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A Better Partnership

Ahead of the Curve Auto Supplier Blog

October 02, 2018

The New North American Trade Deal: What It Means for the Auto Industry

Announced on Monday October 1, 2018, Canada joined the U.S. and Mexico in an agreement to revamp the former North American Free Trade Agreement (NAFTA). The new agreement, which does away with the NAFTA name, will now be called the U.S. – Mexico – Canada Agreement or USMCA. While the deal will not be completed until it is ratified by each country’s respective legislatures, the tentative pact addresses several key areas of trade including those involving the automotive sector.
Highlights of the new deal, which will affect the auto industry, include:
  1. Vehicle imports from Canada and Mexico will be subject to a quota of 2.6 million units each, meaning that these imports will not be impacted by any U.S. tariffs on foreign cars.
  2. The amount of automotive content made in all three countries will be increased. Starting in 2020, 75% of all parts for every vehicle sold in the U.S. must come from the U.S., Canada and Mexico in order to avoid tariffs.
  3. In 2020, all vehicles must have at least 30% of vehicle production come from a facility with an overall average wage (including all plant personnel) of at least $16 per hour or more in order to avoid tariffs. That amount increases to 40% by 2023 in order to avoid tariffs.
  4. Canadian parts may be imported to the U.S. without being subject to tariffs up to $32.4 billion annually. Anything more than this will be subject to tariffs.
  5.  Mexican parts may be imported into the U.S. tariff free up to $108 billion annually. Anything more than this will be subject to tariffs.

Interestingly, the new trade deal does not change the U.S. imposed tariffs on steel and aluminum from both Canada and Mexico. These tariffs will apparently remain in effect for the time being and will be dealt with separately, if at all, in the future.
With the possible ratification of the new USMCA still several months away, the ultimate practical effects these changes will have on the automotive industry remains to be seen.

Warner’s Automotive Industry Group attorneys regularly assist automotive suppliers in navigating the complex legal issues affecting the automotive industry. To learn more, please contact a member of our Automotive Industry Group.

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