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Tuesday, 30 June 2020 19:34

How USMCA Will Affect Auto Industry

Written by Ashlie Lopez, Wards Auto

Index

The U.S.-Mexico-Canada Agreement (USMCA) takes effect July 1, replacing and modernizing the 26-year-old North American Free Trade Agreement (NAFTA), with the aim of supporting mutually beneficial trade.

This agreement is expected to impact the future of the automotive industry’s supply chain due to new and elevated requirements.

 

Under USMCA, the rules of origin for automotive industry producers have been elevated from previous NAFTA standards, with the most significant changes as follows:

 

Regional Value Content

 

Ultimately, by 2023, the agreement requires 75% of passenger vehicle and light truck components to be manufactured in a USMCA country without being subjected to tariffs.

 

The same standard will apply to core parts but will be slightly lower for complementary and principal parts, for which the content requirements will be 65% and 70%, respectively, by 2023. This is an increase from the current NAFTA provision of 62.5% that will remain in effect until USMCA is ratified.

 

Labor Value Content Rule

 

Beginning in 2020, 30% of work completed on passenger vehicles must be performed by workers earning at least $16 per hour. This percentage will increase to 40% in 2023.

 

Steel and Aluminum Purchases

 

Beginning in 2020, 70% of steel and aluminum purchases must be made in a USMCA country.

 

Potential Relief with Section 232 Tariff Quota Exemptions

 

In May 2018, President Donald Trump directed the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962 to review whether imported vehicles posed a threat to national security.

 

Related to this, Trump proposed imposing 25% tariffs on imported automobiles and automotive parts. Probes were initiated into these potential threats, but findings have not yet been released nor a determination made with regard to additional tariffs beyond those in place for steel and aluminum, for which Mexico and Canada are already exempt.


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