The Mexican Ministry of Economy gave its interpretation of how to implement the core piece, the central parts and the rules of origin of the USMCA.
To begin with, the USMCA in its Appendix 4-B to Chapter 4 establishes new and more stringent rules of origin for automotive goods in order to be considered originating and to be eligible for preferential tariff treatment.
The automotive regime of origin to enjoy duty-free treatment requires that vehicles comply with the following:
- Passenger vehicles and light trucks must meet 75% Regional Value Content (VCR).
- The “core parts” must meet 75% VCR.
- Purchases of at least 70% of steel and aluminum originating within the USMCA region.
- Labor Value Content (CVL) of 40% (in the case of light trucks, the LVC to comply with is 45 percent).
The T-MEC automotive rules of origin are stricter and much more demanding than those established in NAFTA and any other FTA signed in the world.
Now, in the T-MEC negotiation, Mexico sought to include flexibilities to comply with the requirements established in the Automotive Appendix in order to ensure the competitiveness of the North American automotive industry.
The result of the negotiation is that once a “core part” originates, said part maintains its original character to determine the origin of the vehicle in which it is incorporated.
When a vehicle manufacturer has made the determination that the core parts used to produce the vehicle are originating, following any of the methods established in paragraphs 8 and 9 of Article 3 of the Automobile Appendix, those core parts must be considered as originating from the purpose of calculating the RVC of the vehicle.
This is clearly stated in the text of the Agreement and its Uniform Regulations and the common understanding on how the provisions on rules of origin work.
To understand the previous paragraph more: see Article 4.5.4 (Value of regional content) of the USMCA; Article 3, paragraphs 2, 8 and 9 (Regional value content for passenger vehicles, light trucks and their parts) of the Appendix to Annex 4-B of the T-MEC; and Sections 14 (1) and 14 (4) of the Uniform Regulations of the USMCA.
From the perspective of the Ministry of Economy, noncompliance with the USMCA rules can potentially disrupt the operations of the North American automotive industry and will result in unnecessary burdens on the North American automotive industry and reduced competitiveness.
This will also have the unintended effect of diverting limited investment resources from critical areas (such as Research and Development) for electric vehicles and autonomous vehicles in the North America region.