NAFTA’s touchy issue: rules of origin

WASHINGTON — The structure of North America’s manufacturing networks will be on the line when the first round of negotiations to rewrite the North American Free Trade Agreement begins here this week.

The central showdown is expected to revolve around the amount of regional content products must contain to qualify for duty-free status, the so-called rules of origin. How that contest plays out will have profound implications for the auto industry.

Administration officials have pointed to stricter rules of origin as one way to address reducing the $60 billion bilateral trade deficit with Mexico and shifting more production to U.S. factories.

In the auto sector, 62.5 percent of a car’s content value must come from the U.S., Canada and Mexico to avoid duties when shipped across the border for final sale. The White House has signaled it wants to raise the regional-content threshold, and possibly even carve out a minimum requirement for U.S. content, to keep more local work and protect against greater use of imported Asian parts.

Automakers and free-trade proponents acknowledge that NAFTA deserves to be updated after a quarter century to reflect new economic realities, but warn that even minor adjustments to the rules of origin could upset the carefully constructed balance of economic interests among the U.S., Mexico and Canada.

“We are a seamless manufacturing platform, and it would be extremely difficult to unwind that,” Association of Global Automakers CEO John Bozzella said during a forum here last week. “You will create a big advantage for other manufacturing platforms around the world. We have to be very careful that we don’t upset that balance between global competitiveness and supporting U.S. production.”

NAFTA has the highest regional-content ​ threshold of any automotive trade agreement in the world, industry representatives say, but manufacturers have many options for tallying the value-added content of…

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