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Auto Industry Warns Trump Is Proposing ‘Lose-Lose’ Changes to Nafta

The auto sector is sounding alarms on the Trump administration’s efforts to overhaul Nafta, with North America’s top parts supplier warning an expected push to increase content requirements in cars could result in a “lose-lose” situation.

Changes to rules of origin — which govern what share of a car must be sourced from Nafta countries for the vehicle to receive the trade pact’s benefits — will add both complexity and costs, said Don Walker, chief executive officer of Magna International Inc.

“If the required content to hit the threshold for a Nafta vehicle is too high, people may say, ‘Look, it’s just too difficult, it’s too high, so we’ll just ship the vehicles in,’” Walker said in an interview in New York ahead of the talks. “In which case, they pay the duty, and it’s a lose-lose.”

The fourth round of negotiations over the North American Free Trade Agreement is set to begin Wednesday, with signals mounting that the U.S. is putting potentially deal-breaking proposals on the table. The U.S. Chamber of Commerce and Mexico’s auto industry group already have come out against an anticipated proposal for U.S.-specific content requirements. Introducing such a rule, or raising Nafta-made content requirements from today’s 62.5 percent, could risk disruption to the auto industry’s vast supply chain.

Regional Content

“If the regional content is by specific country, I think it adds a lot of complexity, and then every country would probably want regional content,” Walker said. “If you have U.S. content, and Canadian content, and Mexican content, the reporting and the bureaucracy and the tracking becomes so complicated — and costly, quite frankly.”

It will also be expensive for consumers, Mark Scarpelli, the chairman of the National Automobile Dealers Association, warned Tuesday in Detroit.

“Anything that raises the price of a car will affect ultimately consumers and automobile sales,” he said. “We are concerned, but at the end of the day, we don’t know what the rule-making is going to be.”

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