House approves NAFTA replacement, but impact on U.S. auto jobs is uncertain

Keith Laing
The Detroit News

Washington — Automakers moved closer to a measure of certainty on trade that they have long sought, after the U.S. House of Representatives on Thursday approved President Donald Trump’s replacement for the North American Free Trade Agreement. But it remains to be seen if the pact will force enough changes to shift production of vehicles from Mexico to the United States.

Under the replacement for NAFTA, automakers will have to produce cars with 75% of their parts originating from the U.S., Canada or Mexico to qualify for duty-free treatment.

A day after taking a divisive impeachment vote, the U.S. House approved the U.S.-Canada-Mexico Agreement  385-41. The two hours of debate lacked the partisan rancor that defined Wednesday's impeachment vote. Thirty-eight Democrats, as well as two Republicans and independent U.S. Rep. Justin Amash of Cascade Township, voted "no" on the measure. The U.S. Senate is expected to take up the trade measure early next year.

Under the USMCA, automakers will have to produce cars with 75% of parts originating from the U.S., Canada or Mexico to qualify for duty-free treatment. The requirement, referred to as “rules of origin,” would be an increase from 62.5% under current NAFTA rules. In addition, 40-45% of an auto's content must be made by workers earning at least $16 per hour. Vehicles not meeting the requirements would be subject to a 2.5% duty.

Automakers and groups that lobby for the industry in Washington hailed the House’s passage of the USMCA, saying free trade with Canada and Mexico are vital to Detroit manufacturers' ability to compete in the international market.

General Motors Co. said it viewed the agreement as vital to the success of the North American auto industry, and indicated it would beef up U.S. operations as a result: "GM has invested $23 billion in its American manufacturing operations over the last 10 years and has accounted for 26% of all U.S. automotive manufacturing investment since 2010. In order to meet the provisions of the new agreement, we will  continue to enhance manufacturing and sourcing opportunities in the United States."

Ford Motor Co. said the agreement “allows the U.S. auto industry to be globally competitive, encourages U.S. research and development in this new era of mobility, and provides a framework for good-paying U.S. jobs."

Fiat Chrysler Automobiles declined to comment.

The American Automotive Policy Council, which lobbies for Ford, GM and Fiat Chrysler, has noted government estimates that the USMCA will incentivize a $23 billion increase in U.S. annual parts sales alone.

“This modernized trade deal between our North American trading partners will strengthen the U.S. auto industry and the auto manufacturing supply chain,” the AAPC said. “With its provisions addressing currency and acceptance of U.S. standards, the USMCA should serve as a blueprint for future trade agreements between the U.S. and our trading partners."

Despite that optimism, some expressed skepticism the pact would result in major shifts in auto production. 

"It will not stem the continental outsourcing of U.S. jobs," said U.S. Rep. Marcy Kaptur, D-Ohio, co-chair of the House Congressional Automotive Caucus. "And sadly, and most importantly, it will not achieve the real enforcement by the governments of Mexico or the United States."

The labor provisions are an attempt to boost U.S. jobs, but it remains to be seen if automakers that have gravitated to lower wages in Mexico will decide if they can profitably return more production stateside.

Mexico says that about 30% of its current auto production would not conform to the new rules, but the country has not specified which rules would not be met. Industry observers expect some models that have low domestic sales volume or are too costly to bring into compliance will be withdrawn from the U.S. market.

The vast majority of U.S. and Canadian production is expected to conform to the rules within a three- to five-year transition period, the Ann Arbor-based Center for Automotive Research forecasts.

Democratic leaders in the House hailed the USMCA agreement on Thursday as a pact that could serve as a model for future trade deals.

"I’m proud to join my colleagues on this day, as the House passes a historic trade agreement that is truly worthy of the American people, a new and dramatically improved U.S.-Mexico-Canada Agreement," House Speaker Nancy Pelosi, D-Calif., said. "This was a priority and time was important. We were trying to get it done as soon it met the standards that we share."

Republicans also celebrated the bipartisan nature of the USMCA vote, citing the potential impact to the auto sector.

"We are always looking to create more U.S. jobs, and this will create more than 176,000 jobs here in America, including 76,000 in our auto sector," said U.S. Rep. Kevin Brady, of Texas, the top-ranking Republican on the House Ways and Means Committee.

Michigan lawmakers also extolled the merits of the bipartisan agreement.

"Today we rise to strengthen the protections for the workers," U.S. Rep. Haley Stevens, D-Rochester Hills, said. "Today is a great day, for today we are standing up for our manufacturers and manufacturing economy."

"The stakes for Michigan are extremely high," U.S. Rep. Bill Huizenga, R-Zeeland, said. "One estimate is 38.9% of Michigan's total GDP depends on trade, the highest in the nation. A staggering 65% of the state's exports are bound for Canada and Mexico. Trade with our nation's neighbors support more than 338,000 Michigan jobs. Ratifying the USMCA will lead to more than $30 billion of new investment in new automotive manufacturing in the U.S. and create more than 75,000 jobs for American autoworkers."

U.S. Rep. Paul Mitchell, R-Dryden, who is retiring from Congress at the end of 2020, called the USMCA "a massive improvement over NAFTA."

"I saw the impact of NAFTA on my state of Michigan, on my community and my family," he said. "Jobs disappeared at an astounding rate, including my dad's job working the assembly line in an auto plant."

Amash, the lone independent in the U.S. House, took a shot at the president's rhetoric on the pact before voting "no."

He tweeted: "President Trump on trade deals: NAFTA: 'the worst Trade Deal ever made.' TPP: 'even worse' than NAFTA. USMCA (mostly NAFTA with elements of TPP): 'the best and most important trade deal ever made.”

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Twitter: @Keith_Laing