New NAFTA Deal to Affect Japanese Automakers

October 3, 2018

Tokyo- A deal announced on Sunday to replace the North American Free Trade Agreement could lead to a sharp increase in the costs of Japanese automakers' "cash-cow" operations in the region, industry sources said.

The new deal, which the U.S. government announced as the United States-Mexico-Canada Agreement, or USMCA, calls for setting tariff-free quotas for automobile exports to the United States from the two partners while maintaining NAFTA's free trade framework.

At a press conference in Tokyo on Tuesday, Akira Marumoto, president and chief executive officer at Mazda Motor Corp., welcomed the trilateral accord as a "major step forward."

Japanese automakers rely on supply chains that spread across the region. "The NAFTA framework is the basis of our North American automotive business," Marumoto said.

But the export quotas seem to be a source of concerns for Japanese makers.

In 2017, Toyota Motor Corp. and Honda Motor Co. shipped 450,000 and 320,000 vehicles finished in Canada to the United States, respectively. Under the new trade deal, the companies could face difficulties boosting production in Canada for the U.S. market.

Also under the new agreement, automobiles will be exempted from tariffs only if more than 75 pct of their components are supplied from within the region. The minimum-required procurement rate will be raised from 62.5 pct under NAFTA.

The Mazda chief said the automaker will revise its procurement system, as the Mazda-3 sedan produced at a plant in Mexico currently has a regional procurement rate of less than 75 pct. Jiji Press