Toyota Motor Corp. is pushing for substantial changes to the automotive sections of the North American free-trade agreement, including reducing the requirement for North American content in vehicles and cutting tariffs on vehicles imported from offshore.

The changes would reduce costs and liberalize trade in North America, Toyota said in submissions to all three governments as part of a 10-year review of NAFTA that began last fall.

"It is unreasonable that the NAFTA [content] levels are so high in comparison with those established in other regional free-trade areas," Stephen Beatty, managing director of Toyota Canada Inc., said in a letter to the Department of Finance that he said was similar to comments sent to the U.S. and Mexican governments.

In addition to reducing the North American content requirement to 50 per cent from 62.5 per cent, Toyota is also urging the governments to change the way it is calculated.

At the moment, the measurement is almost entirely based on manufacturing and the parts in the vehicle, plus the value added during the assembly process.

Toyota is proposing that the three countries adopt a transaction-based method of calculating content, which would allow auto makers to include such costs as marketing and distribution.

The NAFTA content requirement is the highest of any free-trade agreement in the Americas, Mr. Beatty argued, pointing to a 25-per-cent rule in the Canada-Costa Rica pact, 35 per cent in a Mexico-Nicaragua agreement and 50 per cent or 30 per cent in the U.S.-Chile pact."The administrative burden and related costs associated with the NAFTA rules of origin for the automotive sector are significant," he wrote.

The requirement that passenger vehicles, engines and transmissions have North American content of 62.5 per cent and that other parts have 60 per cent content before they can trade duty-free are among the highest for any goods in North America, he added.

The proposal by Toyota, which operates an assembly plant in Cambridge, Ont., and has factories at several U.S. locations and in Mexico, is opposed by the Canadian Auto Workers union and the Automotive Parts Manufacturers Association of Canada.

"It would relieve the pressure on the offshore manufacturers to increase their North American content," said Jim Stanford, a CAW economist.

The CAW is proposing that North America go in the other direction and increase content requirements as a way of discouraging imports from offshore, Mr. Stanford said.

Reducing the requirements for North American content would permit auto makers in North America to use more imported parts, said Gerry Fedchun, president of the Toronto-based APMA.

"It may allow you to bring a whole engine and transmission set in," Mr. Fedchun said.

It's difficult now for auto makers to meet the content rules with engines and transmissions that are imported from outside North America.

Mr. Fedchun argued that the NAFTA countries should not make unilateral cuts in content requirements or in tariffs.

If so, "I would be looking for some kind of compensation that would open up some other market to us," he said.

Reducing North American content could allow Toyota to assemble its hybrid vehicles in North America without having to make the investments required to assemble the leading-edge engines for those vehicles here.

The Canadian Vehicle Manufacturers Association has also made a submission to Ottawa on the 10-year review, but it did not support the Toyota call for reducing North American content or harmonizing tariffs across the region.

But the lobby group for DaimlerChrysler Canada Inc., Ford Motor Co. of Canada Ltd. and General Motors of Canada Ltd., agreed with one Toyota proposal, which is that they no longer be required to do tracing, industry sources said.

This rule requires auto makers to account for parts through the entire chain of production to determine whether the components qualify as North American.

"The Canadian and U.S. automotive industry is uniform in promoting the elimination of the NAFTA tracing requirements for certain automotive goods," Mr. Beatty said in the Toyota letter.

Toyota Canada isn't sure the NAFTA review will lead to any changes, said spokesman David Stone.

"It's a discussion point, really," Mr. Stone said.

The call to harmonize tariffs, however, raises an issue that was hotly debated in Canada in the late 1990s -- a debate that eventually led to the end of the 1965 Canada-U.S. auto pact when Japan and the European Union convinced the World Trade Organization to order Canada to abrogate that treaty.

For example, harmonizing tariffs would mean that all passenger cars would enter North America at the lowest duty among the three countries, which is the 2.5-per-cent U.S. levy.

That means Canada would reduce its tariff on cars imported from outside North America to that level from 6.1 per cent. That would affect entry-level cars such as the Toyota Echo subcompact and all Lexus vehicles -- which are imported from Japan -- except the RX330 sport utility vehicle assembled in Cambridge, Ont.

A reduction in tariffs on trucks would mean all countries would adopt Canada's tariff of 6.1 per cent on trucks, which would save Toyota from the 25-per-cent duty the U.S. levies on trucks made outside North America.