The International Trade Commission has released the first of five reports on the economic impact of the automotive rules of origin under the U.S.-Mexico-Canada Agreement. The next four reports are due in 2025, 2027, 2029, and 2031.

According to the report, the USMCA automotive ROOs are designed to incentivize U.S. vehicle and parts production and thus increase automotive investment and employment. The regional value content rules require vehicle and vehicle parts manufacturers to use a certain amount of content originating in a USMCA country for those goods to receive preferential duty treatment. The level of RVC requirements varies from 75 percent (for light vehicles and their core parts) to 60 percent (for complementary parts for heavy trucks), which represent increases from NAFTA. The RVC rules also require that all core parts for light vehicles (comprising passenger vehicles and light trucks)—or the average of the value of all core parts for light vehicles summed together—meet the 75 percent RVC requirement.

The labor value content rules, introduced for the first time in the USMCA, require all vehicle manufacturers to use a certain amount (40 percent for passenger vehicles and 45 percent for light and heavy trucks) of content produced with high-wage labor (average greater than $16 per hour) for goods to receive preferential duty treatment. The steel and aluminum purchasing requirements, also introduced for the first time in the USMCA, require all vehicle manufacturers to source at least 70 percent of their steel and 70 percent of their aluminum from USMCA countries to receive preferential duty treatment.

Noting that the USMCA has only been in force since July 1, 2020, and that many of the ROOs will be phased in over several years, the report notes that the full effect of the rules will likely not be apparent until the USMCA is fully implemented in 2027 or even later.

However, for the period July 2020 through December 2022 the report finds the following impacts.

- Vehicle manufacturers and suppliers report that the ROOs have increased costs at multiple stages of the supply chain but have also increased the U.S. share of USMCA vehicle and parts production.

- U.S. imports of engines and transmissions fell and U.S. revenues, employment, wage payments, and capital expenditures related to light vehicle and automotive parts production increased.

- The ROOs increased the cost of producing light vehicles in the U.S., which in turn increased U.S. sales of light vehicle models imported from the rest of the world.

- Lower tariff preference utilization reduced U.S. imports of light vehicles from Canada and Mexico.

- Production, trade, employment, and investment data trends from 2018 to 2022 showed few signs of changes in the overall competitiveness of the U.S. automotive industry after the USMCA’s entry into force.

- Production shutdowns due to the COVID-19 pandemic and semiconductor chip shortages were likely the main factors in the aggregate declines in U.S. vehicle and parts production in 2020 and 2021.

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