U.S. auto-content NAFTA demands based on faulty data

U.S. demands in NAFTA negotiations for higher levels of U.S. and North American content in automobiles are based on faulty data, the Bank of Nova Scotia says.

The share of North American parts in vehicles assembled in Canada and Mexico has grown since 2011, a new study by the bank says, disputing U.S. assertions that Asian and European auto parts have displaced those from North America by flooding into the U.S. market through a so-called NAFTA back door.

The study, issued Tuesday, provides new support for Canadian and Mexican negotiators, who have rejected outright U.S. demands that 85 per cent of the content of a North American vehicle come from within NAFTA and that 50 per cent of the value of vehicles imported into the United States from Canada and Mexico consist of U.S. parts.

"The U.S. proposal to tighten NAFTA's rules of origin on vehicles is an ill-conceived solution in search of a problem. It would be an unnecessary restriction on the North American auto sector that would render it less competitive against its global peers," the study maintains.

"Rather than helping the U.S. auto industry, tighter NAFTA rules of origin on autos would likely make the sector more inflexible and less competitive."...

NAFTA content in U.S.-made vehicles is estimated to have declined to 65 per cent from 71 per cent.​ Offshore-based auto makers now account for 60 per cent of U.S. vehicles, compared with 45 per cent in 2011.

A U.S. Commerce Department study that is believed to underpin U.S. demands for higher content argued that North American content declined since 2011, although that study was based on data for the years before 2011.

The Bank of Nova Scotia numbers for Canadian and Mexican parts content show that vehicles assembled in the two countries are well above the current requirement that vehicles contain 62.5-per-cent content from the three NAFTA countries in order to qualify for duty-free shipment within the trade zone.

About 80 per cent of vehicle parts sold in North America originate from one of the NAFTA countries, the bank said.

It estimates U.S. parts account for 50 per cent of the North American components market overall, hitting that number in Canada, 60 per cent in U.S.-assembled vehicles and 35 per cent in vehicles built in Mexico.

This was excerpted from 19 December 2017 edition of The Globe and Mail.