New NAFTA auto rules won’t be as disruptive as expected, analysts say

The preliminary trade agreement between Mexico and the United States would not dramatically change how the car industry does business nor be nearly as disruptive as what President Donald Trump has long threatened, according to analysts consulted by CNN Money.

“The United States and Mexico would rewrite parts of NAFTA and establish stricter requirements for cars sold in North America to be free of tariffs (…) But it would not dramatically change how the car industry does business. That’s a win for the industry,” the report says.

Among the voices in the report claiming that supply chain won’t be substantially impacted is that of Miro Copic, business professor at San Diego State. “It gives the manufacturers the flexibility they wanted,” he said.

This assertion was supported by Mexico’s Secretary of Economy, Ildefonso Guajardo, who in a press conference assured that 70% of Mexico’s automotive exports will be in a position to comply with the new regulations by the time they take effect in January 2020. 

The official also confirmed that, for vehicles that don’t meet the requirements, a 2.5% tariff would be imposed during a grace period to make the necessary adjustments. This provision covers all the automotive plants that already exist in Mexico, as well as those that are currently under construction.

The two countries have agreed that 75% of a product must be made in North America to receive tax-free treatment, up from 62.5% under the existing deal. 

The plan also calls for at least 40% to 45% content in cars coming from regions where workers make at least a US$16 minimum wage, a provision aimed at discouraging companies from locating more plants in Mexico.

The financial markets read such changes with great optimism, which was reflected in the performance the Big Detroit Three stock: General Motors and FCA’s shares went up almost 5%, while Ford’s increased more than 3%.

Meanwhile, in the Frankfurt stock market, BMW shares rose 2.4%, Volkswagen shares gained 2.1% and the Stoxx 600 Automobiles & Parts Index increased 1.2%, according to AutoNews.

MexicoNow

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