25 Sep CEOs & Brands: The NAFTA question is coming. Now is the time to think about how you will respond.
Listen up, PR execs. Are the executives at your auto supplier or manufacturing company ready to talk about the North American Free Trade Agreement and whether tougher rules of origin would help or hurt your company?
If not, they should be. The Trump administration’s effort to renegotiate NAFTA will likely be a national, hot-button issue over for at least the next 10 months as Canada, Mexico and the U.S. try to update the 23-year-old trade agreement.
Canada, Mexico and the U.S. are now in the middle of their third round of discussions that began Saturday (Sept. 23) in Ottawa, Canada.
Little was accomplished during the first two rounds of negotiations, said Daniel Ujczo, a partner with Dickinson Wright and president of the Ohio-Canada Business Association. That will put more pressure on all three sides to move even faster than the already ambitious goals set when talks began in August.
For political reasons, negotiators from all three nations agree on one thing – the must move fast if they are going to successfully restructure NAFTA.
Mexico is facing a presidential election next summer that features Andres Manuel López Obrador – a populist leftist candidate who has a very good chance of winning. In the U.S., the primary season for Congress will begin to heat up by next spring.
But even a best-case scenario for NAFTA negotiating teams puts a potential deal in front of Congress for approval no earlier than next spring, which will make it a hot political issue even hotter.
“Every candidate running for office will be asked what their views are,” Ujczo said.
NAFTA is America’s most controversial trade agreement. Labor unions and the left blame NAFTA for the loss of hundreds of thousands of manufacturing jobs.
The auto industry, meanwhile, views NAFTA as a successful trade agreement that has fostered industry growth in Canada, Mexico and the U.S. and credit the pact with the rise of North America as a region that can compete effectively with Western and Eastern Europe as well as Asia.
The good news for the auto industry is that a variety of industry associations are aggressively lobbying the Trump administration with a mostly unified voice. Those groups include the Alliance of Automobile Manufacturers, American Automotive Policy Council, Global Automakers, Motor & Equipment Manufacturers Association, and others are actively engaged in the discussions.
But that won’t stop pretty much every reporter and financial analyst who interviews an auto executive in the coming months from asking automotive and manufacturing executives about NAFTA. Both reporters and Wall Street analysts will want to know how any proposed changes will impact your company and what your position is on various proposals.
That means executives and corporations in the auto industry need to decide now how to respond. There are at least two options:
The first response effectively blocks the question and shifts attention away from your company. But it also comes with the risk of looking like a dodge and making you look out of touch.
The second option comes with clear risks that include drawing the ire of U.S. President Donald Trump, who is not shy about tweeting about specific companies. There also is a risk that an enthusiastic defense of NAFTA will anger workers and unions.
But automotive and supplier executives should still be ready to seize the opportunity to have a voice in the debate. Here are some of the arguments industry groups are making:
- NAFTA’s existing rules of origin, which govern the percentage of components in a product that must be from the three nations for it to qualify as duty free, are strict enough. At 62.5% they are already the strictest of any U.S. trade agreement.
- “Free and fair trade is imperative for a strong domestic supplier industry. The administration should update NAFTA in a manner that does not disrupt supply chains or increase production costs. This includes any potential changes to the rules of origin,” the Motor & Equipment Manufacturers Association said in comments it submitted to the U.S. Trade Representative in June…A change in the rules of origin could jeopardize all members of the supply chain.”
- “The United States is the gravitational center of the North American automotive market and industry, and NAFTA anchors this central role. A growing Mexican market and a healthy Canadian market support both the interests of the U.S. economy and America’s workers,” the American Automotive Policy Council said in its letter to the U.S. Trade Representative in June.
Meanwhile, labor unions are not shy about making the case for what they want out of NAFTA.
The United Auto Workers and Unifor, which represents autoworkers in Canada, issued this statement in July.
“No amount of spin can erase the fact that NAFTA cost hundreds of thousands of jobs and the closure of thousands of U.S and Canadian manufacturing facilities. NAFTA renegotiations will only be successful if they lead to higher wages in all three countries, reverse crippling trade deficits with Mexico, and create new manufacturing jobs in the U.S. and Canada.”
So every company should decide: Are you going to sit on the sidelines when you are asked about NAFTA? Or are you going to try to shape a debate that could have a big impact on your company?
Either way, it’s best to have an answer ready.
Brent Snavely is a director at Lambert, Edwards & Associates.