Japanese automakers that operate factories in Canada tentatively welcomed the decision made by the U.S. and Canada to maintain the framework of the North American Free Trade Agreement, because it has enabled them to avoid the implementation of high tariffs. But they are still very wary as various conditions are being imposed on them to maintain zero-tariff access to the U.S. market.
A senior official of Toyota Motor told reporters: “Up until now the Japanese auto industry has aligned itself with NAFTA. It’s good that the renegotiations have been wrapped up, but I’m slightly worried.”
Toyota and Honda both operate factories in Canada. In 2017, Toyota’s exports from Canada to the U.S. were 450,000, while Honda’s were 320,000. That is three times more than Toyota’s exports from Mexico and 2.5 times more than Honda’s.
The new NAFTA agreement limits annual auto exports to the U.S. from both Canada and Mexico to 2.6 million. The annual export volumes of Canada and Mexico are unlikely to soon exceed the limitation. But the quota may force the two countries to restrain their efforts to beef up production capacity to increase exports to the U.S.
Stricter “rules of origin” within the NAFTA region are also a cause for concern for the Japanese auto industry. The rules require auto exporters to use as many as auto parts manufactured in the U.S. and North America possible as a condition for allowing zero-tariff auto trade.
In addition to Toyota and Honda, Nissan and Mazda have production bases in Mexico. Some of these automaker may be forced to review their strategies for production, exports, and parts procurement as the U.S. will impose new conditions on Mexico to exempt the country from tariffs as it did for Canada.