1/
OK, I am going to try to explain this potential tariff on "non-conforming" autos (in a Tweet)
Caveat: THIS. IS. WEIRD.
So Trump wants to impose new NAFTA rules of origin for autos
His new rules: To receive 0 tariff under NAFTA, car makers have to meet X, Y, Z criterion
OK, I am going to try to explain this potential tariff on "non-conforming" autos (in a Tweet)
Caveat: THIS. IS. WEIRD.
So Trump wants to impose new NAFTA rules of origin for autos
His new rules: To receive 0 tariff under NAFTA, car makers have to meet X, Y, Z criterion
2/ PROBLEM
These X, Y, Z criterion are very costly for car makers to meet.
They are so costly. in fact, the companies might decide the NAFTA tariff preference is not worth it.
These X, Y, Z criterion are very costly for car makers to meet.
They are so costly. in fact, the companies might decide the NAFTA tariff preference is not worth it.
3/
Instead, their option is to produce the car so it would be "non-conforming" to the new rules.
In that case, they choose to pay the normal, MFN tariff of 2.5%. They don't benefit from NAFTA.
But that also thwarts Trump's plan to get companies to meet the X, Y, Z criterion.
Instead, their option is to produce the car so it would be "non-conforming" to the new rules.
In that case, they choose to pay the normal, MFN tariff of 2.5%. They don't benefit from NAFTA.
But that also thwarts Trump's plan to get companies to meet the X, Y, Z criterion.
4/
So Trump needs a way to INCREASE that 2.5% tariff on cars that would be produced in Mexico but that did NOT meet his X, Y, Z criterion.
How does he do that?
He imposes Section 232/national security tariffs on these "non-conforming" cars.
(Section 232 = steel/aluminum)
So Trump needs a way to INCREASE that 2.5% tariff on cars that would be produced in Mexico but that did NOT meet his X, Y, Z criterion.
How does he do that?
He imposes Section 232/national security tariffs on these "non-conforming" cars.
(Section 232 = steel/aluminum)
5/
This "national security" argument is a bogus legal rationale, of course.
And here it certainly goes against the spirit (if not letter) of WTO exceptions for national security (see GATT Article XXI).
This "national security" argument is a bogus legal rationale, of course.
And here it certainly goes against the spirit (if not letter) of WTO exceptions for national security (see GATT Article XXI).
6/
And of course there are LEGAL ways under the WTO to simply increase the 2.5% MFN tariff for cars.
Under something called GATT Article XXVIII, countries can raise their MFN tariff, BUT the rule is you have to compensate trading partners.
(And Trump doesn't want that)
And of course there are LEGAL ways under the WTO to simply increase the 2.5% MFN tariff for cars.
Under something called GATT Article XXVIII, countries can raise their MFN tariff, BUT the rule is you have to compensate trading partners.
(And Trump doesn't want that)
7/
This is all separate from what Trump does toward OTHERS -- Japan, South Korea, or the EU -- on the Section 232/national security tariffs on autos.
But to have this "stick" to be deployable against Mexico, it seems that his impending 232 investigation must be SOME tariffs.
This is all separate from what Trump does toward OTHERS -- Japan, South Korea, or the EU -- on the Section 232/national security tariffs on autos.
But to have this "stick" to be deployable against Mexico, it seems that his impending 232 investigation must be SOME tariffs.
8/
CONSIDER THIS
It is POSSIBLE Trump imposes a national security tariff ONLY on Mexican cars AND ONLY on those Mexican cars that do not meet the X, Y, Z criterion needed to satisfy his new NAFTA rules of origin.
THIS. IS. WEIRD.
(and hardly what GATT/WTO framers envisioned)
CONSIDER THIS
It is POSSIBLE Trump imposes a national security tariff ONLY on Mexican cars AND ONLY on those Mexican cars that do not meet the X, Y, Z criterion needed to satisfy his new NAFTA rules of origin.
THIS. IS. WEIRD.
(and hardly what GATT/WTO framers envisioned)
9/
Also, this reportedly applies to "non-conforming" autos made at *NEW* plants
Thus, the other big DISINCENTIVE this would create is for carmakers to BUILD a NEW plant IN MEXICO...
...because it will be MORE difficult for cars assembled in Mexico to MEET the X, Y, Z criterion
Also, this reportedly applies to "non-conforming" autos made at *NEW* plants
Thus, the other big DISINCENTIVE this would create is for carmakers to BUILD a NEW plant IN MEXICO...
...because it will be MORE difficult for cars assembled in Mexico to MEET the X, Y, Z criterion
10/
As one of the X, Y, Z criterion is a
"labor wage provision requiring that 40 percent of a passenger vehicle’s final assembly be completed by workers making at least the North American average wage of $16 per hour."
(and Mexico has lower average wages)
As one of the X, Y, Z criterion is a
"labor wage provision requiring that 40 percent of a passenger vehicle’s final assembly be completed by workers making at least the North American average wage of $16 per hour."
(and Mexico has lower average wages)
