Case 222 - NAFTA: Honda Motor Company or Free Trade in the Real World

Dufey, Gunter and Michael P. Ryan

In 1991 the U.S. Customs Service determined that the domestic content of the Honda Motor Company’s Civic hatchback did not meet the 50-percent threshold specified under the terms of the U.S.-Canadian Auto Pact. As a result, Honda was ordered to pay $18.6 million in import tariffs for 91,506 Civics shipped from Canada to the United States. This case study assesses whether the Customs ruling constitutes proof that Tokyo was subverting free trade rules, or was a warning shot fired in anticipation of  negotiation of the North American Free Trade Agreement. It explores the impact of the NAFTA process on the American, Canadian, and Mexican governments’ competitive strategies, especially as expressed through domestic content rules affecting the automobile industry.