From: dale@dale.CAM.ORG (Dale Wharton)
Newsgroups: soc.culture.african.american
Subject: NAFTA analysis--auto sector
Date: 22 Dec 92 02:19:40 GMT
Organization: private


         NAFTA analysis--automotive sector
Date:    15 Dec 92 15:07 PST
Source:  Kai Mander <kmander@igc.apc.org>
         Institute for Agriculture and Trade Policy

U.S. CITIZENS' ANALYSIS OF THE NORTH AMERICAN FREE TRADE AGREEMENT

A U T O M O T I V E   S E C T O R
                                                         Five problems
by Steve Beckman, UAW

        Auto trade between the three NAFTA countries accounts for
more trade than any other single product group.  The U.S. and Canada
negotiated an Auto Pact in 1965 that was modified, but not
eliminated, by the implementation of the bilateral "Free Trade
Agreement" in 1989.  The main focus of the NAFTA negotiations,
though, was the phased elimination of Mexico's Auto Decree.  Adopted
in 1989, this decree was the latest in a string of decrees that
affected auto production and trade in Mexico since the early 1960s.
        The goal of the negotiators, as was the case in the 1965 U.S.-
Canada auto talks, was the integration of auto production of the three
countries into a single "rationalized" production system.  For the
companies, this means closing inefficient production plants, removing
government regulations concerning the location of production, taking
advantage of the lowest cost production site and forcing workers,
communities, and suppliers into competition to lower their costs.  The
NAFTA agreement accomplished these goals for the companies at the
expense of auto workers.
        Following is our analysis of the terms of the agreement on
automotive issues:

1.      The current Mexican requirement for each auto assembler to
balance its trade in Mexico ($1 in exports for every $1 of imports)
would be immediately cut to 80 cents of exports from Mexico for each
dollar of imports into Mexico.  This would be phased down to 55
percent over 10 years and eliminated entirely at the end of the tenth
year.
        The companies already assembling in Mexico (GM, Ford,
Chrysler, VW, Nissan) could increase their imports into Mexico
without having to increase their exports out of Mexico under this
formula.  Companies that do not have substantial operations in
Mexico would find it hard to sell vehicles in Mexico and still meet
the diminished trade balancing requirement during its ten year
phaseout.  The trade balancing requirement has had the effect of an
export performance requirement.

2.      The current Mexican requirement of 36 percent sourcing from
domestic parts companies (or joint ventures with majority Mexican
ownership) would be cut to 34 percent for five years and then
phased down one percent each year, reaching 29 percent in the tenth
year.  This requirement would be completely eliminated after the
tenth year.
        Also included in this part of the Auto Decree phaseout is an
understanding that the Mexican parts industry would be assured of a
large share (starting at 65 percent, declining to 60 percent and then
50 percent for years eight through ten) of the growth in the Mexican
market compared with the 1991-92 model year production.  It is not
clear yet how this calculation will be made, but it is clear that the
Mexican government has made certain that production by local parts
companies will not shrink as the Mexican market becomes more open
to imports of vehicles and parts.  Under these terms, Mexico retains
protections for its domestic producers (for at least ten years, and
longer if the Mexican government arranges future commitments
from the companies), the Canadian government retains the
safeguards of the Auto Pact, and the U.S. has no comparable
protection for either parts production or assembly and the U.S.
government remains opposed to the adoption of any such protection.
        The fundamental inequity of this arrangement is due to the
ideological position of the Bush Administration and the relatively low
priority given to the impact of this deal on U.S. employment in
automotive assembly and parts production.
        The companies are interested in "rationalization" of their
operations in the three countries.  This includes increased Mexican
sourcing for U.S and Canadian operations and increased vehicle and
parts exports from the U.S. and Canada to Mexico.  In the past, this
shifting of production has intensified competition between workers
for a shrinking total number of jobs.  The companies can be expected
to continue to promote this competition to depress the wages of
workers in all three countries.

3.      The rule of origin for automotive vehicles and parts was
raised, in stages, from the 50 percent in the U.S.-Canada FTA to 62.5
percent in the eighth year of NAFTA.  While there was some progress
in specifying the "tracing" of non-North American value incorporated
into vehicle parts, the tracing should have been more extensive, the
percentage of North American value should have been substantially
higher (at least 80 percent) and the "net cost" measure should have
been rejected in favor of the definition used in the U.S.-Canada
agreement.  Too many high-value parts and components can be
incorporated into North American-assembled vehicles which will
qualify for NAFTA benefits.  Increased production, employment and
research and development in Mexico, Canada and the U.S. would have
been promoted had the rule of origin been tougher.
        The NAFTA auto negotiators missed an opportunity to address
the most serious problem facing the North American auto industry--
the high level of imports of vehicles and parts from outside North
American and the low level of local content in the vehicles assembled
here by non-North American companies.  Workers in all three
countries would benefit by raising the share of the market served by
locally made vehicles and parts.  But the multinational corporations
opposed this form of government policy, because it would have
regulated trade by multinational corporations to produce
employment rather than let the corporations manage their trade to
promote profits.  Auto workers in all three countries will suffer as a
result of the narrow focus of this agreement.

4.      The light-duty truck tariff will be reduced from 25 percent in
the U.S. and 20 percent in Mexico to 10 percent for each country
immediately.  It will then be phased out over five years for imports
into the U.S. and Mexico.
        The reduction in the tariff to 10 percent initially and the
quick U.S. phaseout will eliminate an important protection for U.S.
production in this growing sector of the auto market.  Both GM and
Chrysler will be building new Mexican plants to produce vehicles
subject to this tariff; they would be the biggest beneficiaries of
this provision.  A large share of light-duty truck production for the
North American market could shift to Mexico under the terms of this
tariff phaseout.  However, imports of light trucks and vans into
Mexico could also increase at the expense of local production for the
domestic market.

5.      The negotiated rules for CAFE (Corporate Average Fuel Economy)
allow each company to choose, after the second year of the ten year
phaseout period, to have its Mexican value counted as "domestic"
(counted with U.S. and Canadian value to reach the 75 percent value-
added level); however, a company can choose to continue to have its
Mexican production count as "foreign."  If a company makes the
choice to have its Mexican production count as "domestic," this is not
reversible.  At the end of the ten year period, all Mexican output
will be considered "domestic" for CAFE purposes.
        This provision is structured to benefit the Big 3 and foreign
assemblers now in Mexico and to facilitate investments in small car
production in Mexico by additional foreign-based companies.
        The inclusion of Mexican value-added as "domestic" will allow
the Big 3 U.S. companies to concentrate their small car production in
Mexico.  This would leave U.S. production vulnerable to a sharp
increase in oil prices or a change in the share of sales held by small
cars.  This change could lead to significant job loss for American
auto workers if production in Mexico for export to the U.S. increases
as a result of such a shift in small car production or if the U.S.
demand for small cars increases sharply.
        Companies that import large cars into the U.S. from outside
North America could assemble small cars in Mexico meet the CAFE
standards for their total "foreign fleet" by keeping their Mexican
production as "foreign" until the end of the ten year period.  This
option is beneficial for current Mexican producers, Volkswagen and
Nissan.
        The instability of small car production in the U.S. has its
mirror-image in the increased reliance on imports of vehicles in the
Mexican market.  With fewer restrictions on imports of fully
assembled vehicles into Mexico, the domestic industry could be
restructured in ways that could cause serious dislocation for the
current auto industry workforce.
__
Steve Beckman, UAW
1757 N Street NW
Washington, DC 20036
phone: (202) 828-8500
Newsgroups: soc.culture.african.american