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Employees work on a Fiat 500 at a Chrysler plant in Toluca, Mexico. Mexico now represents about one-third of auto parts exported from the United States.

Susana Gonzalez/Bloomberg

As the federal government seeks advice from Canadians on the country's approach to renegotiating the North American free-trade agreement, players in the auto sector disagree on how a key feature of automotive trade should be treated.

Ottawa has issued a notice in the Canada Gazette saying it's seeking views on all aspects of NAFTA with comments due by July 18.

The notice comes after the U.S. government exercised a clause in the deal last month that opens it up to renegotiation after a 90-day notice. Talks are expected to begin in August.

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"The government will proceed in a manner that supports jobs and growth for Canadians – and prosperity in North America as a whole," the Canada Gazette notice said.

That goal is likely to run up against a tough negotiating stand from U.S. officials, who will be seeking changes that will make the agreement more favourable to the United States than the current deal, which came into force in 1994.

The Americans have already signalled that they want changes to NAFTA's dispute-resolution mechanism and have taken aim at Canada's supply-management system for dairy products and renewed the decades-long assault on Canadian softwood-lumber exports south of the border.

Those issues are expected to be front and centre in the talks, as are government procurement and rules of origin for goods manufactured in North America (such as auto parts), trade lawyer Riyaz Dattu said.

The difference of opinion in the auto sector over the issue of tracing the origin of automotive components indicates the difficulty the federal government will have in balancing the multitude of interests that various groups have in the outcome of the talks.

Auto-parts makers and auto manufacturers are required to trace the origin of parts and systems to make sure they meet the NAFTA regulation that vehicles and parts contain 62.5-per-cent North American content in order to move duty between Canada, the United States and Mexico.

"We would prefer to see tracing eliminated," David Paterson, vice-president of corporate affairs at General Motors of Canada Co., told the House international trade committee last month.

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"Under the category of do no harm, we must set out to reduce, not add, red tape," Mr. Paterson told the committee. "A lot of bureaucracy is still required in tracing auto parts as they move across borders in NAFTA."

That view runs counter to what the Automotive Parts Manufacturers' Association of Canada is pursuing in a new deal, which is that tracing be extended.

"Tracing needs to be improved to include supply categories that didn't exist when they were negotiating NAFTA in the early 1990s," APMA president Flavio Volpe said. Those categories include much of the electronics and the software present in today's vehicles.

Tracing the origin of parts is a way of making sure the 62.5-per-cent content requirement in vehicles is met, Mr. Volpe said.

The Japan Automobile Manufacturers Association of Canada, which represents Honda Canada Inc. and Toyota Motor Manufacturing Canada Inc. also has a difference of opinion with GM Canada.

JAMA supports retaining the current 62.5-per-cent rule of origin for vehicles and parts as well as the related provisions of that rule, which include tracing.

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Mr. Paterson said GM Canada also supports maintaining the 62.5-per-cent threshold.

On the issue of a border-adjustment tax, which is being raised as a possibility in the United States as part of the trade debate, there is generally strong and united opposition in the auto sector.

A border adjustment tax of, say, 20 per cent "would be a very severe constraint to the ability to win new investment for anything in Canada that depends on the U.S. market," Mr. Paterson said.

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