USMCA reaches the finish line: after a long-distance marathon that began August 2017, President Trump finally signed the NAFTA rewrite called the U.S.-Canada-Mexico Agreement or USMCA into law on January 29, 2020. There is still much more work ahead with domestic and uniform regulations to be promulgated to fill in the gaps always created by new laws.
Evelyn along with Canadian lawyer Louis Amato-Gauci, Miller Thomson LLP, Toronto, ON,, Canada and Alejandro Garcia Seimandi, Garcia Seimandi y Asociados, S.C., Mexico City, Mexico have been providing information on USMCA progress from a three country perspective. Here is the ppt from their last presentation.
One of the changes we covered were the new automotive rules of origin. It’s quite a lot to digest. Have you thought about the impact of theses new rules on your business? Here is a quick summary:
There are three main requirements that vehicles must meet to claim preference. Finished vehicles must meet a 75% RVC, which is up from the NAFTA 62.5%. In addition, certain “core parts,” such as the engine, transmission, body, chassis, axle, suspension, steering and advanced batteries must also meet a 75% RVC. “Principal parts,” such as tires, glass, starter motors, mufflers, have a 70% requirement and “complementary parts,” such as lights, switches, small electric motors and locks, have a 65% RVC requirement. These parts sub-standards are new.
It should be noted that the methods of calculation are different from NAFTA.
The second requirement which is new is that 70% of the steel and aluminum used in auto production must come from North America. This isn’t connected to any particular part of component of a vehicle but is a qualifying requirement to get preference. A last-minute change to the USMCA implementing legislation requires that the steel must be “melted and poured” within the three countries to meet the rule of origin. This provision will be phased in over 7 years to give Mexican and Canadian steel industry to adjust. The concern was that many steel products had gotten around the 232 tariffs by shipping to MX after MX was granted an exemption from 232 tariffs. A similar provision for aluminum was scrapped but the countries will revisit the “melted and poured” issue for aluminum in 10 years.
Finally, there is a new labor wage requirement. At least 40% of the manufacturing labor incorporated in a passenger vehicle (45% for trucks) must have a wage rate above $16 an hour. Up to 10% of the 40 or 45% amount can come from activities such as engineering, design or R&D, plus up to 5% for final assembly. That means that at least 25% of a vehicle content needs to be manufactured by labor paid at least $16 an hour
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