The Automotive Sector in the USMCA Era Charting a Course in Uncharted Waters
The Backdrop
Rising transportation costs
Trade wars
The United States-Mexico-Canada Agreement (USMCA) increases regional value conent requirements for vehicles overall, as well as for specific materials. It also establishes new rules around the labor input for each vehicle.
An overall increase in the percentage of North American content required to comply with the USMCA -- from 62.5% to 75% -- will mean major adjustments in automotive supply chains.
Disruptive technologies
Slowdowns in vehicle sales
45% of a vehicle must be produced by workers paid an hourly wage of USD$16 or more.
70% of steel and aluminum content must originate in North America
Rules of Origin: A complex web
Overall administrative burden is supposed to be reduced.
However, flexibility in documentation may not provide necessary information for USMCA compliance.
Because many Tier 1 and 2 suppliers are locked into long-term pricing agreements, they will likely bear a large portion of associated back-end costs.
Retooling and process changes for OEMs
The Impact?
Increased Cost
Organization-wide process changes
Renegotiation of existing contracts
More Questions Than Answers
Will I have to readjust production models to meet labour quotas?
Which current suppliers qualify under the USMCA?
Are there new duty-free sources of supply through other trade agreements (e.g. CPTPP or CETA) that can help create a more competitive standing?
Will tariffs be re-introduced that will disrupt the supply chain yet again?
There are options to mitigate the uncertainty and the cost.
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Sourcing alternative suppliers
Exploring reclassification of products
Leveraging FTZ (Foreign Trade Zone) customs-bonded warehouses
And more ...
Want to learn more about the USMCA?
Visit our USMCA microsite for more content and resources.
Take our USMCA quiz.
Download an FAQ
Copyright 2020, Livingston International Inc.
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The changes to the certification process for qualifying goods under the USMCA.
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How disputes are settled under the USMCA.
