Industry now knows the ‘how' of USMCA

With a rulebook in hand for the United States-Mexico-Canada Agreement, automakers and suppliers can breathe a little easier when the industry says goodbye to NAFTA next month. But the hard part isn't over: Meeting the tougher rules of origin requires a herculean effort, industry and trade experts say.

USMCA's long-awaited uniform regulations were published last week by the Office of the U.S. Trade Representative. The nearly 200-page document provides the granular detail on how to comply and eases some uncertainty for auto industry stakeholders that are scrambling to meet the requirements when the pact takes effect July 1.

"It's almost like you've been holding your breath, not totally sure you could relax," Lou Longo, a partner and international consulting practice leader at Plante Moran, told Automotive News.

With less than a month before USMCA takes effect, Longo said it's better for everyone that the regulations are out because now the industry can dig into the details, ask qualifying questions and plan ahead.

As of last week, the industry was still digesting the minute details laid out in the regulations. But at first glance, Longo said, he hadn't noticed any surprises and said it was clear the trade office had listened to the auto sector's concerns.

But compared with the North American Free Trade Agreement, which has been in place for 26 years, USMCA poses significantly more difficulties for automakers and suppliers for compliance because there are provisions that haven't existed before, he said.

That includes a first-of-its-kind requirement that a significant portion of auto content be made with high-wage labour and stricter rules for regional value content and steel and aluminum sourcing, among other key changes.

"This is a significantly different environment and a significantly different level of compliance and planning required for the industry and suppliers than they saw under NAFTA," Longo said.

NAFTA had some of the toughest auto rules of origin in a trade agreement — until USMCA, which is "even more stringent and more challenging to comply with," said Matt Blunt, president of the American Automotive Policy Council, a trade association representing the Detroit 3.

"No question: There are massive changes that will require a tremendous amount of investment in the United States," the former Missouri governor said last week during a web inar organized by the Washington International Trade Association.

"Our companies have announced billions of dollars in investment. They've all cited the new rules of origin as part of the reason they were making those decisions to invest in the United States," he said.

Blunt was still poring over the uniform regulations, but he did highlight some areas where the association will ask the administration for changes, such as restoring examples that show companies how to comply and meet the requirements under various circumstances.

One big success for the auto industry in the regulations is the addition of a six-month period of duty deferral, he said, which gives the industry until the end of the year to work with suppliers on gathering documents to demonstrate compliance.

"This transition period gives automakers some breathing room to ensure that they're fully in compliance without risking prejudicial tariffs," said Kellie Meiman Hock, managing partner at international trade consultancy McLarty Associates.

That breathing room expands with the uniform regulations in hand, but Meiman cautioned that the auto sector is still dealing with "unprecedented instability" in its North American supply chains because of the coronavirus pandemic.

"This is still very hard," she said. "But it's nice to have one piece of the puzzle that was missing and missing for too long."