WASHINGTON – President Donald Trump has promised to bring auto manufacturing back to the United States from Mexico.

The success of NAFTA negotiations could be determined by how willing the Mexican government is to let him try.

As top officials from Canada, the U.S. and Mexico scramble to come to some sort of deal on the continental free trade pact by next Friday, the overwhelming focus of their discussions is the complicated issue of auto rules.

Canada is heavily involved. But the biggest dispute appears to be a clash between the U.S. and Mexico over a U.S. proposal designed in part to wrest some manufacturing away from Mexico.

“You’ve got a traffic jam of significant proportions in the negotiations, and the key issue holding things up is this,” said Harley Shaiken, a University of California, Berkeley professor who specializes in labour in the global economy.

Under the current NAFTA, a car being exported to the U.S. is not subjected to any tariff if at least 62.5 per cent of its content comes from North America. The U.S. wants to raise that content minimum to 75 per cent.

And then it wants to introduce an entirely new rule about the wages paid to autoworkers. Specifically, it wants to require a certain minimum percentage of a car — 40 per cent, according to several U.S. news reports — to be made by workers earning at least $16 (U.S.) per hour.

That’s a problem for Mexico. The average wage for Mexican workers in car assembly plants is under $8 per hour, and under $4 per hour for workers in parts plants.

Some of the vehicles Mexico exports to the U.S. may already meet or come close to the proposed 40 per cent minimum for high-wage content. But other vehicles don’t: right now, according to the Center for Automotive Research in Michigan, vehicles exported from Mexico to the U.S. generally contain about 20 per cent to 30 per cent U.S. content.

For these vehicles, the new rule would force automakers operating in Mexico into tough choices they don’t want to face.

They could pony up big raises to some Mexican workers; move a portion of their Mexican manufacturing to high-wage countries like the U.S. and Canada; change nothing about their Mexican manufacturing and simply pay the 2.5 per cent tariff on each car rather than paying the higher labour costs; or move their manufacturing to a low-wage country outside North America, paying the tariff while avoiding the newly rising wages in Mexico.

The Mexican auto industry has boomed in the NAFTA era — attracting more than $24 billion (U.S.) in investment since 2010 — in significant part because its inexpensive labour is so attractive to the big automakers. Though the idea of higher wages may prove popular with ordinary Mexicans, the government of President Enrique Pena Nieto is worried about the erosion of the country’s competitive edge.

“It really makes no sense to negotiate a NAFTA if the outcome is going to be less investment in the country,” said Hugo Perezcano, deputy director of economic law at the Centre for International Governance Innovation, who was an official at Mexico’s economy ministry for 20 years.

Perezcano said the Mexican government might well be willing to budge on the issue anyway. But he said it is also likely concerned about the precedent that high NAFTA-mandated wages in the auto industry would set for other sectors of an economy that cannot naturally support such wages.

And the Mexican government, which warned Friday that it will not be rushed into a bad deal, is under heavy pressure from big automakers who have benefited from the low labour costs.

“These companies are very powerful because they’ve poured billions of dollars into Mexico and this government in particular is very reluctant to do anything that will impact investment in Mexico,” said Shaiken.

Jerry Dias, president of Unifor, a union representing Canadian auto workers, argued that Mexican negotiators are doing the bidding of these auto companies rather than Mexican citizens being victimized by low wages.

Dias said it is nonsensical that auto companies “have to have an exploited partner to be competitive.” Companies that pay their chief executives $20 million per year, Dias said, can afford to pay workers $16 per hour.

The Mexican government and many outside analysts have argued that, at very least, it is unreasonable for the U.S. to maintain its demand that the new wage rules come into effect in four years. Horacio A. Lopez-Portillo, a trade lawyer at Vazquez Tercero & Zepeda in Mexico, noted auto companies “establish their supply chains and business plans five, eight, 10 years in advance.”

“If they have set up shop in Mexico and in Mexico line autoworkers are paid somewhere between $3 an $5 an hour, you can’t expect those people who currently earn $3 or $5 to suddenly earn $16, which is what the U.S. is asking for,” he said.

Many companies would simply take their work outside the continent, Don Walker, chief executive of auto parts giant Magna International, told shareholders Thursday.

“If we drove the labour for everything in Mexico up, even doubled it, then that means you’re not competitive anymore in a lot of the products and it all goes back to China,” he said.

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In a concession to U.S. automakers, the Wall Street Journal reported, Trump administration is willing to let companies count the wages of white-collar North American professionals, like the people involved in research and engineering, toward a portion of the proposed 40 per cent high-wage threshold.

But that concession would disadvantage the European and Asian automakers, such as Nissan and Volkswagen, that have been responsible for more than half of the $24 billion recent investment in Mexico, according to the Center for Automotive Research: those companies do much of their white-collar work outside of North America.

The international automakers also have plants in the U.S. Hurting their Mexico operations, they argue, would end up hurting American workers, too.

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