The USTR's office Monday released the second Report on the Operation of the United States-Mexico-Canada Agreement (USMCA) with Respect to Trade in Automotive Goods.
This biennial report, prepared by USTR in consultation with the Interagency Committee on Trade in Automotive Goods, examines the actions taken by auto producers to demonstrate compliance with the USMCA and whether the USMCA’s automotive rules of origin are effective and relevant in light of changing vehicle and production technologies.
The conclusion of the report is that there is no conclusion. The automotive industry continues preparing for full implementation of the USMCA rules of origin (ROOs) when special flexibilities afforded under alternative staging regimes begin to expire in 2025.
Automakers have requested an extension of the transitional rules of origin (ROO) applicable to EV batteries. They have also raised concerns that an anticipated lack of qualifying EV batteries in 2025 and onward will make it difficult for EVs to meet the ROOs.
Concurrently, other stakeholders have suggested modifications to the ROOs to better reflect the changing technologies in EVs and AVs and to incentivize North American production of newer components and technologies.
Several commenters expressed concerns about the amount of Chinese foreign direct investment in the automotive sector in Mexico, alleging that such investment is intended to evade Section 232 and Section 301 tariffs on direct imports from China.
The UAW pointed to recent U.S. import statistics showing that a greater share of autos imported from Mexico are not claiming the USMCA preference.
The share of U.S. parts imports from USMCA partner countries that were subject to duties more than doubled, from 9.3 percent ($7 billion) in 2019 to 20.5 percent ($19.7 billion) in 2023.
This is seen as evidence of companies taking advantage of cheaper Mexican labor without increasing content to meet the full USMCA ROOs.
The UAW argued that the Inflation Reduction Act (IRA) and related rulemaking have the potential to undermine the intent of the USMCA’s automotive ROOs. Because Section 30D only requires a vehicle to be manufactured in North America, but not necessarily to meet the USMCA’s automotive ROOs to qualify for the tax credit, the UAW argues this could erode compliance with the USMCA.
The 2024 Report on the Operation of the USMCA with Respect to Trade in Automotive Goods can be viewed here. Additional information, including the first biennial report can be viewed here.
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