MEXICO CITY, Sept. 11 -- Stricter rules of origin imposed on the automotive industry by the new North American Free Trade Agreement (NAFTA) will hamper the sector's competitiveness, Mexico's second-largest bank warned on Tuesday.
"There is no way to sugarcoat it: the changes outlined in the agreement between the United States and Mexico will affect the competitiveness of the regional automobile industry," Citibanamex said in a special report on the renegotiated trade deal.
The automobile sector accounted for 20 percent of the trade between NAFTA partners of Mexico, Canada and the United States in 2017, the bank stressed.
The former rules allowed a greater percentage of cheaper foreign-made parts to be used in vehicles manufactured in North America, which are subject to preferential tariffs under NAFTA.
"Substituting them with stricter rules of origin ... entails additional costs in competitivity and/or prices for consumers in the region," the bank said.
On Aug. 27, Mexico and the United States announced they reached an "agreement in principle" on new NAFTA rules, after a year of negotiations. Canada joined the talks at the start, but then stepped aside as the United States and Mexico hashed out their differences.
The two countries agreed to raise the required regional content of vehicles from the previous 62.5 percent to 75 percent.
They additionally agreed to a new regulation that calls for 40 percent to 45 percent of vehicles made regionally to be manufactured by workers earning a minimum of 15 U.S. dollars per hour, much more than an average Mexican worker gets paid.
The "high wage" rule, according to Citibanamex, will slightly transfer some of Mexico's competitive advantages over to the United States.
"This apparent benefit will negatively impact Mexico and possibly foreign manufacturers operating in the country," said the bank.
"There is also a cost to limiting Mexico's role as a platform from which North America exports to the rest of the world, a strategy used extensively by automobile makers," the bank added.
However, the changes are not expected to affect Mexico's macroeconomic outlook, the bank said, forecasting a gross domestic product growth of 2.3 percent for 2018 and a slowdown to 1.9 percent in 2019.
The modified NAFTA agreement still needs to be approved by Canada.