What Does the Potential NAFTA Renegotiation Mean for the Automobile Industry?

Dedicated Attorneys Serving California

As many in the auto industry are no doubt aware, President Trump ran on renegotiation of the North American Free Trade Agreement as part of his winning platform. In recent months, the Trump Administration has proposed specific changes to NAFTA that directly impact the automobile industry.

What NAFTA Changes Might Affect Rancho Cucamonga?

First, the Trump Administration has proposed adding steel, aluminum, textiles, and many other materials currently used by auto makers to the tracing list under NAFTA. This means that proof would be required to show the origin of these materials and determine whether they have come from NAFTA countries or outside the region.

Second, the Trump Administration has proposed a significant increase in the auto rules of origin. The auto rules of origin dictate how much of a car must be sourced from within NAFTA to receive NAFTA benefits. Currently, 62.5 percent of cars must come from within NAFTA. The Trump Administration proposes increasing this percentage to 85 percent.

Additionally, the Trump Administration has also proposed adding a requirement that 50 percent of cars come from the United States, which would effectively require car manufacturers to build all vehicles within the United States, rather than other NAFTA countries.

These issues have become a significant source of contention for those in the automotive industry. Over the past two decades, many automakers have developed a complicated network of assembly plants that are used in their car production, many of which are located in Mexico. Changing the rules of origin, and adding a requirement that cars be produced in the United States would significantly change these networks.

Indeed, experts are concerned that the possible changes to NAFTA could greatly destabilize North America’s significant presence in the global auto industry. Adding these new requirements makes the production of vehicles more complex. Unsurprisingly, industry representatives in Mexico and Canada are also concerned how the proposed changes will affect their automotive industry.

NAFTA Moving Forward

Negotiations over the proposed changes to NAFTA remain ongoing, and most analysts expect that the Trump Administration will have to lower its rule of origin expectations if a deal is to be reached.

However, others have expressed concern that even if the Trump Administration is successful in increasing the percentage of cars that have to be made within NAFTA countries, and within the United States, the outcome will not ultimately be beneficial for the United States.

Currently, automakers must pay a 2.5 percent tariff to import cars from outside of the United States. For many U.S. automakers, this tariff may be substantially less expensive than the cost of reorganizing and reordering production in order to meet new rule of origin requirements.

Accordingly, some predict that the renegotiation of NAFTA may actually lead to more automakers moving production of vehicles out of the country and simply choosing to import finished vehicles from abroad.  

California Attorneys Keeping an Eye on Industry Movement

Dealing with national and international regulations is often a constant headache for United States automakers. The threat of substantial changes to governing rules, like NAFTA can create anxiety and consternation. At CKB Vienna LLP, our attorneys work hard to maintain contacts throughout the government and industry that help them to keep abreast of possible changes and upcoming developments. If you’re concerned about how these proposed changes could impact you, contact us online or at 909-980-1040.