Nafta Could Be Modernized But It's Mostly Working, Carmakers Say

John Engler Says Ending Nafta Would Be a 'Big Failure'

The North American Free Trade Agreement could be due for some “modernizing,” automaking executives say, but efforts to overhaul it completely have manufacturers on edge.

“If I look at the ecosystem, the customer is getting what they want, the companies for the most part are getting what they want, and it is working, in my opinion,” Audi of America President Scott Keogh said of the trade deal in an interview at Bloomberg headquarters in New York. 

The second biggest U.S. automaker also sees major benefits in the trade pact, which President Donald Trump is pushing to rewrite.

“We think that the Nafta agreement has made the overall sector much more competitive on a global basis, in terms of North America vis-à-vis the rest of the world,” Bob Shanks, Ford Motor Co.’s chief financial officer, said in a phone interview after the automaker reported third quarter results, calling the deal an “overall positive for the three economies.”

U.S. negotiators have proposed requiring vehicles assembled in North America to get 85 percent of their parts from factories in the region, up from 62.5 percent today. At least 50 percent would have to come from the U.S. to qualify for duty-free status under the U.S. proposal -- which Canada and Mexico have said they won’t support. The changes could reshape industry supply chains or push companies to pay tariffs instead of boosting regional parts sourcing.

That’s not to say there aren’t ways to improve the trade agreement, which was negotiated more than two decades ago before complex components like navigation systems, automatic emergency braking or lane-departure warnings were common in cars

Ford’s Shanks, for example, said prohibitions against currency manipulations and commonization around automotive standards in the three countries are the kinds of changes that make sense. But major overhauls, like requiring half of all content come from the U.S., “could create a drag on the overall benefits of Nafta,” especially for companies like Ford, which has more than 5,000 suppliers in the three markets, Shanks said.

“If there’s some modernization that can take place and some things that have changed from ’93 to 2018, and those things should be looked at -- it seems to make sense,” Audi’s Keogh said. “But for us in the industry, what we need is absolute stability. We don’t negotiate trade. What we do is operate within the structures that have been built up, and this is the structure that was built up and we’re operating within it.”

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