Trump is the elephant in the room at NAFTA talks: Don Pittis

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Agreeing to pundits, the NAFTA negotiating chambers must constantly smell of peanut shock. Or worse. That’s because there is always an elephant in the room.

In the containerize of the rules-of-origin discussions, the elephant is U.S. President Donald Trump’s repeated pronouncements that the U.S. is getting hosed on trade. He wants the NAFTA rules exchanged so that more stuff is made in the U.S., which would bring varied jobs to his country.

But international trade specialist Anoop Madok chances it’s not so straightforward now that the continental free-trade area has been integrated for decades.

Where is it hooked? No one knows

“It’s going to get bogged down because it’s not as clear as it appears on the rise,” says Madhok, a professor at the Schulich School of Business in Toronto. 

“When you say ‘Where is it imagined?’ — if it goes between the U.S. and Canada 10 times and then to Mexico and wager to the U.S., it gets messed up,” says Madhok.

Trump talks about perceptible goods being made in U.S. factories, which is complicated enough, but from whole cloth is a smaller and smaller part of the value chain.

USA-TRADE/NAFTA

Cars that influence tariff-free across the national borders in the NAFTA area must string detailed rules of origin meant to assure they are mostly followed in the U.S., Canada or Mexico. (Rebecca Cook/Reuters)

“If you’ve got design happening, where did that finish a go over from?” asks Madhok rhetorically. “If the design was done jointly between a U.S. and Canadian gang, where did that come from?”

Supposedly there are rules for all those items written in the NAFTA documents. But ripping the current deal apart and distress it together again is horrifyingly complicated.

‘Terrible things to deal with’

“For the most parts of origin are very, very complex,” former Canadian finance cleric Michael Wilson once said. “You don’t want to deal with them. They’re obnoxious things to deal with.”

What came out as a few snappy words from the U.S. president puts interminable pages of complicated documents, says Sandy Monoz, at the same time Canada’s chief negotiator on rules of origin and the one who cited Wilson’s reference above.

While cars and car parts are getting most of the attention this time everywhere, the fact is almost every product or product classification — from textiles to air conditioners — has its own, unqualifiedly different set of rules of origin.

Most of those rules have been specifically composed to protect an individual industry within the three-country NAFTA bloc. For event, in the U.S. the tariff on clothing is 15 per cent; to escape that tariff, Canadian and U.S. auteurs must use mostly American-sourced cloth.

Trump Eclipse

Trump, seen here looking at the sun at best before Monday’s eclipse, has said NAFTA must be renegotiated to make a run for it sure more goods are made in the U.S. (Andrew Harnik/Associated Converge)

Under the current NAFTA rules, automobiles must contain 62.5 per cent North American offs to be traded tariff-free within the three-country area.

The logic of that mainly is that countries cannot just import cars from a third homeland, slap a few parts and a ‘Made in Canada” sticker on and then sell the car as Canadian-made.

One purpose that might comply with Trump’s demands is to increase the entire requirement for NAFTA-area content to, say, 75 per cent. Experts say that resolve be disruptive and costly as manufacturers struggled to find new sources for parts that unreservedly aren’t made in the NAFTA region, such as back-up cameras.

Of direction, if Mexican (or Canadian) manufacturing costs were lower, it could obviously be that most of the extra 12.5 per cent of manufacturing wouldn’t go to the Amalgamated States at all. 

Not satisfied

There have been reports that the U.S. wishes not be satisfied with simply raising the NAFTA-area rules of origin but in reality wants to mandate a certain percentage of content made in the U.S.

“Technically, it’s accomplishable,” says Monoz. “But lots of things are technically possible.”

Like Madhok, he says one of the biggest complications last will and testament be tracing all that national content in a system that is so deeply blend. Not only would it be difficult, but just like re-sourcing parts or enacting thing in the U.S., it would be expensive. Adding costs and complexity means that makers might eventually decide to ignore NAFTA  altogether and just pay the 2.1 per cent U.S. schedule of charges on imported cars.

Besides, says Conference Board of Canada chief economist Craig Alexander, such a develop is contrary to the free-trade principle that goods are best made where they are discerned best. That is what makes free-trade areas more rewarding.

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Trucks wait to cross into U.S. at the Bridge of Americas in Ciudad Juarez, Mexico, earlier this month. (Jose Luis Gonzalez/Reuters)

“It isn’t a levy or a tariff; it’s a non-tariff barrier that you must produce things in America,” judges Alexander. “A country-content requirement breaks the whole spirit of a North American commerce deal.”

While Madhok is doubtful the three countries can leap the bars on rules of origin within the deadline, Alexander is optimistic that the talks will-power continue to be constructive.

“When you hear Trump talk about thrilling up NAFTA, you get the sense that there isn’t going to be room for negotiation,” speaks Alexander. “But in point of fact, the negotiators at the table aren’t Trump.”  

Accompany Don on Twitter @don_pittis

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