Background on the Situation
The Mexican automotive industry is grappling with stricter rules of origin and tariffs under the United States-Mexico-Canada Agreement (T-MEC), while non-T-MEC countries enjoy a flat 15% tariff, according to the Mexican Automotive Industry Association (AMIA).
Stricter Rules of Origin and Tariff Burden
When the T-MEC took effect in July 2020, Mexico’s light vehicle industry had to incorporate more inputs, parts, and components into their products, significantly strengthening the rules of origin. The industry agreed to raise the Regional Value Content (CVR) from 62.5% to 75%, along with additional regional purchasing requirements for essential auto parts, steel, and aluminum used in those parts. Moreover, a new labor content provision was introduced.
These four key elements in the T-MEC agreement—CVR, labor content, essential parts, and regional purchasing of steel and aluminum—made Mexico’s automotive rules of origin the strictest in any global trade agreement.
Unfavorable Comparison to Non-T-MEC Countries
Despite the industry’s substantial efforts, Mexico’s situation is worse than that of non-T-MEC countries like Japan, the European Union, and South Korea, which all benefit from a flat 15% tariff. Mexico faces not only stricter rules of origin but also the Section 232 tariffs, adding to its disadvantage.
AMIA’s Concerns and Recommendations
The AMIA expressed concern that the 2022 dispute settlement panel’s resolution on automotive rules of origin has not been respected. While the AMIA does not wish to prejudge or anticipate any discussions, it outlined three crucial elements for any rules of origin conversation:
- Availability: Ensure that necessary components, inputs, and raw materials are available in North America.
- Competitiveness and Affordability: Maintain the competitiveness and affordability of these components, inputs, and raw materials.
- Adjustment Period: If modifications are discussed, establish a suitable timeline for original equipment manufacturers to adjust and reconfigure their supply chains.
