Rules of Origin for the Auto Industry in North America will redefine the regional value chain. From 62.5% of regional contents that NAFTA required, to 75% with the new treaty and with explicit inclusion of steel and aluminum from local suppliers.

This represents a new structure of the value chain and reconfiguration of the production platforms in North American. Foreign-made vehicles imported to the U.S., whether they are new or used, are usually dutiable. Those imported cars pay 2.5%, 2.4% for a motorcycle, and 25% for a truck. The duty is based on the price paid for the vehicle. So, the first question is, the change in the supplied components´ origin will be less expensive than the current duty for full cars? Because if it is not, then the new USMCA´s Rule work in favor of imported vehicles, and not for US made cars.

US will eventually has to modify its Tariff for cars from the rest of the world, otherwise the Cars OEM manufacturers will be in disadvantage in the local market.

Last week, the parties of the USMCA agreed to grant several years into the future, for OEMs located in Mexico, to fulfill the regional requirement contents, but this is just buying more time, eventually they will have to rearrange its value chain to be consistent with the USMCA.

Several Chinese companies already went ahead establishing production plant in Mexico, but that does not mean the products they will manufacture will be considered as “Mexican”, within the Rule of Origin. They will have to follow strict accounting procedures to prove the local contents. Nevertheless, suppliers are moving global operations to fulfill with the new USMCA and maintain market share in the juicy North American territory with sales above 24 million units per year.

By: Gregorio Canales