Commerce Secretary Wilbur Ross is warning that Washington will push for higher U.S. content in auto manufacturing as NAFTA renegotiations enter the third round in Ottawa.
Mr. Ross brandished a study on Friday that he commissioned, which said the share of U.S. manufacturing content in imports has dropped significantly since the North American free-trade agreement took effect in the 1990s. His contention goes to the heart of thorny trade talks surrounding what is known as rules of origin.
"If we don't fix the rules of origin, negotiations on the rest of the agreement will fail to meaningfully shift the [U.S.] trade imbalance," Mr. Ross wrote in a recent opinion piece in The Washington Post. "That is going to change under President [Donald] Trump, and rules of origin are just the beginning."
The U.S. study was immediately refuted by Canadian auto-industry executives during a meeting with Foreign Affairs Minister Chrystia Freeland late Friday afternoon.
"The U.S. has fared better than Canada over the last 16 years," Flavio Volpe, president of the Automotive Parts Manufacturers' Association of Canada, told The Globe and Mail.
Canada-U.S. trade is effectively in balance with Canada posting a sizable deficit in auto parts and running a surplus in finished vehicles.
Auto-industry officials estimate that there is between 60 per cent and 70 per cent U.S. content in Canadian-assembled vehicles. U.S. content in Mexico-assembled vehicles is estimated at 40 per cent.
"Since 2011, the U.S. position vis-a-vis Canada has improved materially from numbers that are already wrong," Mr. Volpe said.
Right now, NAFTA rules require that at least 62.5 per cent of a vehicle's content must be made in North America to qualify for duty-free access between the United States, Canada and Mexico.
Jerry Dias, the powerful head of Unifor, which represents Canadian auto workers, and a member of Ms. Freeland's NAFTA advisory council, said Mr. Ross has told him the demand for greater U.S. content is aimed more at Mexico than Canada.
"I met with [Ross] twice and each time we met we both agreed the problem was Mexico and he understands that," Mr. Dias said, who noted that Mr. Ross is the owner of a U.S. auto-parts company. "He knows that the majority of the parts that go into a Canadian-built car, including steel, come from the United States."
Mr. Ross's study says U.S. content of manufactured goods imported from Canada dropped significantly – from 21 per cent to 15 per cent. U.S. content in goods imported from Mexico fell even more – from 26 per cent to 16 per cent.
His salvo was a key topic on Friday as the Foreign Affairs Minister sat down with her NAFTA advisory council of business and labour leaders, and with former prime minister Brian Mulroney and the team he assembled to negotiate the 1989 Canada-U.S. free-trade deal.
One senior Canadian official, who was not authorized to speak on the record, said Canada will take a "wait-and-see" attitude until U.S. negotiators actually put concrete proposals on the table with regard to rules of origin and other controversial topics, such as trade dispute-resolution mechanisms.
Canadian negotiators have been waiting since the first round of talks in August for the United States to submit the country's negotiating demands. At the time, U.S. Trade Representative Robert Lighthizer, who will be in Ottawa on Wednesday for ministerial talks, said rules of origin, particularly on autos and auto parts, must require higher NAFTA content and substantial U.S. content.
There are reports that the Trump administration wants to raise the NAFTA content to more than 70 per cent and add a requirement that anywhere between 35 per cent and 50 per cent must be made specifically in the United States.
Canadian auto workers are supportive of higher North American content but they also want Ottawa to press for tougher labour laws in NAFTA to push up wages in Mexico.
"I told [Ross] I want it raised to 70. He said he wanted it raised higher," Mr. Dias said. "I have no problem raising the rules of origin, but rules of origin in itself won't fix the problem because if they relocate auto-parts plants from Europe and Asia, they will just go to Mexico because their minimum wage is 65 cents an hour. An average auto worker probably makes a little over $2 an hour. So rules of origin will just to go to Mexico unless we fix the Mexican problem."
As negotiators sit down, a survey by the Angus Reid Institute shows that Canadians' top priority in the talks is to ensure labour standards are equal across all three countries.
Mexican leaders have been defensive on tougher labour laws but the poll shows 69 per cent of Canadians believe they are necessary.
The poll also shows that 67 per cent of Canadians are strongly in favour of making sure that Chapter 19 in the NAFTA pact – that deals with anti-dumping and countervailing duties – is maintained. Prime Minister Justin Trudeau has made clear that Canada would walk away from the talks if the Americans insist on scrapping this provision.
"This data certainly gives the Canadian negotiators a road map in a sense of priority for the Canadian public," Shachi Kurl, executive director of the Angus Reid Institute, told The Globe.
The Sept. 18 poll of 1,534 Canadians shows there is less concern about including gender-equality and Indigenous-rights issues in a renegotiated NAFTA. The poll is considered accurate within 2.5 percentage points 19 times out of 20.
The Trump administration believes erasing the U.S.'s trade deficit – the amount that imports exceed exports – should be the country's top trade priority. Canada, Mexico and many economists argue trade deficits are not a problem and that overall economic growth is all that matters. The U.S. ran a $55.6-billion (U.S.) trade deficit with Mexico last year. Trade between the U.S. and Canada is balanced, with the U.S. having a surplus in services and a deficit in goods trade.
Dan DiMicco, a former steel executive and author who served as a trade adviser to Mr. Trump's presidential campaign, said the United States will have to see major concessions from Canada and Mexico at the bargaining table or it will quit the deal. Mr. DiMicco is the former CEO of Nucor and author of American Made: Why Making Things Will Return Us to Greatness.
"One of two things is going to happen: A deal that is significantly better for the American worker and the American manufacturing sector and the American economy will be worked out, which means people will move significantly from their current positions – and I don't mean the U.S. Or we will walk away from NAFTA and start all over.
"The President is committed to having free and fair trade with our trading partners … but we're not going to be taken advantage of."
With a report from Justin Giovannetti