March 9, 2020

How Will USMCA Rules Of Origin Provisions Impact Steelmakers?

As the American Action Forum (AAF) explained in a December 2019 policy brief, the United States-Mexico-Canada Agreement (USMCA) strengthens rules of origin for automobiles. Once the agreement goes into effect (likely later in 2020), 75 percent of a vehicle must be made in North America in order to qualify for reduced tariffs, an increase from the 62.5 percent requirement in the North American Free Trade Agreement (NAFTA).

NAFTA also required that at least 70 percent of an automaker’s steel and aluminum to be purchased in North America. The new USMCA expands that requirement for steel (but not aluminum), mandating that 70 percent must be “melted and poured” in North America. According to AAF, that new language was requested by the Trump Administration and will go into effect after seven years. After 10 years, the three countries may consider implementing similar requirements for aluminum.

According to participants in Fastmarkets’ recent Mexican Steel Forum, this provision will “test” steelmakers. “This is an issue that is going to affect you in the steel industry because you’re going to have to meet these requirements so that the next part of the chain can comply with their own applications about origin,” Baker McKenzie partner Armando De Lille said. “If that doesn’t happen, the exporter, which could be the [original equipment manufacturer], could go against you to request the reimbursement of those amounts.”

José Hoyos-Robles, partner of trade and commerce at the same law firm, agreed. He said, “Demonstrating compliance with these rules will be much more complicated than in the past … The reason for that is steel is a sensitive industry in the three countries, and the authorities of the different countries will be focusing on this.”

Click here to read Fastmarkets’ full story, which is available to subscribers.