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Mexico, the USA and Canada ratified the USMCA: Last minute additions and the impact on the automotive industry.

December 11, 2019
Mexico, the USA and Canada ratified the USMCA: Last minute additions and the impact on the automotive industry.

Yesterday, December 10, 2019, the USMCA (T-Mec) negotiations were closed by signing the protocol with the latest modifications, now just waiting for the 'bureaucratic procedure' of ratification by the congresses of each country. Mexico had already ratified the USMCA (T-Mec) so it will only have to ratify the modifications, while the US Congress is expected to do so before the 20th and Canada at the beginning of 2020. The approval of the trade agreement had been kept in suspense, in good measure due to the reluctance of the Democratic Party bench in the House of American Representatives. However, the president of the House of Representatives, Democrat Nancy Pelosi, approved the new negotiated text of the USMCA (T-Mec), calling it infinitely better than NAFTA.

Here in Yamazen in September of this year 2019 within the activities of our 5th anniversary, we presented a master seminar by Mr. Oscar Alvín of the National Auto Parts Industry Association (INA A.C.) where he talked about the perspectives of the Mexican automotive industry within the  USMCA (T-Mec). In this presentation, Mr. Albín commented on the rules of origin that should be met regarding the content of materials and manufacturing of automotive parts manufactured within the geographical area of the treaty and indicates that the  USMCA (T-Mec) intends to raise the regional product content from the current 62.5% up to 75% within the next 5 years until 2023. This will force the industry in Mexico to invest up to approx. 500 million dollars to the economy to meet this new demand.

Within this 75% it was already contemplated that 70% of steel and aluminum would be produced withing the geographical region, in addition to 40% of the manufactured components must be made by personnel with minimum salaries of 16 dollars per hour. None of these clauses were modified. The main difference will be that Mexico established a moratorium clause of  7 years for steel and 10 for aluminum, which will allow Mexican companies time to re-organize their supply chains, since much of the aluminum is currently obtained from China at low cost. The other modified element that also influences the automotive industry was the creation of "labor inspector panels" to supervise the application of labor obligations.

All these changes had been already discussed in advanced, so the automotive industry should not be taken by surprise. However, the uncertainty of the ratification of the trade agreement is one of the factors by which specialists had lowered the growth expectations of the Mexican economy for the next year, but the impact that the manufacturing companies will have will be undeniable. To adapt its processes to comply with the new market rules, and although some will be complicated (such as wages or raw materials), it is undeniable that it will create new opportunities for growth and investment within the national automotive industry.

Daniel Arzola/ Gerardo Pérez

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