Storm brewing up in Auto Industry over the USMCA Rules
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By: Krypt Team - March 26th, 2021

Authored by: Vijendra Kargudri

Storm within the Auto Industry

A source close to the auto industry warns there could be hike in cost as an outcome of the US’s interpretation of the USMCA.

David Adams, President of the Global Automakers of Canada said, “the US has interpreted provisions on how regional value content (RVC) for passenger vehicle & light trucks is calculated differently from what was originally agreed upon by the three signatory countries under the United States-Mexico-Canada Agreement (USMCA), into effect from July 1. Meeting the content provisions will be that much more difficult for everyone to achieve.”

Auto executives across Canada and the US are fervently lobbying US President’s Administration to alter its predecessor’s stringent stance on North American trade provisions.

When fully implemented, 75% of a vehicle or “core” part — including engines, transmissions and suspensions must be manufactured in one of the three member countries to be shipped without tariffs. This will be up from 62.5% under the former North American Free Trade Agreement (NAFTA).

As per a source familiar with the details of this issue said, in question is a so-called “roll-up provision.” The auto industry, Canada, and Mexico are interpreting the provision differently than the US.

Conflicting understanding of the rules

The auto industry, Canada, and Mexico’s understanding is ─ if “an auto part is conforming to its (regional content) rule, and you assign it into another assembly, it then conforms 100% for all other purposes of the rule,”

“So if one has part X. It has to meet a 70% content rule, and it does. If, one puts part X into component Y… they can count all of part X toward the content for part Y instead of 70% of part X.”

Whereas the US thinks ─ “Customs is now saying, ‘No, if it’s 70% and you put it into something, it’s 70% and that’s all you can count” toward the larger component or vehicle’s regional value content (RVC).

David Adams mentioned, “This interpretation is entirely unexpected, and if they stick to it, it will take a lot of automakers’ time to make adjustments and potentially rejig their supply chains to avoid the tariff. Either way, there are inefficiencies, amounting to huge costs.”

While the industry is rankled, it is still unclear if the three countries will quietly resolve the issue, or will the politics of the situation require Biden & Tai’s intervention.

How can Krypt help you?

Krypt is a preferred SAP partner and has helped global organizations successfully implement/integrate SAP GTS, SAP TM, SAP IBP, and SAP EWM.

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?

Through the implementation/integration of SAP Solutions, we improve your Global Trade & Supply Chain Management capabilities. Our services and products will help your business have an edge over your competitors through better compliance, advanced planning, and scheduling. We empower your business through time-saving seamless operations, greater agility in updating ever-changing priorities, efficient production schedules, and inventory plans.

To know more about our other products/services, please request a DEMO or do contact us.

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