How the New USMCA Affects Manufacturing in Mexico
10.30.18For the last year, businesses through North America and the world have been watching the NAFTA renegotiations that took place between the US, Mexico, and Canada. Now that a new agreement—the United States-Mexico-Canada Agreement, or USMCA—has been signed, we finally have some answers for companies wondering how their nearshore operations will be affected.
The biggest changes, and the ones most pertinent to many companies that have moved manufacturing to Mexico, apply to the automotive industry. There are other significant changes that we feel will affect ecommerce and digital companies. Read on to learn more about these changes and how you can plan to adjust your Mexico operations if needed.
Changes for the Automotive Industry
Automotive manufacturers that have moved manufacturing to Mexico especially need to pay attention to the new requirements on regional content. Currently, passenger vehicles and light trucks must be manufactured with 62.5% North American content in order to qualify as “originating” and export vehicles to the US duty-free. Beginning in 2020, that regional content requirement will rise to 66%. It will continue to increase over the next few years until it reaches 75% in 2023. There are also new requirements for steel and aluminum vehicle components.
The goal is to incentivize automotive manufacturers to source more materials and parts from North American suppliers, but before you make dramatic changes to your supply chain, IVEMSA recommends you submit your Bill of Materials for a cost-impact analysis. The duty rate for autos is 2.5%, so it may be more cost-effective to pay the duty fees rather than adjust your suppliers. However, the duty rate for trucks is 25%, so it may be more likely that manufacturers will need to find new suppliers for those vehicles.
Another new provision mandates that 40% of autos must be made by workers earning at least $16/hour. Again, IVEMSA can provide a comprehensive cost-impact analysis for our customers to determine what adjustments they should make to their Mexico manufacturing operations. To complete this cost-impact analysis, we need a complete description of the materials and components, HTS code, origin and unit cost.
New Sections for Ecommerce and Digital Trade
Some of the new chapters in the USMCA address ecommerce regulations, digital trade and intellectual property. These were needed because when NAFTA was originally negotiated and signed in 1994, ecommerce wasn’t the industry it is today. New, stronger IP and trade secrets protections will apply to nearly all industries.
Additionally, there are new measures meant to facilitate digital transactions while protecting consumer privacy. With the USMCA, Mexico and Canada are raising their de minimis shipment value levels to USD$50 (Mexico) and C$40 (Canada). Duty-free shipment values will increase to USD$117 for Mexico and C$150 for Canada. This will make it easier for digital and ecommerce brands, especially small and medium-sized businesses, to reach new markets in Mexico and Canada. We also think that digital and ecommerce brands may find new opportunities to scale their business in Mexico by taking advantage of the lower labor rates.