The new version of USMCA, (U.S.- Mexico - Canada Agreement), the trade agreement that once ratified is expected to replace NAFTA, was approved by the U.S. parliament in early December and unveiled during a meeting between the heads of state of the three signatory countries in Mexico City.
The revised text of the agreement contains several amendments from the first draft circulated in November 2018. Among the most significant changes for the automotive industry and the domestic North American manufacturing sector is an increase in the percentage of Regional Value Content, or RVC, of vehicles, parts and components.
For vehicles, the RVC percentage rises 20 percent from 62.5 percent to 75 percent, while for components and parts, 29 commodity categories, the increase would be as much as 25 percent, from 60 percent to 75.
In practice, to be duty-free, vehicles, components and parts manufactured or assembled in North America must have a local content, expressed as a percentage of value, of 75 percent. The measure, which will then be combined with an increase in duties on extra-USMCA industry imports in individual countries, will have the effect, according to reports from the Automotive Parts Manufacturers Association (APMA), of increasing manufacturing investment in the U.S., Canada, and Mexico throughout the automotive supply chain. With about 21 million new vehicles sold each year, the North American market is one of the most attractive in the world. Indigenous production is expected to grow by 10 percent over the next five to 10 years.
Another important amendment concerns workforce compensation.
All vehicles assembled in the region must be made with at least 40 percent of the workforce with minimum wages of at least US$16 per hour. The measure is clearly aimed at reducing Mexico's competitive advantage and the exodus of production to the Latin American country. Analysis of the USMCA amendments by APMA analysts is available at this link.
NAFTA 2.0 (as the new trade agreement is informally called), will allow Canada to ship up to 2.6 million vehicles a year to the U.S., worth about US$32 billion, duty-free
Full USMCA implementation is expected to grow production (shipments) of made-in-Canada parts and components by US $6-8 billion per year.
Canada's automotive strategy is already geared toward the upper-middle end of the market and in particular toward the design, engineering and construction of high-tech products. With the creation of an automotive supercluster in southern Ontario, NGen, bringing together OEMs and assemblers, public and private universities and R&D centers, and above all substantial federal and provincial public funds, Canada has mapped out what are the future development guidelines for the sector: autonomous driving, electric cars, AI, hydrogen fuel cells.
Canada'sautomotive industry currently generates $19 billion GDP and employs, directly, 125 thousand people (400 thousand with the aftermarket), 700 component companies, including 3 Global Tier 1 (Magna, Linamar, Martinrea) based in the country, 5 OEMs with assembly plants (about 2 million vehicles).
The revised text of the agreement contains several amendments from the first draft circulated in November 2018. Among the most significant changes for the automotive industry and the domestic North American manufacturing sector is an increase in the percentage of Regional Value Content, or RVC, of vehicles, parts and components.
For vehicles, the RVC percentage rises 20 percent from 62.5 percent to 75 percent, while for components and parts, 29 commodity categories, the increase would be as much as 25 percent, from 60 percent to 75.
In practice, to be duty-free, vehicles, components and parts manufactured or assembled in North America must have a local content, expressed as a percentage of value, of 75 percent. The measure, which will then be combined with an increase in duties on extra-USMCA industry imports in individual countries, will have the effect, according to reports from the Automotive Parts Manufacturers Association (APMA), of increasing manufacturing investment in the U.S., Canada, and Mexico throughout the automotive supply chain. With about 21 million new vehicles sold each year, the North American market is one of the most attractive in the world. Indigenous production is expected to grow by 10 percent over the next five to 10 years.
Another important amendment concerns workforce compensation.
All vehicles assembled in the region must be made with at least 40 percent of the workforce with minimum wages of at least US$16 per hour. The measure is clearly aimed at reducing Mexico's competitive advantage and the exodus of production to the Latin American country. Analysis of the USMCA amendments by APMA analysts is available at this link.
NAFTA 2.0 (as the new trade agreement is informally called), will allow Canada to ship up to 2.6 million vehicles a year to the U.S., worth about US$32 billion, duty-free
Full USMCA implementation is expected to grow production (shipments) of made-in-Canada parts and components by US $6-8 billion per year.
Canada's automotive strategy is already geared toward the upper-middle end of the market and in particular toward the design, engineering and construction of high-tech products. With the creation of an automotive supercluster in southern Ontario, NGen, bringing together OEMs and assemblers, public and private universities and R&D centers, and above all substantial federal and provincial public funds, Canada has mapped out what are the future development guidelines for the sector: autonomous driving, electric cars, AI, hydrogen fuel cells.
Canada'sautomotive industry currently generates $19 billion GDP and employs, directly, 125 thousand people (400 thousand with the aftermarket), 700 component companies, including 3 Global Tier 1 (Magna, Linamar, Martinrea) based in the country, 5 OEMs with assembly plants (about 2 million vehicles).