Auto companies readying for new content requirements under USMCA
- October 17, 2018
Canadian automakers are looking at their supply chains to make sure they’re prepared for the new regional content rules that are part of the new US Mexico Canada Agreement (USMCA), which replaces NAFTA.
The agreement covers more that $1 trillion worth of trade and sets minimum requirements for three main elements of tariff-free vehicle production: parts origins, wages and content of steel and aluminum, reports the Globe and Mail.
The report quotes Craig Basinger, an analyst at Richardson GMP, that while Canada did make concessions on dairy access, most of the other sticking points were resolved in Canada’s favour. “The new terms on autos and auto parts appear largely positive for Canada,” Basinger told the Globe.
Industry analysts and industry members told the Globe that they expect domestic automakers to face higher – but manageable – manufacturing costs, even though unresolved 25 per cent tariffs on steel and aluminum threaten to drive up expenses through the entire supply chain.
Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, said the three Detroit-based automakers are assessing the new rules and determining whether they need to make changes with suppliers to meet the thresholds and reduce costs. “Trying to reposition your sourcing patterns can be a very complicated process,” he said.
A representative for the Japanese Automobile Manufacturers Association of Canada said the three to five year phase-in for the new rules is too fast, and that higher North American content rules place an administrative burden on the manufacturers.
The proposed agreement raises the tariff-free threshold for North American automobile content to 75 per cent. The minimum North American content levels it sets for vehicle components are 75 per cent (individually and as a group) for main components such as engines, transmissions and batteries; 70 per cent (as a group) for other parts such as the brakes and steering wheels; 65 per cent for small parts. Parts not covered in the previous categories must meet a 50 per cent regional content bar, the Globe says.