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Canadian trade chief: Auto rules of origin focus as NAFTA talks intensify

Canadian Minister of Foreign Affairs Chrystia Freeland said May 9 that if negotiators do not get the automobile rules of origin "right" in an updated North American Free Trade Agreement, car companies could become less competitive on a global scale.

As negotiators from the U.S., Canada and Mexico met in Washington to work through the remaining thorny issues on the free trade deal, Freeland warned that rushing a revised pact could disrupt the rules that govern the continent's "huge, highly integrated" automotive industry.

She said negotiators are devoting the "overwhelming" majority of their time to auto rules of origin, calling the issue something that "we need to get right" as negotiations are expected to continue through at least May 11.

Rules of origin, which dictate how much of a car must be produced in the three NAFTA countries to qualify for duty-free treatment, has been a contentious topic stemming from U.S. proposals during the prior eight months of talks.

"Making a mistake could mean burdening companies with far too much red tape, something that's too cumbersome that makes North America less competitive compared to the rest of the world," Freeland told reporters in an impromptu press conference outside the U.S. Trade Representative's office. "That’s certainly an issue that I am very, very focused on."

"I want the rules that we come up with to be rules that do not force our car companies and our car parts companies to be spending too much time on administration and on box checking when I would like them to be spending most of their time inventing and building really, really great cars and trucks," she added.

Under the current NAFTA deal, at least 62.5% of the components of a car must originate in one of the three NAFTA countries to receive duty-free treatment. The U.S. is proposing raising that figure to 70%. Canada and Mexico rejected the United States' initial proposal of having 50% of the content originate in the U.S.

The U.S. has made raising that figure a priority in order to boost domestic auto and auto parts production, but has been met thus far with resistance from its NAFTA partners.

Another current U.S. proposal would require that 40% of light-duty passenger cars and 45% of pickup trucks be made by workers paid a $16 minimum hourly wage or higher, regardless of which of the NAFTA countries they are produced in.

Freeland took an optimistic tone, saying that the fact that talks are at such a detailed level is a good sign. Experts stress that an agreement-in-principle must be reached by mid-to-late May to give the current Republican-controlled Congress enough time to vote on legislation implementing the changes. She did not specify or weigh in on any recent proposals relating to auto rules of origin. Other deadlines on the horizon include the expiration June 1 of a temporary exemption from U.S. tariffs on steel and aluminum imports from Canada and Mexico, as well as the July 1 Mexican presidential election.

"This is quite a delicate, detailed stage of negotiation," Freeland said. "We should be doing the negotiation in private, not in public."

The Trump administration has repeatedly threatened to withdraw from the 24-year-old trade pact should it not be to its liking, but Freeland remained positive.

"It was a very good, very productive, very substantive conversation," Freeland said. "The conversation today was very much continuing to dig in at a very detailed level. This is the stage that we need to get to, to get to a deal."