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1 1 (December 13, 2019)

handle is hein.crs/govease0001 and id is 1 raw text is: aIn ri in- th leiliv dbae ine1 4 December 13, 2019 USMCA: Motor Vehicle Provisions and Issues Background The proposed United States-Mexico-Canada Agreement (USMCA), if approved by Congress, would revise and replace the North American Free Trade Agreement (NAFTA), which has been in force since January 1, 1994. NAFTA eliminated trade and investment barriers between the United States and two of its largest trading partners, Canada and Mexico. It was the most comprehensive free trade agreement (FTA) negotiated at the time and contained groundbreaking provisions in areas such as market access, rules of origin (ROO), intellectual property rights, services, investment, dispute settlement, and worker rights. The North American motor vehicle industry is highly integrated, partially as a result of NAFTA and is a major source of trade and investment among the NAFTA partners. The changes in the proposed USMCA provisions have implications for the motor vehicle industry in all three countries, as well as for future U.S. trade policy. NAF TA and Motor Vehicles NAFTA phased out tariffs on motor vehicles and parts, and other trade barriers, such as Mexico's auto decree, over a 10-year period. NAFTA, the U.S.-Canada FTA of 1988, and the elimination of Mexican trade barriers were instrumental in the integration of the North American motor vehicle industry. The integration of the North American motor vehicle industry expanded under NAFTA with major Asian and European automakers constructing their own supply chains within the region. The major growth occurred largely in Mexico, which now accounts for about 20% of total continental vehicle production. The highest share of U.S. trade with Mexico is in the motor vehicle industry; it is also the industry that makes the most use of NAFTA duty- free treatment (see Figure 1). USMCA Key Changes The proposed USMCA would maintain NAFTA's tariff and non-tariff market-opening provisions. Key changes from NAFTA would include * New motor vehicle ROO and procedures. * Increase in North American content requirement from NAFTA's 60%-62.5% to 75%. * 70% of a vehicle's steel and aluminum must originate in North America, and the steel must be domestically melted and poured. (NAFTA does not have similar provisions.) * Wage requirements stipulating that 40%-45% of North American auto content be made by workers earning at least $16 per hour, averaged by class, model or plant, with credits for R&D and production in high-wage regions. (NAFTA does not have a wage provision.) * Additional side letters that would exempt from potential Section 232 tariffs: 2.6 million passenger vehicles each from Canada and Mexico annually; light trucks from Canada or Mexico; auto parts imports amounting to $32.4 billion from Canada and $108 billion from Mexico in declared customs value in any calendar year. Figure 1. U.S. Imports from Canada and Mexico: NAFTA and Other Programs, 2017 ($ in billions, percentage of imports covered by NAFTA) Source: Compiled by CRS with USITC data. rof ,X- Agrt d s of Origin ROO are used to determine the country of origin of imported products. Preferential ROO are applied in FTAs to ensure only eligible products receive preferential tariff benefits if the good is made wholly or in large part within the region. If the good is not wholly obtained in the region, a tariff-shift method and/or regional value content (RVC) method is applied to determine origin. Goods may qualify if the materials are sufficiently transformed within the region to go through a Harmonized Tariff Schedule (HTS) change in tariff classification (also known as a tariff shift). In many cases, goods must meet a minimum level of RVC, in addition to undergoing a tariff shift. RVC may be calculated using the transaction-value or the net-cost method. A good would meet RVC requirements if regional transaction- value is at least 60% or regional net cost is at least 50%. However, like NAFTA, USMCA has a separate set of ROO for motor vehicles and parts in which RVC must use the net-cost method. If preferential ROO requirements are not met, the good will be imported under most-favored nation ttps://crsreports.congross.o

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