USMCA "New NAFTA" kicks off, what next Mexico?
The USMCA tri-lateral trade agreement, formerly known as NAFTA, was kicked off Wednesday (1 July 2020), approximately seven months after the deal was inked by the three participating countries, the United States, Mexico and Canada.
Under the agreement, to avoid a 2.5% duty and qualify for tariff-free trade, the percentage of vehicle components which must be manufactured in North America has been increased to 75% from 62.5% previously defined by NAFTA. Moreover, 40-45% must be manufactured by workers earning at least US$16 per hour.
The accord also stipulates a rule that 70% of the steel and aluminum used in North American vehicle production must come from North America and that the steel would need to be “melted and poured” in the region. Aluminum does not fall under the melted and poured regulation, but it could be reconsidered in 2030.
The change, however, will not happen overnight. While a gradual transition until 2023 is expected for most of the rules, the stipulation on steel will go through a seven-year transition.
According to Branda Smith who is the Executive Assistant Commissioner for the U.S. Customs and Border Protection Trade Office, automakers will have approximately six-months to get up to speed on the new rules, followed by six months of "informed compliance" in which regulators will keep an eye on their documentation to make sure things are in line.
Although stiff penalties will be avoided in the initial months, automakers will be in a whole new trade world starting on Wednesday, she said in a press call.
Although the US$16 per hour minimum should benefit the United States and Canada, it will likely deter some manufacturing in Mexico which has average salaries that are considerably lower. Some opportunities, however, could arise in the southern nation as a shift in manufacturing from China to Mexico is expected.
To prepare, a coalition of nine Mexican governors met during the final week of June to identify two priority targets, Houston news service CW39 reported.
While one was to create a platform called DigiMex for Mexican entrepreneurs to market e-commerce service, the other was aimed at replacing Chinese companies with Mexican firms as providers or manufacturers for some U.S. companies.
“We need to take advantage of a post-COVID realignment to substitute China in the supplier market to the United States. Our geographical location, infrastructure and experience gives us a great degree of competitiveness in this regard,” the news service reported Chihuahua Governor Javier Corral as saying.
Mexican President Andres Manuel Lopez Obrador confirmed on Monday (29 June) that he will travel to Washington to discuss trade relations with U.S. President Donald Trump in a soon to be defined date. The meeting, which could take place the second week of July, will be Lopez Obrador’s first foreign trip since taking office in December 2018.
Mexico President Andres Manuel Lopez Obrador (source: Shutterstock)
Approximately US$1.2 trillion in overall trade occurs between the United States, Mexico and Canada per year.
Top Photo (source: Shutterstock)