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A large Canadian auto-parts company has put an acquisition of a company with Mexican operations on hold, signalling the deep concern in Canada’s auto sector about the threat looming over NAFTA from President Donald Trump’s promise to tear up the trade agreement.

Jeff Kowalsky/Bloomberg

A large Canadian auto-parts company has put an acquisition of a company with Mexican operations on hold, signalling the deep concern in Canada's auto sector about the threat looming over NAFTA from President Donald Trump's promise to tear up the trade agreement.

Exco Technologies Inc. has been considering the purchase of a company that has several U.S. plants and a large factory in Mexico, chief executive officer Brian Robbins said.

"We're put it on the back burner," Mr. Robbins said. "We're putting any further investment or acquisition on hold until we know how things are going to work out."

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Mr. Trump's comment earlier this week that the United States plans to "tweak" its trade relationship with Canada has calmed some nerves in the auto industry in Canada, but several Canadian parts companies have operations in Mexico that would be affected by the elimination of the North American free-trade agreement or tariffs on Mexican-made vehicles entering the United States.

Exco Technologies has three Mexican plants that employ about 2,600 people.

Those plants are the product of almost a quarter-century of auto-sector realignment under NAFTA that has led Canadian parts makers to expand in Mexico, from where they can ship parts duty-free to vehicle assembly plants in any one of the countries.

The NAFTA ecosystem includes the world's auto makers, which can make vehicles in any of the three countries and ship them duty-free throughout North America.

For now, Magna International Inc., Canada's largest auto-parts maker, is continuing to invest in Mexico and won't take any action unless auto makers shift production, CEO Don Walker said Thursday.

"I can't see us making dramatic changes unless the customer comes to us and says, 'We're going to change a production location, we want you to move it,'" Mr. Walker said.

He pointed out that Mexico is a necessary source of low-cost labour that keeps vehicles assembled in North America competitive against those produced in Asia and Europe.

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"Hopefully, we'll keep the ability to make things in Mexico and bring them up here without a big cost, so we don't lose the competitiveness in vehicles."

His comments echoed those of Oscar Albin, president of the Mexican auto-parts makers' association.

"Every region of the world – to produce competitive vehicles – needs a low-cost country attached to that market," Mr. Albin said in an interview at the Canadian International Auto Show in Toronto. "It's the only equation that allows you to survive to produce competitive cars."

Eastern Europe and Turkey are sources of low-cost components for European auto makers, while Thailand and Malaysia are low-costs labour countries that supply Japan and South Korea, he said.

Half the auto-parts production in Mexico is in labour-intensive products such as wiring harnesses and seat covers that would be too expensive if they were made in Canada and the United States, he said.

Asked if he is less worried about the future of NAFTA since Prime Minister Justin Trudeau met with Mr. Trump on Monday, General Motors of Canada Co. president Stephen Carlisle said: "I'd say yes, but you can't take anything for granted."

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The Canadian Automotive Partnership Council has been making sure the federal government has the right data to press Canada's case that keeping NAFTA will be good for the industry, Mr. Carlisle said at the Canadian International Auto Show Thursday in Toronto.

One senior auto-industry executive said the federal government needs to walk a fine line in negotiations on a new NAFTA deal.

"Our government has to wear two hats," the executive said. "One is we've got to protect Canada, but I think it's in the best interests of a lot of constituencies in Canada to protect Fortress North America."

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