A biennial report from the Office of the U.S. Trade Representative concludes that in the four years since its entry into force the U.S.-Mexico-Canada Agreement “has had significantly positive economic impact on the U.S. and North American auto industry, benefitting producers, suppliers, and workers.” The industry “has largely rebounded from the critical input shortages and supply chain challenges” of the past few years, the report states, and “vehicle and parts producers continue to make significant investments in North American sourcing and production.”

At the same time, the North American auto sector is facing several hurdles in implementing the USMCA’s provisions. Particular challenging have been the USMCA’s rules of origin for claiming preferential treatment for automotive goods, which include higher regional value content thresholds, mandatory requirements to produce core parts in the region, mandatory steel and aluminum purchasing requirements, and a labor value content requirement. According to the report, supply chain vulnerabilities and global market distortions have made it difficult for automakers to adjust to the full scope of the ROOs.

Moreover, the complexity of these rules continues to impose administrative burdens on suppliers. For example, the report notes that from 2021 through the first quarter of 2024 U.S. Customs and Border Protection conducted 652 associated verifications on $48.6 million worth of imports and found an overall discrepancy rate of 27 percent. USTR also found evidence suggesting that suppliers are not attempting to claim USMCA preferences for a growing share of auto trade; e.g., the percentage of vehicles imported from Canada or Mexico for which duties were paid increased from 0.5 percent in 2019 to 8.2 percent in 2023, while the share of U.S. auto parts imports from USMCA partner countries that were subject to duties more than doubled from 9.3 percent to 20.5 percent.

USMCA allows automakers to request alternative staging regimes that give them up to five years to satisfy the new ROOs. ASRs will begin expiring in July 2025, the report states, but automakers have expressed concerns that additional flexibilities may be needed thereafter due to limitations on nascent domestic electric vehicle and battery manufacturing. Other stakeholders have suggested that the U.S. consider seeking modifications to the ROOs to incentivize the North American production of key EV and autonomous vehicle components.

For more information on the USMCA auto rules of origin, please contact attorney Mark Tallo at (202) 730-4968 or via email.

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