Automaker groups warn U.S. tariffs will undermine new NAFTA deal

© Reuters. FILE PHOTO - A steel worker returns to work at U.S. Steel Granite City Works in Granite City

By David Lawder

WASHINGTON (Reuters) - U.S. automakers and parts suppliers on Thursday warned that President Donald Trump's steel and aluminum tariffs and threatened car tariffs would undermine the benefits of the new deal to modernize the North American Free Trade Agreement, causing widespread job losses.

At a wide-ranging hearing before the U.S. International Trade Commission, labor representatives said the new U.S.-Mexico-Canada Agreement (USMCA) fails to include adequate enforcement of labor standards, while Southeastern U.S. fruit and vegetable growers said it leaves them vulnerable to subsidized Mexican competition.

The testimony will feed into a study by the commission on the economic impact of the trade deal reached on Sept. 30, which could heavily influence support for it in the U.S. Congress. A vote on the pact is not expected until the spring of 2019, following a lengthy consultation process.

Several automotive trade groups said side letters to the USMCA deal that allow Canada and Mexico duty-free auto import quotas in the event that Trump imposes car tariffs was an indication that such a move seemed inevitable.

The Trump administration is considering recommendations from the Commerce Department on whether to impose tariffs on national security grounds under Section 232 of a Cold War-era trade law.

No decisions have been made, but President Donald Trump has frequently threatened to impose 25 percent tariffs on autos and parts to pressure the European Union and Japan to make trade concessions.

"If implemented, increased auto tariffs would not only undermine the potential success of the USMCA, they would also pose a material threat to the economy and may result in the loss of as many as 700,000 jobs across the U.S.," said Jennifer Thomas, vice president of government affairs for the Alliance of Automobile Manufacturers.

The groups also said the failure of the new U.S.-Mexico-Canada Agreement (USMCA) to lift steel and aluminum tariffs have cost the industry billions of dollars and trade turmoil in general has paralyzed investment decisions.

"The current state of play on trade has placed our industry in turmoil," said Ann Wilson, senior vice president of government affairs at the Motor and Equipment Manufacturers Association. "In the last year our members have faced Section 232 steel and aluminum tariffs, other Section 232 tariffs proposed, and Section 301 tariffs on goods from China."

DETROIT VS FOREIGN BRANDS

There also was a divergence of views among domestic and foreign automakers on the overall benefits of the USMCA agreement, which requires autos to have 75 percent regional content and at least 40 percent from the United States or Canada.

John Bozzella, president of the Association of Global Automakers which represents foreign brand automakers with U.S. plants, said he was concerned that the "many layered" content requirements would hurt automakers' competitiveness by requiring "unnecessary" supply chain shifts and investment in compliance.

Matt Blunt, president of the American Automotive Policy Council, which represents Detroit automakers General Motors (NYSE:GM), Ford and Fiat Chrysler, described the trade deal as "workable" for these companies which have larger U.S. manufacturing footprints than their competitors.

He said it would not require massive manufacturing and supply chain changes immediately but over time, automakers would need to consider changes in where they build cars and major components.

CORN VS TOMATOES

A similar divergence came from agriculture groups, where grain farmers and shippers said it was a "significant advancement" that expands market access but seasonal produce groups said it fails to address Mexican subsidies that are driving Southeastern growers out of business.

An initial U.S. demand for the ability to impose seasonal tariffs to protect U.S. fruit and vegetable growers was abandoned during the 13-month negotiations.

"We have gotten the short end of the stick since the ink dried on the agreement," said Florida Agriculture Commissioner Adam Putnam.

AFL-CIO trade policy specialist Celeste Drake said that the enforcement mechanism for new, higher labor standards was weak, relying on a seldom used state-to-state dispute settlement mechanism.

"We urge the commission to make clear that if the obligations are not enforced, the lure of cheap and easy labor exploitation in Mexico will continue to draw production and hold down wages in both countries," she said.