After Mexico, Canada and the USA officially signed the United States-Mexico-Canada Agreement (USMCA) in November 2018, many of us may have expected immediate action. Clearly, that was not the case!
It is expected that this new agreement will bring more investment opportunities to promote the creation of jobs, effectively positioning North America as the most competitive region worldwide. Even though the USMCA is not yet been ratified, two significant steps for expediting the agreement happened recently:
- Tariffs levied for Mexico and Canada – When the US decided to enforce the tariffs on steel and aluminum almost a year ago, Mexico and Canada were negatively impacted by the decision. A 25% tariff on steel and aluminum being exported to the US created a disincentive to trade and was a major obstacle in ratifying the agreement. As you may have learned, on May 21, 2019, the US government finalized a tri-party agreement and decided to remove the imposed tariff to both countries. Also, most recently the president was expected to include a 5% tariff on all Mexican exports to the U.S, however, at the last minute a deal was made to keep the tariffs at 0%.
- Mexico labor law reform – Another barrier was the conditions of Mexican federal labor law. On May 1, 2019, Mexico approved federal labor law reform which aligned the petitions of the US and Canada and has three main pillars:
- Right for workers to unionize in a democratic manner (in the past the union leaders held a lifetime position)
- Freedom for collective bargaining
- Enhancement of the labor justice
After making substantial progress this spring, we are expecting the USMCA countries to ratify the agreement and enforce provisions in the next few months. As such, here’s a refresher of the main provisions affecting the auto industry for your planning in upcoming years:
Specific Rules of Origin Changes
Regional Value Content for Passenger Vehicles and Light Trucks (Net Cost Method):
Regional Value Content for Heavy Trucks (Net Cost Method):
How is my company impacted?
According to the Center of Automotive Research, at least 45 car models that are currently tax-free under NAFTA could be taxed under the USMCA. OEMs, are searching for the most cost-effective way to produce affordable vehicles and may have to change their supply chain and the methods of sourcing their products. Of course, this could have a positive or negative impact in Tier 1, 2 and 3 suppliers.
Now is the time to start planning the best way to position your company to move ahead of the competition curve. Clayton & McKervey has the resources and expertise to help your company succeed in such a mission.