Ambassador Lighthizer’s Auto Rules of Origin Testimony Skirts the Truth

March 22nd, 2018

Photo Credit: CHRYSLER

 

Yesterday, United States Trade Representative (USTR) Robert Lighthizer testified before the House Ways and Means committee, answering questions about U.S. trade policy. Issues pertaining to the North American Free Trade Agreement (NAFTA) negotiations were a focal point of the committee members’ concerns. However, when Representative Diane Black (R-TN) addressed the USTR’s proposal for altering automobile rules of origin (ROO), Ambassador Lighthizer’s testimony failed to accurately depict the negative effects that this proposal would have on the U.S. automobile industry and its employees.

Representative Black began her line of questioning by praising the benefits that NAFTA has provided her state, particularly in regard to manufacturing.

“My district and my state of Tennessee has really benefitted greatly from NAFTA because it has helped bring some of the large-scale manufacturing – automobiles – to the state of Tennessee…These operations are tremendously important to our communities, especially one right there in the middle of Tennessee, Smyrna, which is the home of the Nissan plant that produces more than 150,000 automobiles in that plant annually,” she said.

With this in mind, Congresswoman Black expressed her concern about the ramifications that tightening NAFTA’s automobile ROO would have on Tennessee’s automobile manufacturing industry. She stated,

“There has been considerable press regarding UTSR’s auto role of origin proposal, which, if the press reports are accurate, appears to be wholly unworkable for the industry and could have some perverse effect of costing American jobs rather than creating them, which again is a real concern for us there in middle Tennessee, in particular.”

In response, Ambassador Lighthizer said firstly,

“The auto plants, particularly these which we used to call transplants, coming to Tennessee and other places has been an enormous boon and very important not only for Tennessee but for the country, so I think we have to acknowledge that.”

Ambassador Lighthizer then testified that the tightening of automobile ROO will have no effect on American vehicle producers. He said,

“The rules of origin will have no effect on cars made in Tennessee and sold in the United States. They’re kind of irrelevant to that whole equation. They will have no effect on them at all…it will have no effect on anybody working in Tennessee for a Nissan plant for any car sold in the United States.”

However, Ambassador Lighthizer’s testimony fails to accurately depict the negative effects that increasing autos ROO would have for places like Smyrna, Tennessee. NAFTA’s current ROO allows manufacturers to utilize the different cost advantages that Mexico, Canada, and the United States provide. By sourcing different components of the production process from all three countries, automobile manufacturers in the United States can be globally competitive while still producing vehicles of the highest quality. Accordingly, U.S. auto production has increased by more than one million vehicles annually since NAFTA was implemented, and the automobile sector is the leading exporter of manufactured goods in the United States, exporting $137 billion worth of vehicles and parts globally in 2016.

By removing barriers to trade, NAFTA has created a region where it is globally competitive to build a car. From raw materials to final products, domestic and foreign automakers source components from across North America. The vehicles cross borders several times before the final assembly which is often completed in the United States. Tightening NAFTA’s automobile ROO would disturb the industry’s complex and integrated North American supply chains. If automakers have to pay tariffs or duties on parts and components crossing between the United States, Mexico, and Canada, the cost of building a car would be far more expensive, driving up costs for consumers and making U.S. auto exports less competitive in the global market.

Ultimately, Ambassador Lighthizer’s response to Congresswoman Black is misleading. USTR’s automobile ROO proposal would greatly disrupt the North American supply chains that are critical to the competitiveness of the U.S. automobile manufacturing sector and its workers. Representative Black is correct in her concern. Tightening NAFTA’s automobile rules of origin would in fact be damaging to vehicle producers in Tennessee and the rest of the country, too.

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