USTR Says New Rules of Origin Will Drive Domestic Hiring While Not Hurting Export Position
The Office of the U.S. Trade Representative, arguing that the International Trade Commission's econometric models are better suited for tariff changes than changes in rules of origin, has produced its own report on how the auto rules of origin will affect domestic employment.
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The rules of origin have a five-year transition period from ratification, but the last two years of the five are only granted if the company shows USTR exactly how it will expand purchases of North American parts and metals to qualify, and how it will meet the labor wage content rules, by the end of that period. A senior USTR official, who spoke on background to reporters April 18, said that every light vehicle manufacturer in North America has told USTR they plan to comply with the new rules of origin rather than paying the 2.5 percent tariff. They also will make sure that even U.S.-built vehicles meet the standards, because meeting the standards across the entire fleet is needed to receive the five-year transition.
The plans the companies shared with USTR say that by the end of the transition, they will be buying $23 billion more a year in U.S. auto parts, and they will need to hire 22,800 additional vehicle assembly plant workers. USTR does not have hiring estimates from Tier-1 suppliers, so it did a back-of-the-envelope estimate that for every new assembly job, there will be two parts jobs.
Currently, hybrid and electric car batteries are not considered in NAFTA rules of origin, because they weren't on the list 25 years ago. Putting those batteries in the rules of origin will result in new plants being built, USTR said, pointing to a $1.7 billion announced investment for a battery plant in Georgia. It estimated that there will be 8,000 battery facility jobs by the end of five years.
The pace of additional factory investment will be far faster than in the cases of the new auto plants opened by German, South Korean and Japanese expansion in the last 25 years, USTR said. It projected $34 billion in investment in five years -- that's half of all the foreign automaker investment over that period.
When asked how the government will follow up to see if the companies have expanded parts and vehicle production as they are projecting, the official said that if at the end of the five years, the company is not meeting the new rules for the entire North American fleet, "we would have the ability to suspend liquidation, which is retroactively collect the duties that otherwise would have been paid if not for the transition." He said the administration might need some help from Congress to do so.
The planned investments "may vary, depending on macroeconomic and other factors unrelated to the USMCA," the report hedges. But the official said that the increase in domestic production "won't significantly affect consumer prices," and said that manufacturers believe it won't interfere with their ability to use North America as an export platform to Asia, Europe or Australia.
The official said the most significant result of the new rules will be bending the trend line away from companies choosing Mexico over the U.S. for assembly plants. He said of the last 11 plants opened in North America, eight were in Mexico.