By Matt Jarratt, Senior Associate of Cushman & Wakefield’s Industrial Tenant Representation Practice
As officials from the U.S., Canada and Mexico review the North American Free Trade Agreement (NAFTA) Rules of Origin, the commercial real estate industry is awaiting a potential change, particularly in the industrial sector. The Rules of Origin dictate how much of a particular product must be manufactured within the U.S., Canada or Mexico.
The U.S. auto industry could be significantly impacted if Rules of Origin requirements are altered. According to Reuters, auto companies are siding with Mexico and Canada regarding Rules of Origin as the Trump administration’s mission, led by U.S. Trade Representative Robert Lighthizer, pushes for increased United States-specific origin for parts and components. “The United States had an autos and auto parts trade deficits of $74 billion with Mexico and $5.6 billion with Canada, both major components of overall U.S. goods trade deficits with its North American neighbors,” wrote Reuters. Currently, companies are required to meet a 62.5 percent content requirement for autos and 60 percent for components.
In late September, the Trump administration released a study on the decline in U.S.-manufactured content included in goods imported from Mexico and Canada. According to the study, U.S.-produced content in manufactured imports from Mexico was 16 percent in 2011, down from 26 percent in 1995, and content in imports from Canada fell from 21 percent in 1995 to 15 percent in 2011.
If the requirement is increased, it would necessitate a U.S. increase in skilled labor and industrial space to meet manufacturers’ demands. Manufacturers will rely on full-service commercial real estate firms with the ability to assist with site selection/strategy, incentives negotiation, project management and more to find or construct the perfect space to attract and retain skilled workers across the country. Given the skilled labor market in the U.S. is tighter – and often more expensive – than our continental neighbors’, it’s important that real estate and location selection make a positive impact on attraction and retention of top U.S. workers.
With round four of negotiations wrapping up, three more rounds of negotiations are anticipated through December with hopes for a deal to be settled in early 2018.