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Mexico trusts regional content value settlement in USMCA

The government of Mexico affirmed that it trusts that a dispute settlement panel on Regional Content Value (VCR) will not be raised in the USMCA.

«We are looking to reach an agreement (…) We do not want to reach an international panel, they are the options that are available when there are these controversies in the treaty, but I do not think it will go there,» said President Andrés Manuel López Obrador at a press conference this Thursday.

The Mexican government is preparing a panel on the matter, although it is in the process of 75-day consultations with its counterpart in the United States.

The automotive sector is the most integrated in North America, with intraregional exports of 236,000 million dollars in 2020 and a fall in that indicator of 21.5% year-on-year, according to data from the United States Department of Commerce and the World Trade Organization (WTO).

Likewise, the Appendix to Annex 4-B of the USMCA contains certain requirements that passenger vehicles and light trucks must meet to qualify as originating.

One of these requirements is a Regional Content Value of 75% for passenger cars and light trucks.

In addition, there is a requirement of a 75% VCR on «essential parts» for a vehicle to be considered originating.

Regional Content Value

Historically, Original Equipment Manufacturers (OEMs) have built their vehicles in the regions where those vehicles are primarily sold, and as a result, many OEMs have established manufacturing facilities in various countries.

Since OEMs often use supply chain management and lean manufacturing techniques in their operations, many Tier 1 supplier facilities are located relatively close to OEM facilities to reduce the cost and risks associated with longer supply chains. long.

Mexico considers that the alternative methodologies for calculating the VCR for essential parts, included in paragraphs 8 and 9 of Article 3 (Regional Content Value for Passenger Vehicles, Light Trucks, and their Parts) of the Appendix to Annex 4-B, may be applied in the calculation of the general VCR of the passenger vehicle or light truck.

For an essential part to be treated as originating, it must meet a VCR requirement that can be calculated under one of the methodologies provided in paragraph 8 of Article 3 of the Appendix to Annex 4-B.

Therefore, the methodology established in subparagraph (a) of paragraph 8 of Article 3 or the methodology established in subparagraph (b) of paragraph 8 of Article 3 may be used in order to calculate the VCR of the essential parts.

The use of any of these methodologies is allowed to qualify the essential parts as originating, and subsequently, in order to calculate the origin of the vehicle.

Arguments

The Appendix to Annex 4-B establishes additional flexibility for “essential super-components”, which allows the calculation of the VCR of all essential parts as if they were a single auto part.

As provided in paragraph 4 of Article 4.5 (Regional Content Value) of the USMCA, once a material (“essential part”) has qualified as originating and has been used in the production of a good, it must always be treated as originating in the calculations.

Therefore, if an «essential super-component» meets the required percentage of VCR, all the essential parts that comprise the «essential super-component» would be originating.

The Uniform Regulations, adopted by Decision No. 2 of the USMCA Free Trade Commission, develop and reiterate this principle, particularly in sections 14 (1) and 14 (4).

Likewise, paragraph 7 of Article 3 (Regional Content Value for Passenger Vehicles, Light Trucks, and Their Parts) of Appendix to 4-B indicates that once the essential parts (materials) have satisfied the percentage of VCR required in paragraph 2 of Article 3 of the Appendix to Annex 4-B, said essential parts are original.

Consequently, according to the government of Mexico, for the purposes of their use in the production of a subsequent good (vehicle), these essential parts will be considered as originating.

Letter

With the above arguments, Mexico requested the initiation of consultations under the general mechanism for dispute resolution of the USMCA.

The Government of Mexico, through the Ministry of the Economy, formally requested on August 20 the initiation of consultations with the Government of the United States on this case.

 

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