The automotive Rules of Origin (ROO) are a fundamental part of the North American Free Trade Agreement (NAFTA). Current proposals for the automotive ROO include: raising the threshold for the Regional Value Content (RVC), adding a requirement on the share of NAFTA steel and aluminum in certain parts, and adding a requirement that at least 30 percent of a vehicle’s content be produced in a country where labor earns more than the median North American wage for automotive manufacturing. This briefing provides an overview of current automotive and parts manufacturing trends in the NAFTA region and estimates the impact of the proposed changes to the automotive ROO.
Key points include:
· The U.S. cannot self-supply:
There is more demand for light vehicles in the United States than U.S. producers can supply. In 2017, U.S. production totaled 11 million units, and sales were 17.3 million.
· U.S. light vehicle production is split between domestic and international firms:
56 percent of light vehicles sold in the United States in 2017 were produced in U.S. assembly plants; most of these vehicles were produced by U.S.-based firms, but more than 25 percent of vehicles sold in the United
States in 2017 were made in the United States by international automakers.
NAFTA partners provide half of all U.S. light vehicle imports:
In 2017, 44 percent of U.S. vehicle sales were imported; of these vehicles, half were manufactured in Canada or Mexico (11 percent each). Vehicles imported to the United States from Mexico contain approximately 20 to 30 percent U.S. content.
· NAFTA makes North American vehicle production internationally competitive:
North America is the third largest producer of light- and medium-duty vehicles and second largest producer of automotive parts in the world. International automakers from Asia and Europe have built over 27 production plants in the United States to take advantage of NAFTA preferences.
· NAFTA makes North America a complete automotive region:
Low- and high-wage jobs are distributed to optimal regional locations based on cost, capability, and proximity to critical assets·
Every global automotive producing region relies on low-cost content to be competitive:
If U.S. automakers do not rely on Mexico, they will find other sources for low-cost automotive parts; in 2017, 31 countries each imported more than USD 100 million in automotive parts to the United States.
· The automotive industry in the NAFTA region supports consumer choice and new vehicle affordability:
The new vehicle consumer price index (CPI) rose 7 percent since NAFTA went into force in 1994, yet the overall CPI is up 86 percent since 1994.
· High NAFTA content requirements could result in less U.S. automotive and parts manufacturing:
If the cost of meeting the NAFTA ROO exceeds the MFN tariff plus any transportation and logistics costs, then production will move outside of North America to lower-cost regions. Roughly 20 percent of 2017 U.S. parts imports from Canada and Mexico do not use the NAFTA trade preference.
· High content requirements raise the cost of U.S. vehicle and parts production and negatively impacts exports
: The United States exports 22 percent of the total vehicles made in the country to our NAFTA trading partners and beyond. Over 71 percent of U.S. vehicle exports go to Canada and Mexico. Raising production costs will limit the ability of U.S.-built vehicles to compete in the global marketplace, and will negatively impact U.S. production and employment.
The report was originally posted here.