Trade negotiators from the three NAFTA partner countries meet in Washington, D.C. to try to overcome a snag in TPP talks.

The subject of a Tecma blog post published on September 2, 2015 was a snag in negotiations for determining Trans-Pacific Partnership rules of origin for the automotive industry. As explained in that piece, and in earlier posts, the Trans-Pacific Partnership, also known by the acronym TPP, is a free trade deal that is currently being negotiated between twelve Pacific Rim nations. It is one of the largest free trade accords envisioned to date. Its aim is to expand the flow of goods, services and capital across the borders of participating nations by lowering tariffs and duties on imported products.

Mexico and Canada disagree with terms of US-Japan side agreement

Recently Mexican and Canadian negotiators were surprised to learn that American trade officials negotiated a side deal with Japan on the Trans-Pacific Partnership rules of origin for the automotive industry. Japan sought a deal in which automobiles with 30% content would be deemed as products “originating” within the TPP region, while the US proposed that the percentage be 50%. Reports were made that the two nations came to an agreement on the issue that was comprised of  a number somewhere under the 50% threshold that US trade negotiators sought. As a point of comparison, a local content percentage of 62.5% is what is required to be considered an originating vehicle under the terms of the North American Free Trade Agreement. When the Mexican and Canadian TPP negotiating teams learned of the side deal negotiated by the Americans and Japanese, without their participation, a snag in TPP negotiations resulted.

Mexican and Canadian TPP negotiators resumed discussions with their US counterparts aimed at ironing out the snag on Trans-Pacific Partnership rules of origin for the automotive industry on Wednesday, September 9, 2015. Both the Mexican and Canadians have affirmed that they “would be able to live” with rules that classify vehicles with 50% TPP country content as “originating.” Both Mexico and Canada are of the adamant belief that Trans-Pacific Partnership rules of origin for the automotive industry that fall beneath this level would cause damage to both nation’s domestic industries.

In order to influence the outcome in a manner that both the Mexicans and Canadians would deem favorable to their respective interests, Flavio Volpe, president of the Auto Parts Manufacturers Association of Canada (APMA), recently received a commitment from Canada’s trade minister, Ed Fast, that his country’s government would stand against any Trans-Pacific Partnership rules of origin for the automotive industry that would cause domestic manufacturers harm. In a letter that he penned to Fast, Volpe expressed that “An inadequate content rule for parts would dramatically impact our domestic parts industry and the jobs that come with it.” There are approximately three million auto-related trade jobs divided between NAFTA partners, the United States, Canada and Mexico in North America. Finding the correct balance related to Trans-Pacific Partnership rules of origin for the automotive industry is an important component of preserving present jobs and creating more sources of employment in the industry for the three country’s workers in the future.

Japan wants to incorporate components from outside the TPP zone into its vehicles

Japanese TPP negotiators are pushing for liberal rules of origin content requirements so that they may incorporate low-cost country components into Japanese made vehicles that are sourced in other Asian countries such as Thailand and China. As this issue is a critical one related to one of Mexico’s quickest growing and dynamic manufacturing sectors, the Tecma Group of Companies will continue to inform on this matter in future blog posts, as negotiations move forward.