WASHINGTON / MEXICO CITY (Reuters) – A proposed US-Mexico trade agreement would allow President Donald Trump to impose punitive tariffs of up to 25 percent on imports of Mexico-made cars, sport utility vehicles and auto parts above certain volumes, Car executives and sources said on Tuesday.
FILE PHOTO: On January 27, 201
The United States and Mexico agreed on Monday to revise the North American Free Trade Agreement (NAFTA) and press Canada to sign new rules on car trade and dispute resolution to become part of the Way Pact to stay.
But a previously unreported side agreement between the two countries would allow the United States to prosecute "national security" tariffs on annual Mexican car and SUV imports of over 2.4 million vehicles.
The spin-off would allow national security charges for auto parts imports in excess of $ 90 billion a year for the same reasons. The government plans to publish the findings of an investigation into whether cars and sub-imports pose a national security risk in the coming weeks.
The study could be used to justify 25 percent of US tariffs on car imports on the grounds that protecting the US auto industry is crucial to national security under a Cold War trade law.
The automakers are concerned that the agreement signals that the United States will continue with national security rates – and they will likely use tariffs to get concessions from the European Union and Japan as well. They said tariffs could cost hundreds of thousands of jobs and dramatically increase vehicle prices.
A separate side-by-side agreement sets out a possible scenario in which the United States will increase its normal "most-favored nation" tariffs for cars, currently 2.5 percent. A potential new unspecified price would apply to vehicles that do not meet the existing or revised NAFTA.
MEXICAN EXPORT CHAPEL
Mexico reserves the right to challenge US use of "national security duties" with the World Trade Organization, people who have been informed of the talks have reported.
Exports of cars and SUVs from Mexico would be subject to a 25 percent US tariff if they exceeded 2.4 million vehicles and the United States would introduce national security tariffs, it said. Below the cap, vehicles meeting new, more stringent regional content requirements could enter the US duty-free.
Vehicles within the cap that do not meet the new, stricter content rules would pay a 2.5 percent tariff, sources said.
In 2017, nearly 1.8 million cars and SUVs were exported from Mexico to the United States.
The sources did not want to be identified because the details of the agreement were not officially published.
U.S. Officials said the agreement is aimed at attracting more jobs in the automotive industry to the United States and Mexico. The terms of the transaction are not exhaustive and may change depending on the outcome of the negotiations between the United States and Canada and other factors.
Duty-free auto parts exports from Mexico to the United States could be limited to $ 90 billion a year under the agreement, said Ann Wilson, senior vice president of government affairs for the Motor and Equipment Manufacturers Association.
The figure exceeds the current levels, but partial deliveries above this rate could be subject to 232 tariffs, Wilson said.
Mexican pick-ups that do not comply with regional quotas are already paying 25 percent Mandatory. It was not clear if they could also be subject to an additional quota.
Moises Kalach, head of the Mexican CCE Business Lobby's international bargaining arm, said it was far from certain that the United States would introduce the 232 duty and that the current trade arrangements were now secured for the industry.
"We have a fallback plan if they dictate the 232, but there is also the possibility that Mexico will be exempted from the 232," Kalach told Reuters.
It is not clear how the odds are counted or managed.
The agreement also provides quotas for automakers to use domestic steel and aluminum, sources said. Vehicle components are subject to regional content quotas at various levels, depending on the nature of the part or system. Engines and transmissions, the highest quality systems in a vehicle, would have a regional content ratio of 75 percent, it said.
A spokeswoman for the United States Trade Representative declined to comment on the details of the US-Mexico agreement that were not mentioned before.
The Mexican Ministry of Economy did not immediately respond to a request for comment.
The tariff mechanism in the interim US-Mexico agreement would likely be built for Detroit automakers like General Motors Co, the big Chevrolet Silverado and GMC Sierra pickup trucks in a complex in Silao, Mexico.
However, Asian and German automakers as well as automakers and suppliers seeking to expand production in Mexico may be disadvantaged and forced to produce more vehicles and engines in the US.
The revised trade agreement is due to enter into force in 2020 and to be phased in five years from now, people familiar with the proposal said.
WHAT IS NORTH AMERICA-MADE?
A cap on Mexican vehicle exports to the US would cause automakers and suppliers to face a whole new set of challenges.
The rules would support efforts to certify parts as North American compliant, even if they contain content from elsewhere. That could cost automakers $ hundreds of dollars over the next decade, industry officials said.
The new cap on total vehicle exports could spur on companies announcing additional production capacity in Mexico in the coming months to try to make room under the cap before the agreement enters into force.
The new rules of content and a new requirement that 40-45 percent of a vehicle be produced by workers earning $ 16 an hour or more, much higher than current Mexican rates, could lead automakers to increase vehicle prices increase.
The details of the car trade are crucial for car manufacturers and vehicle parts manufacturers.
For example, the Trump Administration said US engineers' wages could count toward regional content quota – benefiting the Detroit-three automakers and sellers who have established engineering operations in the United States come.
Reporting by David Shepardson and David Lawder of Washington, Dave Graham and Ana Isabel Martinez of Mexico City and Allison Lampert of Montreal; Letter from Joseph White; Edited by Matthew Lewis