Winnipeg's bus manufacturers expect to coast through any NAFTA changes
As negotiations start into U.S. President Donald Trump's demand to reopen the North American Free Trade Agreement, Winnipeg's bus manufacturers say they're well positioned to weather any storm that may come out of the NAFTA talks thanks to preparations already made to meet strict U.S. protectionist policies.
Both New Flyer Industries and Motor Coach Industries, which was purchased by New Flyer in 2015, have spent the last year building up their U.S. production and making changes to their supply chain to meet strengthened Buy American Act requirements that begin to take effect Oct. 1.
"We operate in a Buy America industry and those are higher standards," said David White, executive vice-president of supply management with New Flyer and Motor Coach Industries in Winnipeg. "We can adapt to any changes that occur under NAFTA because we already have production on both sides of the border."
The Buy American Act requires public transit buses purchased by U.S. municipalities be built using 60 per cent American-made parts in order for those municipalities to qualify for a large subsidy from the U.S. federal government.
That requirement is jumping to 65 per cent in October, and then to 70 per cent in 2019.
White says of the 3,700 buses New Flyer and MCI will build this year, roughly 2,700 are for public entities in the United States. To keep the vital U.S. market open, New Flyer and MCI have kept ahead of the protectionist rules by opening production facilities in the U.S. and adding more U.S. manufacturers to their parts supply chain.
Current NAFTA rules require automotive producers to use 62.5 per cent regional content to remain tariff-free, and even if that number goes north as a result of the negotiations, White says New Flyer buses and MCI coaches are already built with more than 80 per cent U.S. parts, leaving them confident they won't have to scramble to meet any new NAFTA requirements.
That's a smart move, says University of Winnipeg economics Prof. Phil Cyrenne.
"I think they have been wise enough to think 'OK we're going to have to have some kind of U.S. production," he said. "That's been a clever strategy because it leaves them immune from charges that they're selling into the U.S. but not using American labour."
Cyrenne says on the whole Manitoba's business community shouldn't be overly worried about changes to NAFTA — he thinks Mexico is more than likely the U.S.'s target—but adds industries involved in supply-side management, like agricultural marketing boards, will be wise to watch the talks closely.
"Supply management is an issue that the Americans have always had, and we do have some marketing boards here," he said. "But we're not a big province. If there was some change to supply management I think it might only have modest effects here."
Others in Manitoba's business community are "cautiously optimistic" the NAFTA talks will lead to beneficial changes for all three countries and Manitoba, which sees 70 per cent of its exports go to the U.S., says Winnipeg Chamber of Commerce president and CEO Loren Remillard.
Remillard, who recently met with his counterparts from across the United States to talk about NAFTA, says business leaders in the U.S. understand how important Canada is to their economies and are interested in strengthening the agreement, not tearing it apart.
"I think the mood is one of cautious optimism that through this round of negotiation we will be able to address some of the issues and longstanding irritants, but as well issues that were not touched on in the original document," he said. "For example the original NAFTA signed in 1994 predates the digital economy, so it predates smart phones, iPads, and the online marketplace.
"Ultimately, what we've had leading up to these negotiations is a lot of political rhetoric … but once the temperature comes down on the rhetoric and people get down to the brass tacks of negotiating, that's where we remain optimistic."