The North American automobile industry has a long history of being highly competitive and complex. With the transition from NAFTA to USMCA under way, automakers are about to grapple with new challenges. In short, rules of origin that have been established for 25 years under NAFTA are to be overhauled by new agreements under the USMCA. Below are some of the significant changes that automotive suppliers should be cognizant of:
Regional Value Content
- At least 75% of core parts in passenger vehicles and light trucks must come from North American content by 2023
- This is calculated using net cost method
- 85% in transaction value method
- At least 70% (Net cost method) of principle parts in passenger vehicles and light trucks must come from North American content by 2023
- 80% in transaction value method
- At least 65% (Net cost method) of complementary parts in passenger vehicles and light trucks must come from North American content by 2023
- 75% in transaction value method
These changes are currently being implemented, meaning automakers have until the end of 2020 to fully comply with the new rules, under a phase-in period. This is also followed by an “informed compliance period” for the first 6 months of 2021, meaning the CBP (Customs Border Patrol) will advise companies on correcting errors. This can be seen as a grace period, which is a helpful alternative to imposing punitive penalties on companies actively trying to comply.
Legal advisors strongly recommend that suppliers be more communicative with their OEMs, under these new circumstances. Attaining certificates for Tier 1 and Tier 2 suppliers is complex, so it is crucial that they discuss with OEMs on specific inputs if adjustments need to be made. It can be expected that OEMs will require more information, so communication is key to push for compliance.