Charles Uthus is the Vice President for Policy and a member of the Board of Directors at the American Automotive Policy Council. The Council represents the policy interests of Ford, General Motors, and FCA US (Fiat Chrysler Automobiles). On May 25, Mr. Uthus led off the automotive portion of the GBD event NAFTA, From Cars to Carrots. 

There are things that the American Automotive Policy Council would like to see come out of the NAFTA renegotiation set to begin this summer, and we shall get to those in a moment. 

 
Market Access. Essentially, though, the Council and its members are strong supporters of NAFTA, and the market access benefit highlighted in today's featured quote is just one of the reasons for that support, but it is a big one. As Mr. Uthus explained: 

Access to those two markets is critical and important in and of [itself]. The ... tariff in Mexico is a 35 percent MFN tariff rate, and we're not paying that tariff. That's a huge savings. ... In Canada, 6.1 percent tariff rate. We're not paying that tariff, and we're exporting vehicles to Canada. You know, you add all that up, and that actually is $3.5 billion a year [that our members are not paying]. 

 
Production Integration. "We have an almost seamless integration: of the auto industry across three countries today," Mr. Uthus said. And the sums involved are huge. Again, Mr. Uthus:

Every year there is about $240 to $250 billion of automotive trade that goes across the U.S. and Canadian borders. That's about 22 percent of total trade in the NAFTA region. So, we're talking about a massive [flow]. There's really nothing like it, nothing internationally that you can compare it to.

Global Competitiveness. The NAFTA auto phenomenon may be unique in its scale, but the basic pattern is not unique. Mr. Uthus explained the situation this way: 

Around the world, there are three major automotive producing centers, in Asia, Europe, and North America. Each of those has, as part of that grouping, some low-cost and [some] high-end, [some] labor intensive and [some] technology intensive countries that are part of that mix. And Mexico serves a really incredibly important role, providing labor intensive imports into the automotive industry. 

The example, the automotive part, he used to illustrate the point was wiring harnesses - the components that effectively distribute electricity to various parts of the car - and those harnesses, Mr. Uthus said, represent the largest automotive component coming into the United States - about $7 billion worth a year, if we understood him correctly. If there were no NAFTA, wiring harnesses would still not be made in the United States. They might come from Mexico or from Asia , but they would come at a higher, duty-included cost. 

 
Not Just North America. Seamless though the process may be in North American automobile production, people do look at how much each country is contributing to the final vehicles. According to a recent study, Mr. Uthus said, U.S. content accounts for 50 percent of a vehicle produced in Canada and for 36 percent of the vehicle that comes off the assembly line in Mexico. "So," Mr. Uthus said, "when Mexico exports its vehicles to Brazil, 36 percent of the average value of the vehicle going to Brazil is U.S. content." 

NAFTA then is not just about cars made for the North American market. Mexico is an export platform. So too is the United States for some companies and some vehicles. We shall come back to that issue in later entries. 

For the Up-Dated NAFTA. Mr. Uthus mentioned several elements his members would like to see in the new NAFTA. Two issues, though, are at the top of the Policy Council's agenda. One is a provision that would require partners to the agreement to accept U.S. certifications for safety and emissions standards. The other is currency manipulation. The Council wants the up-dated NAFTA to include a provision on currency manipulation.

Neither of these provisions is being sought to affect America's NAFTA partners. "Canada and Mexico clearly are not countries that are manipulating their currencies," Mr. Uthus said. No, the reason the American Automotive Policy Council wants provisions like these in the new NAFTA is that it sees that agreement as a template for other agreements the Trump Administration is likely to negotiate, agreements where, in the Council's view, such provisions would have practical significance. 

We expect to publish several entries on NAFTA in the next week, most of which will relate in some way to GBD's May 25 event on the issue. With that in mind we shall keep our own NAFTA comments to a minimum. Today, we'll make just two points.

Across the Rio Grande. Laredo in Texas and Nuevo Laredo in Mexico, the two cities sit across the Rio Grande from each other, and each is a vital artery in the NAFTA system. "Laredo is the largest inland port in the United States, and Nuevo Laredo the largest in Latin America." (Wikipedia) 

 
Mr. Uthus began his talk last week with reference to a severe storm - a storm first thought to be a tornado - that threatened to shut down automobile production facilities in the United States. Part of that story has to do with the World Trade Bridge in Nuevo Laredo. As noted in an article on the storm, the Bridge "carries more than 12,000 cargo vehicles a day between Nuevo Laredo and Laredo." And for a while, it was closed. So, yes, nature can interrupt the production integration that NAFTA has brought about, but political winds remain the larger danger. 

Deadlines and Elections. It is not clear from press reports whether the U.S. and Mexico really are aiming to finish the NAFTA renegotiation by December 15, but the desire to get it done sooner rather than later and preferably this year is clear enough. One of the reasons is the presidential election in Mexico next July. July 2018 may seem like a long way off, but Mexico's electoral politics are already weighing heavily on the NAFTA process, and there is a litmus test - an election in the State of Mexico, including Mexico City - that is just two days away. 

Kenneth Rapoza of Forbes sets the scene for Sunday's election this way: 

This Sunday's election in Mexico City is a precursor of what's to come in 2018. If an anti-Trump candidate wins the state of Mexico's [gubernatorial race] this weekend, populism could swell up south of the border and make NAFTA do-overs even harder.

Indeed.