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July 6, 2020

New North American Trade Pact Goes Into Effect

The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement, went into effect on Wednesday, July 1. For the automotive sector, the trade pact includes rule that say:

  • 75 percent of qualifying vehicles must now be genuinely produced in North America, reducing the motive to outsource parts to low-cost countries; and
  • 40-45 percent of a vehicle must be built by workers making an average of at least $16 an hour.

According to a U.S. International Trade Commission (ITC) estimate, the auto provisions alone will result in a net increase of 28,000 full-time U.S. jobs. The ITC also estimates the USMCA will grow the U.S. economy by $68.2 billion, or 0.35 percent, by the sixth year it is in effect.

As Motley Fool explains, in addition to the standards above, 70 percent of a vehicle’s steel and aluminum must be purchased from North American producers. The USMCA also includes provision that says steel must be “melted and poured” within these countries to qualify for the tariff exemption since “steel products had gotten around the Section 232 tariffs of 2018 by shipping to Mexico, after Mexico was granted an exemption from 232 tariffs earlier this year.” That provision will not go into effect for seven years, however, in order to give the Mexican and Canadian steel industry time to adjust.

As the Metals Service Center Institute noted in its 2017 comments to the Office of the U.S. Trade Representative, the organization supported updating NAFTA.

Also last week: the USTR and U.S. Labor Department announced the names of the six Americans with backgrounds on labor issues who will serve on the USMCA’s “rapid response labor mechanism” to investigate alleged labor rights violations. Click here for all of the USTR’s information regarding the USMCA.

Click here to read implementation instructions from U.S. Customs and Border Protection.