Inside U.S. Trade: "Mexican Auto Rep Blasts Details Of U.S.-Japan Deal On Rules Of Origin"

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The president of Mexico's auto industry association on Wednesday (Aug. 26) laid out in detail his objections to a deal worked out by the United States and Japan on the automotive rules of origin in the Trans-Pacific Partnership (TPP) that has been rejected by the governments of Mexico and Canada because it includes a regional value content threshold they view as unacceptably low.

[ August 26, 2015 | Inside U.S. Trade ]

In an interview with Inside U.S. Trade, Eduardo Solis, executive president of the Mexican Automotive Industry Association, said the U.S.-Japan deal contains three elements that result in a weaker rule of origin than the one the U.S., Mexican and Canadian industries made in a joint proposal to their governments roughly a year and half ago.

First, the U.S. and Japan agreed on a rule of origin that would allow finished vehicles, engines and some auto parts to benefit from TPP tariff cuts with a regional value content level of 45 percent, he said.

But other auto parts would be subject to a lower regional value content threshold of 30 percent, he added. Both of these thresholds would be calculated using the “net cost” method contained in the North American Free Trade Agreement (NAFTA), he said.

By contrast, the U.S., Canadian and Mexican industries had proposed a regional value content threshold of 50 percent for light vehicles, engines and transmissions using the “net cost” method, according to Solis.

NAFTA set a 62.5 percent threshold for autos and light trucks, along with their engines and transmissions, and required 60 percent regional content for other auto parts. It also included complex tracing requirements that are not expected to be incorporated in TPP.

The third element is that the U.S. and Japan agreed on a list of seven auto parts that would automatically be deemed to be originating under the net cost method, even if they included some components from outside of the TPP region, Solis said. This list includes transmissions, windshield glass, brakes, doors and exhaust systems, he added.

“The three elements are absolutely unacceptable,” said Solis, who represents the Mexican-based operations of the Big Three U.S. automakers as well as Japanese and European companies. “We have clearly stated to the government that this is opening avenues for non-TPP members to enter into the agreement granting origin to components that clearly are from outside of the region."

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