Tweaking NAFTA Could Mean Fewer New Vehicle Sales, Cost Consumers Billions

A new study by the Center for Automotive Research in the United States paints a dim outlook if the proposed changes to NAFTA are enacted. Negotiators from Canada, the U.S. and Mexico are busy hammering out the details in Washington, attempting to reach an agreement. The process remains very fluid and no final proposal has been reached.

One of the issues at hand is the requirement that every vehicle sold on the continent use more North American parts, use primarily American steel and favour production in the U.S. and Canada as opposed to the cheaper alternative Mexico.

If a vehicle fails to meet the standards, it would be subjected to a 2.5% tariff in the U.S. and a 6.1% penalty in Canada (for light vehicles).

"Tariffs [would] add at minimum a US$2.1-billion to US$3.8-billion tax on U.S. consumers," according to the study.

"The tariffs would add between US$470 and US$2,200 to the cost of these particular vehicles ... the result would be an estimated loss of 60,000 to 150,000 annual U.S. light vehicle sales."

Canadian Foreign Affairs Minister Chrystia Freeland said that the new automotive rules will be the centerpiece of a new NAFTA deal.

"I believe very strongly, and I think this is a view shared by the two other countries, that rules of origin for autos, the highly integrated automotive sector, is really at the heart of the NAFTA negotiation, Freeland said Thursday in Washington.

"If we can get that right, that will be the core of a successful agreement."

The current rules state that 62.5% of a light vehicle’s parts must come from North America. The new proposal is rumoured to bump that number to 75% with incentives for companies to meet the standard.

According to the study, at least 46 vehicles currently being produced in North America would not meet the new threshold.

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