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New trade agreement means steep learning curve for auto industry

Eric D. Lawrence, Detroit Free Press on

Published in Automotive News

DETROIT -- Imagine being asked to bake a cake but not being told what kind of cake you'll be baking and knowing you'll be judged on the results.

You might know you need milk, eggs and flour, but whether the cake needs to be chocolate or carrot is pretty important, too, and will change what you pick up during your shopping trip.

That's how Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor, described the roll-out of the new trade deal replacing the North American Free Trade Agreement, or NAFTA. The new agreement, one of the biggest milestones of Donald Trump's presidency, took effect Wednesday. The deal has had its critics, particularly those who worried that all the uncertainty surrounding NAFTA was hurting the auto industry, but many analysts said NAFTA was overdue for an update.

There has also, however, been uncertainty as the date of implementation has approached for the United States-Mexico-Canada Agreement. Some of the specifics involving, for instance, labor value content rules, were just finalized and released in recent days.

"Exactly how the labor value rule is going to be implemented, we found out this week," Dziczek said of the rule dictating higher wage work, at least $16 an hour, for a percentage of vehicle manufacturing. Other rules focus on steel and aluminum and where vehicle parts are made in order to avoid tariffs.

Broad outlines are important, but the details are key when determining how specific parts in an automobile that is produced through a global supply chain are going to be classified under the trade deal.


That means automakers and suppliers, who are still dealing with fallout from the COVID-19 pandemic and the resumption of manufacturing, are now scrambling to make sure they are in compliance, with limited time to digest the full impact on their operations. Fortunately for many, the federal government is providing some leeway.

U.S. Customs and Border Protection, for instance, issued a 36-page "Implementing Instructions" booklet on Tuesday, noting that the agency understands time may be needed to comply with the new rules. Until the end of the year, the agency said it would focus on education and outreach efforts.

"(Customs and Border Protection) will take into account the difficulties importers may face in complying with the new rules, as long as importers are making satisfactory progress toward compliance and are making a good faith effort to comply with the rules to the extent of their ability," the agency said.

While extra time is important in this context, Dziczek noted that the rules are the rules, and they've now gone into effect.


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