It’s been two years since the U.S.- Mexico - Canada Agreement (USMCA) replaced the North American Free Trade Agreement (NAFTA).

One of the biggest changes focuses on rules of origin for automotive goods. Under USMCA, vehicle and parts producers must maintain more stringent records tracking regional value content thresholds, steel, and aluminum purchases, originating core parts, and labor value content requirements.

Per a recent report to Congress, the new rules were “designed to incentivize automotive investment, production, and well-paying jobs in North America.” In turn, “vehicle and parts producers have been making significant investments in North American sourcing and production.”

The report details the challenges facing the automotive industry under USMCA. For one, USMCA started during COVID-19, bringing challenging market conditions, including supply chain issues, critical input shortages of semiconductor chips, and, more recently, the war in Ukraine, impacting the sourcing of essential substances of palladium, nickel, and neon gas.

New vehicle technology stakeholders mention the current rules of origin don’t necessarily mesh well with the new supply chains for electric and hybrid vehicles. For example, it’s challenging to source electric vehicle batteries made in North America. Meanwhile, batteries are one of the core parts that need to be originating in North America for a vehicle to be considered originating under USMCA.

Stakeholders also urged the U.S. Trade Representative to maintain flexibility in rules of origin to re-align as the automotive industry transforms to zero-emission and autonomous vehicles.

FACTS

• U.S. automotive industry contributed more than $700 billion to the U.S. economy in 2021
• Accounted for 11.4% of total U.S. manufacturing output
• Automotive industry is responsible for 10.3 million direct and indirect U.S. jobs (approximately 8 percent of the total private sector jobs in America), for every additional job with an auto manufacturer in the United States creates nearly 11 other jobs upstream (e.g., auto parts producers) and downstream (e.g., auto dealerships) in the economy
• Total auto trade (imports plus exports of vehicles and parts) is the largest component of total North American trade, accounting for 22% of total trade under the USMCA

Source: Report to Congress on the Operation of the USMCA with Respect to Trade in Automotive Goods