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1 1 (February 23, 2018)

handle is hein.crs/govchuz0001 and id is 1 raw text is: 01;0i E~$~ & February 23, 2018 NAFTA Motor Vehicle Talks Reopen Old Trade Debate Automotive trade is among the most sensitive issues in negotiations with Mexico and Canada over revisions to the North American Free Trade Agreement (NAFTA). The United States has proposed major changes in the rules of origin that determine which vehicles and parts qualify for tariff-free treatment when traded among the three countries. The proposal has reopened a decades-old debate about regulating the content of vehicles sold in the United States. If some variant of the proposed changes is accepted by Canada and Mexico and then ratified by all three countries, it would make the fifth time since 1965 that Congress has sought to encourage greater use of domestic content in cars and light trucks. Motor vehicle content rules were originally a response to rising imports of passenger vehicles, primarily from Japan. Such rules were included in the Automotive Products Trade Agreement of 1965, better known as the U.S.-Canada Auto Pact, which was designed to integrate U.S. and Canadian vehicle manufacturing. Vehicles covered had to have 50% U.S. or Canadian content for free entry into the United States, and separate provisions required Canadian content for vehicles sold and parts used in Canada. (The Auto Pact was terminated in 2001 after the World Trade Organization found that some provisions violated its trade rules.) In 1975, the Energy Policy and Conservation Act (EPCA; P.L. 94-163) established the corporate average fuel economy standards for light vehicles sold in the United States. To prevent U.S. automakers from importing fuel- efficient vehicles to meet fleet-wide efficiency standards, the law set one standard for domestic vehicles and a stricter standard for imports. For a vehicle to be considered domestic, at least 75% of its content had to be manufactured in the United States or Canada. (After NAFTA went into effect in 1996, EPCA was amended to count Mexican content as domestic.) EPCA states that the value added from parts manufacturing and final assembly is the basis of determining whether a vehicle meets the 75% domestic value standard. For components assembled outside the NAFTA region, only the value of parts produced in a NAFTA country counts as domestic content. Unlike with other content provisions in later laws, transportation and insurance costs within the NAFTA area are included as domestic costs. A third attempt at mandating vehicle content came during the Reagan Administration, at a time when recession reduced U.S. vehicle sales and Japanese automakers were increasing their U.S. market share. The proposed 1982 Fair Practices in Automotive Products Act would have eventually required vehicles sold in the United States to have 90% U.S. content (including parts and labor). Seen as targeting imports from Japan, the bill passed the House twice, but was not voted on in the Senate amid concerns that it violated international agreements and faced a pledge by President Reagan to veto it. Congress revisited the domestic content of vehicles again in 1992, when the American Automobile Labeling Act (AALA; P.L. 102-388) required a label on all new vehicles showing domestic and foreign content of parts and the final assembly location. Parts content does not include final assembly, distribution, or other non-parts costs. AALA specifies that only U.S. and Canadian content is domestic; Mexican content does not qualify. If imported parts count for no more than 30% of the value of a vehicle component made in the United States or Canada, 100% of the value of the component is counted as domestic. For engines and transmissions, however, a broader category of assembly and labor costs is also included in the domestic content calculation. The country that contributes the most value to the engine or transmission is considered the country of origin, even if some parts are imported. Table I.Top 10 Domestic Content Vehicles in 2007 U.S./Canada Automaker Vehicle Content Ford Lincoln MKX 95% Ford Expedition 95% Ford Edge 95% General Motors Pontiac Grand Prix 90% General Motors GMC Sierra 90% General Motors Chevrolet Silverado 90% Pickup Truck General Motors Chevrolet Monte 90% Carlo General Motors Chevrolet Impala 90% General Motors Buick LaCrosse 90% Ford Mercury Mariner 90% Source: American Automobile Labeling Act, 2007 Report, by percentage, https://www.nhtsa.gov/part-583-american-automobile- labeling-act-reports. The overall domestic content of many vehicles sold in the United States, as measured under AALA, has declined over the past decade as the vehicle supply chain has globalized. AALA reports show that many motor vehicle parts manufactured in 2007 contained well over 75% domestic content. Table 1 shows the 10 models with the greatest domestic content in 2007. In contrast, only a few vehicles gognpo 'popmm ggmm g , q 'S a X 11LULANJILiN,

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