Auto Alliance President & CEO Mitch Bainwol gave the following testimony before the Senate Committee on Finance Subcommittee on International Trade, Customs and Global Competitiveness at its Field Hearing in San Antonio, TX. entitled Modernization of the North American Free Trade Agreement (NAFTA).
Today, trilateral trade between the U.S., Canada and Mexico exceeds $1 trillion dollars – growing 370 percent since NAFTA went into effect. Canada and Mexico are our largest export markets and 14 million U.S. jobs depend on trade with these two countries. In the auto sector, NAFTA has played a key role in our manufacturing renaissance. In 2016, 13 automakers manufactured 12.2 million vehicles in the U.S. –over one million more vehicles that were manufactured in the U.S. in the year before NAFTA took effect. The auto sector is the leading exporter of manufactured goods in the nation – shipping $137 billion in vehicles and parts to Mexico, Canada and the rest of the world in 2016. Last year, the industry invested $8 billion in U.S. plants and equipment and nearly $20 billion in R&D. In total, the U.S. auto industry currently supports more than 7 million American jobs – generating $500 billion in annual compensation and $205 billion annually in tax revenue. Thus, America’s automotive industry has a significant economic stake in the outcome of the renegotiations of NAFTA – perhaps more than any U.S. industrial sector.
Since NAFTA took effect, 15 new manufacturing plants have been launched in the U.S. (more than Mexico and Canada, combined) and there has been substantial, multi-billion-dollar reinvestment in existing plants. These 15 new manufacturing plants have resulted in the creation of more than 50,000 direct and 350,000 indirect auto jobs throughout the U.S. In total, 13 automakers currently operate 44 assembly plants across 14 states and more are on the way – Volvo is currently constructing a $1.1 billion facility in South Carolina and Toyota-Mazda announced plans to build a new $1.6 billion facility in the U.S. as part of a new joint venture. Clearly, NAFTA has succeeded in attracting significant U.S. investment from within the global auto industry.
While we support the Administration’s goal to modernize NAFTA to bring the agreement into the 21st century, we remain concerned by the current trajectory of the re-negotiations.
With regards to rules of origin, it warrants emphasizing that the existing rule (62.5 percent regional vehicle content requirement) is the highest of any free trade agreement in the world. It has been effective in striking the right balance to ensure there are no free riders and that to take advantage of the NAFTA tariff preferences, manufacturers must source significantly from the North American region.
The Alliance wishes to echo the concerns of the broader business community regarding the Administration’s proposal for a so-called sunset clause, which would cause NAFTA to expire every five years unless the three partners agree it should continue. If adopted, the resulting uncertainty would render any revised NAFTA agreement, meaningless – chilling investment in the US, Canada and Mexico and further weakening the region’s competitiveness globally.