Authored by: Vijendra Kargudri
Disagreement on USMCA Auto content Rule
Canada and Mexico have teamed up to seek formal consultation with the US over the interpretation of the content rules of origin for automobiles, which was set out in the North American trade pact.
This has been in response to Mexico disagreeing and requesting a formal consultation about the interpretation and application of rigid material rules for cars under the United States-Mexico-Canada Agreement (USMCA) on August 20, 2021.
Canada’s Global Affairs spokeswoman – Patricia Skinner, has said, “We know how important the auto industry is to Canadian workers and the Canadian economy. Canada has advised the US and Mexico to engage in consultation as a third party.”
While the confusion & disagreement persists, Canada continues to work with the auto industry on this and other vital issues.
Meanwhile, Mexico’s Economy Minister – Tatiana Clothier, has said, “We are pleased that Canada has decided to join the consultation request that we received on August 20 regarding the interpretation of the Rules of Origin by the United States at the USMCA for the automotive sector.”
The USMCA Auto Content Rule
The USMCA, the successor to the North American Free Trade Agreement (NAFTA), requires 75% of North American content for a vehicle to be from North America. Beginning from July 1, 2023, an equal percentage will apply for essential parts, which currently is 69%, compared to 62.5% under the previous NAFTA trade agreement.
Canada has joined Mexico, which argues that once the necessary parts level reaches 75%, it is considered 100% and should be counted as the overall value of the automobile. They both can file a formal complaint against the rule.
Experts believe that some auto companies may move operations from Mexico to the United States. At the same time, others find that the USMCA’s duty-free benefits aren’t worth the cost of complying with the 75% North American content requirement and producing more cars in higher-wage factories. The chances are that many auto companies in the region that ignore USMCA rules will absorb the 2.5% car tariff applied by the World Trade Organization to other countries that export to the United States and continue business as usual.
Well-wishers believe that protectionism will only hurt the industry & the economy.
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For those who are part of these countries’ auto industry, Krypt can help you implement/integrate SAP GTS to streamline your trade. To know more about the tracing list differences between the NAFTA & USMCA read our white paper titled ─ THE TRACING LIST DIFFERENCE BETWEEN NAFTA AND USMCA. This white paper attempts to explore more about – Tracing List; Why components were deemed to be originating in NAFTA?; Why they cannot be considered as deemed in USMCA?; Do you have a provision to deal with it in SAP GTS?; and How can the calculation differ with Tracing Applied and Tracing not Applied?
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