United States-Mexico-Canada Agreement updates NAFTA
Revisions promote North American investment, specifically in U.S. and Canada
The United States-Mexico-Canada Agreement (USMCA) announced on September 30, 2018 came after negotiations which lasted more than a year between the three countries. While the agreement preserves much of the original NAFTA structure, the new requirements aim to increase automotive production in the U.S.
The USMCA places stricter requirements on “rules of origin”, mandating that a vehicle must have at least 75% of its value in regional content in order to be duty-free. A “wage floor” requirement has also been implemented, requiring at least 40% of a vehicle’s content to be produced in high-wage areas with workers earning at least USD 16 per hour.
The USMCA provides stability and allows companies to plan for the future without further uncertainty. While some companies will not be significantly affected by USMCA, others may have increased costs or be forced to rework their supply chains to avoid tariffs. For example, Nissan and Mercedes-Benz announced future investments into the U.S. shortly after the USMCA was introduced. The new requirements are also expected to increase average vehicle prices.
Mexican suppliers Rassini and Nemak informed MarkLines that they both already satisfy the stricter requirements and do not anticipate a significant negative impact to their operations from the USMCA. Both view the agreement as an opportunity to target automakers facing new tariffs, specifically Asian and European OEMs. The suppliers anticipate the percentage of North American sales charged with a tariff will increase from 28.0% under NAFTA to 35.0% under USMCA.
This report provides a brief overview of the new details in the USMCA deal relevant to the automotive industry, while also showing the effects and reactions of some companies to the agreement.
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