Electric and Driverless Cars Become Sticking Point In NAFTA Negotiations

Apparently electric and driverless cars have become a sticking point in the negotiations aimed at updating the North American Free Trade Agreement (NAFTA).

The automotive industry has been a thorny issue throughout the NAFTA talks taking place between Canada, the U.S. and Mexico, with American negotiators demanding more U.S. content in North American made vehicles. Apparently Canada added fuel to the fire in the latest round of talks that took place in Montreal by putting forward some ideas on how to calculate the value of “regional content” in vehicles, including giving more credit for driverless and electric cars, as well as research and development work on such advanced vehicles.

Speaking to Bloomberg News, Chrystia Freeland, Canada’s Minister of Foreign Affairs, said Canada has brought the impending wave of electric vehicles and driverless cars into the NAFTA talks as those are likely to be the vehicles of the future.

“The ideas are very intentionally ideas rather than a fully baked proposal; they’re about some directions,” said Minister Freeland. The proposals, if adopted, would promote high-skilled labour and encourage the next generation of car making to stay in North America, she added.

Regional content requirements — or rules of origin — are among the touchiest issues the three NAFTA partners are working through in revisiting the 24-year-old trade deal. NAFTA requires a vehicle to have a certain percentage of North American content in order to benefit from tariff exemptions, and the U.S. has proposed raising the bar to 85% from 62.5% for a typical car. The U.S. has also called for a new requirement that 50% of content come from within its own borders.

U.S. negotiators were quick to dismiss Canada’s latest ideas concerning both electric and driverless cars.

“We find that the automobile rules of origin idea that was presented, when analyzed, may actually lead to less regional content than we have now and fewer jobs in the United States, Canada, and likely Mexico,” U.S. Trade Representative Robert Lighthizer said on Thursday. “So this is the opposite of what we are trying to do.”

Freeland said the Canadian ideas were meant to spark conversation, and that she’s hopeful her counterparts in the U.S. and Mexico will read and consider them before talks resume next on February 26. Minister Freeland acknowledged that the rules of origin are a “fiendishly complex area” and said that the only way to reach a successful conclusion is for all three countries — plus carmakers, suppliers and labour officials — to think about the questions of regional content together.

“It’s a very major undertaking and what we do to the rules of origin will have potentially a dramatic impact on the car industry, including supply chains,” she said. “The best way to really get it right and avoid unintended consequences is to do some work together, so that was our objective.”