regional content and 50 percent U.S. content when it comes to rules of origin, are "wholly unworkable."
NAFTA currently requires that vehicles include 62.5 percent of North American content in order to qualify for duty-free status in Canada, Mexico and the U.S.
Verheul said "any U.S. content requirement is unacceptable" and that any such U.S.specific requirement would "render the North America market significantly less competitive compared to the rest of the world"
"We'd be at a significant disadvantage," he said.
If content requirements were increased to 85 percent, auto makers would not be able to access enough vehicle content from North America in order to meet that requirement, Verheul said.
"We think many manufacturers would be motivated to move their operations offshore and sell into the U.S. market, which has only a 2.5 percent tariff on cars [imported] into the U.S. market. That would likely be far cheaper than making the adjustments to reach 85 percent regional content."
Verheul said that with the emergence of a strong Chinese economy "this is the wrong time to be to be weakening the North American market."
"Many of the U.S. proposals are going in the wrong direction," he said.
A mandate that vehicles have 50 percent U.S. content also would damage Canada and Mexico because it would lure manufacturing to the U.S. from Canada and Mexico, Verheul said.
That would please President Trump, who has called the trade pact "a disaster" and wants auto makers to invest more in the U.S. He has threatened to withdraw from the 23-year-old NAFTA if his negotiating team doesn't get a deal he finds satisfactory.
"We certainly have been doing our due diligence in thinking about what would happen if the U.S. withdraws from NAFTA," Verheul said.
If the U.S. does withdraw, Canada and the U.S. would revert back to the Canada-United States Free Trade Agreement, Verheul said.
"It is true, if the U.S. withdrew, the currently suspended bilateral agreement between us and the U.S. would come back into force," Verheul said. "It may take presidential proclamation to initiate that process on the U.S. side."
Both countries would "probably both have to make some regulatory changes in order to comply" with the older free trade pact, Verheul said.
But Verheul hopes NAFTA can be revamped in the end.
"We're hoping to convince the U.S. to stay within NAFTA," he said. "We can certainly bring a lot of creativity to the table in developing outcomes that we think could certainly be characterized as a 'U.S. win' or a 'North America win.'"
The sixth round of NAFTA talks is scheduled to begin Jan. 23 in Montreal. An intersessional period of talks between officials from all three countries is to be held in Washington during the week of Dec. 11.