USTR's Rules of Origin Proposals Decried as 'Social Engineering'
The barriers to a NAFTA agreement are well-known -- the sunset clause, ending investor-state dispute settlement, changes to procurement. But for Rufus Yerxa, president of the National Foreign Trade Council, it's a tighter rules of origin for autos that is "the most dangerous one by far, and the most troublesome and the most paradoxical." Auto parts and autos are by far the largest part of trade between the three NAFTA countries, he said, and automotive companies, including many of his members, have consulted intensively with the Office of the U.S. Trade Representative on how rules of origin might be massaged to incentivize more North American content and less Asian or European content. But, he said, any change to the rules cannot "create greater restraints to move these goods back and forth" between Mexico, Canada and the U.S.
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"Whatever social engineering the administration thinks it's doing with this," Yerxa said, it's not something American auto plants need. He said the biggest challenge U.S. factories face is finding qualified workers, not landing contracts. "You look at that, and you say: What exactly is the problem this is trying to solve?" Yerxa was speaking on a panel July 12 on the NAFTA state of play at the Society of International Law conference -- along with a Canadian trade lawyer involved in the original NAFTA, and a Mexican professor and former World Trade Organization appellate body chairman.
Yerxa said U.S., German, South Korean and Japanese automakers who produce cars, trucks and parts in the U.S. will fight something that increases their costs and creates investment problems. "We're not going to support something that does in our own business and does in our own workers," he said. "The idea you could force people to produce where they sell becomes a self-defeating policy." Because Mexico and Canada both have free trade agreements with Europe, the incentive now is for companies that wish to export cars to Europe to do final assembly in one of those countries, not in the U.S, he said.
Ricardo Ramirez-Hernandez, the Mexican representative, said nine NAFTA chapters have been finished, and most of them follow the Trans-Pacific Partnership model. "I think you can characterize NAFTA as a minimalistic update," he said. "I would not even call it a modernization of NAFTA." The dream of having a customs union among NAFTA countries has died, he said.
Yerxa said all of the U.S. positions come out of a core question -- "whether the U.S. has been a beneficiary or a victim" of trade. He thinks NAFTA has benefited Mexico more than the U.S., but that the U.S. has not been hurt by NAFTA. But President Donald Trump's rhetoric makes clear he thinks the U.S. has been a victim of trade -- and Yerxa intends to change that, he said.