Auto Lobbyist Says Industry Wants Return to North American Duty-Free Trade in Sector

• The pact should remain trilateral.
• If there are new rules for autos, they shouldn't increase costs or compliance for companies, and should be narrowly tailored.
• Imported cars from Mexico and Canada, if they meet rules of origin, should be duty-free.

Autos Drive America CEO Jennifer Safavian laid out these priorities in a conversation with "The Trade Guys," hosted by the Center for Strategic and International Studies.

Currently, cars and trucks that meet USMCA rules of origin, which used to be duty-free, are tariffed at 25% on all foreign content. But parts that are USMCA compliant from Mexico and Canada still enter duty free. The tariff on parts is supposed to be 25%, pending a Commerce Department announcement that they can discern how much of the parts' content is from the U.S., but that has not come to pass in 14 months since the announcement.

However, the public comments from the U.S. trade representative don't suggest that the administration is listening to these requests, as he has repeatedly said that the rules of origin need to be stricter; just this week, the deputy USTR for the Western Hemisphere said that the rule of origin must require more U.S. content. If that is shifting parts out of Mexico, that is likely to hike costs for automakers.

Safavian acknowledged that the president wants more U.S. content in cars built in the region, but said, "The U.S. auto industry is successful because we have Mexico and Canada helping us." She said that her members want to make cars that are affordable for consumers, and imports from Canada and Mexico helps them do that.

She also told the podcast hosts that their contacts in the Office of the U.S. Trade Representative haven't been clear about what they are looking to change in the auto rules of origin.

The deadline to announce whether the U.S. will renew the USMCA for 16 years is July 1; Safavian said she doesn't expect them to say they have updates to the pact and are ready to renew with those updates by that date.

"I think what they'll do on July 1 is say they're still talking," she said. "I don't think they'll wait until next year" in July to come to an agreement, she said, though she added, "We hope we don't have to wait until next July 1 to hear from them again."

Safavian said her members, who produce 48% of the cars built in the U.S. and employ 162,000 people in the U.S., would delay investment if the USMCA stumbles along for years without affirmation that the U.S. wants to keep it for the next 16 years. The way the sunset clause is written, the uncertainty could last for 10 years.

If there was a lack of resolution for years on end, "it would be extremely disruptive for the industry," she said.