Auto industry and business groups want to delay the start of the United States-Mexico-Canada Agreement (USMCA) as the coronavirus pandemic disrupts supply chains and sends demand for new vehicles plummeting.
The Automotive Parts Manufacturers’ Association in Canada (APMA) has called for the enforcement of the USMCA to be postponed until Jan. 1, 2021, six months after a July 1 implementation date pushed as late as April 24 by the Trump Administration.
The United States had originally wanted the USMCA to go into effect on June 1, but because the three countries failed to meet a March 31 deadline to agree to uniform regulations, the earliest date is July 1, which U.S. Trade Representative Robert Lighthizer supported in a statement in late April.
The APMA in March was joined by industry groups in the United States and Mexico in its call for a delay. A March 13 letter signed by the National Automobile Dealers Association and the American International Automobile Dealers Association, among other groups, called the June 1 date “gravely” concerning as the industry navigates the pandemic.
“Even if it were reasonable to divert our attention to USMCA compliance, the United States, Canada and Mexico have yet to issue, even in draft form, the uniform automotive rules of origin regulations,” the letter reads. “Without them, many questions remain unanswered regarding how to interpret the new rules.”
The federal government on April 3 said it notified the U.S. and Mexico governments that it has completed its domestic ratification process and that it was still working to set an “entry into force” date with the other nations.
“We want to ensure the new NAFTA will support a strong economic recovery [after the pandemic],” Deputy Prime Minister Chrystia Freeland said in a statement.
APMA President Flavio Volpe last week told Automotive News Canada the association is still pushing for Jan. 1. He said “in normal times” a July 1 date would be possible.
“But now, with all this rush, we don’t even have uniform regulations, yet,” he said. “What would you enforce? We are all asking for a Jan. 1 enforcement date.”
Meanwhile, Mexico’s deputy economic minister on April 7 urged Canada and the United States to give the industry more time to adapt to the rules, saying the Mexico government is “absolutely understanding” of what the sector faces.
“We have put this issue on the table many times,” Deputy Economic Minister Luz Maria de la Mora told Reuters. “But...this is a trilateral decision. And we are still in discussions with our counterparts to see if there will be any kind of flexibility on their part.”
Earlier this year, executives at two of Canada’s three largest parts suppliers urged to push back the enforcement date to 2021 to give the industry more time to adapt to the new rules. Their comments came in February, before the COVID-19 pandemic largely ended vehicle assembly in North America in March, underscoring the industry’s desire to delay the USMCA’s implementation.
“Jan. 1 seems to be a good one for a lot of people in the industry,” Martinrea International’s Rob Wildeboer told Automotive News Canada. “The issue in the States is that there’s an election in November, and you’ve got an administration that would probably say, ‘I want it all done so I can say it’s all done.’
“I think that having the thing signed is all-done enough, but that’s kind of the issue to me. It’s going to be a pain in the ass to change some of the paperwork anyway. We just want it to be as simple as possible.”
Among other new rules, the USMCA requires that 75 per cent of a vehicle’s content be sourced from within the three member countries to ship tariff-free, up from 62.5 per cent under NAFTA.
When fully implemented, USMCA also stipulates that 40-45 per cent of a vehicle’s content must be made by “direct production workers” who make at least US $16 an hour (about Cdn $22). That rule is intended to drive more production into the United States and Canada from Mexico.
While those provisions are likely to create more business for the Canadian parts sector, Magna International Inc. CEO Don Walker said the industry needs more clarity from government on numerous issues.
“You have to define what a direct production worker is and what costs you’re putting in there. But a lot of plants in Canada wouldn’t even meet this, in my opinion.”
Martinrea’s Wildeboer said the definition of “direct production worker” should be broader than just “the person that touches the part.”
“The way that parts are made at parts companies, the only thing touching the part might be a robot, but it takes a village to make the part, and those rules should include everyone that’s involved in the production process, which is a lot more than the person who, quote, ‘touches the part.’”
Greg Layson contributed to this report.