Exclusive: U.S. seeks to include steel, aluminum in NAFTA autos rules - sources

By David Lawder

WASHINGTON (Reuters) - The Trump administration is seeking to use NAFTA to boost the U.S. steel and other basic materials industries by proposing stricter automotive content rules that require the use of North American-made steel, aluminum, copper and plastic resins.

Three people who were briefed on the matter said that the U.S. rules of origin proposal would put these materials on the North American Free Trade Agreement's auto parts tracing list for the first time.

The list is used to verify the regional content level of vehicles and parts so that they can qualify for tariff-free shipment to all three NAFTA countries.

U.S. negotiators submitted their rules of origin proposal to Mexican and Canadian counterparts on Friday. Other sources briefed on the talks said the proposal includes raising the threshold for overall North American value content for cars, trucks and large engines to 85 percent from the current 62.5 percent and a first-ever U.S.-specific content requirement of 50 percent.

A spokeswoman for the U.S. Trade Represntative's office declined to comment on the autos proposal.

U.S. Commerce Secretary Wilbur Ross has vowed to close "loopholes" in the parts list that he says allow too many cheap auto parts from Asia and other regions to enter the United States.

The proposal would also give a boost to the steel and aluminum industries that Ross has sought to protect from subsidized imports with national security reviews.

In some ways, the proposed steel, aluminum, copper and plastics requirement would help vehicle and parts makers meet the higher thresholds. Auto plants in North America already largely use North American steel and aluminum, but the metals' value does not count towards reaching the threshold because it is not on the tracing list.

But the bigger problem is that President Donald Trump's administration also wants the auto parts tracing list expanded to include many components in modern cars and trucks that did not exist when NAFTA was first negotiated in the early 1990s, such as sophisticated electronics that largely come from Asia.

Gains from tracing steel and aluminum would be offset by the higher overall content thresholds and the need to find other sources for electronics, said Kristin Dziczek, a trade and labor economist with the Center for Automotive Research in Ann Arbor, Michigan.

Dziczek and auto industry groups say that the U.S. content proposal is likely to backfire, with automakers and suppliers simply choosing to pay the 2.5 percent U.S. tariffs for passenger cars and many parts, sourcing more of them from China and other low wage countries in Asia.

"That could be the preferred trading route if NAFTA becomes too strict, and that means content could come from any country with most favored nation status," she added.

(Additional reporting by David Ljunggren; Editing by Susan Thomas)