Friday, September 17

Shaky NAFTA deal threatens Navistar’s Mexico-made exports to world


MONTERREY, MEXICO: Less than half the trucks exported from Navistar’s mammoth Escobedo plant in Mexico are sold in North America but the factory’s success remains tightly tied to the uncertain future of the region’s NAFTA free trade deal.

Navistar’s Mexican factory, now the US company’s largest worldwide, exports to around 30 countries and sells less to the United States than competitors such as Daimler AG, one of the top three truck-makers in Mexico, which sends three-quarters of its Mexican-made commercial vehicles north.

But Navistar’s reliance on tariff-free imported parts shows why even Mexico manufacturers that have diversified their customer base away from the United States still fear US President Donald Trump’s threats to scrap NAFTA.

“To lose this treaty would be to go backwards 40 years,” said Oscar Ruiz, operations director at the plant, fearing a return to an era when barriers made foreign investment and trade expensive between the two neighbours.

Trade negotiators from the United States, Mexico and Canada will meet this week in Washington for a fourth round of talks on reworking NAFTA amid growing signs of an impasse between the Trump administration and the other two signatories of the pact.

Mexican officials warn that Trump is leading the region towards a protectionist trade war with his “America First” policy, flirting with major curbs on commerce.

Nowadays, over half the original parts for the vehicles made at Navistar’s 250 acre (100 hectare) site in the northern state of Nuevo Leon arrive duty-free from the United States and Canada in hundreds of trailers every day, Ruiz said.

Higher tariffs on imports or reduced trade flows would raise the cost of production and of exporting to the United States.

That would make trucks more expensive for all Navistar’s customers, experts consulted by Reuters said. Navistar, for example, uses Alabama-made Cummins engines in its International Prostar and LT heavy tractors.

Without NAFTA, importing the engines would likely cost 10 per cent more, based on World Trade Organisation tariffs, according to Manuel Nieblas, a manufacturing consultant at Deloitte Mexico.

With engines representing up to 45 per cent of the US$130,000 cost of a Prostar truck, that tariff alone could add around US$5,800 to the final price. — Reuters