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1 1 (October 14, 2021)

handle is hein.crs/govegqa0001 and id is 1 raw text is: USMCA: Mt Vehicle -Provisions and Issues USMCA: Motor Vehicle Provisions and Issues Background The United States-Mexico-Canada Agreement (USMCA), ratified by Congress on January 16, 2020, and signedinto law on January 29, 2020 (P.L. 116-113), replaced the North American Free Trade Agreement (NAFTA) on July 1, 2020. NAFTA reduced and eliminated trade and investnrnt 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. NAFTA was instrumentalin reshaping the North American motor vehicle industry, which has become highly integrated and a major source of trade and investment among the three trading partners. NAF TA and Motor Vehicles NAFTA phased out tariffs on motor vehicles and parts over a 10-yearperiod. NAFTA, the U.S.-CanadaFTA of 1988, and the elimination of Mexican trade barriers were instrumentalin the initial integration of the North American motor vehicle industry. Productionof vehicles andp arts expanded significantly as majorU.S., Asian, and European automakers developed supply chains in the region. Major growth occurred largely in Mexico, which now accounts for 23% of total continental vehicle production and a s ignificant portion of duty-free trade in auto parts. Motor vehicles andp arts account for the highest share of U.S. imports from Canada and Mexico that claim NAFTA/USMCA duty-free benefits. As shown in Figure 1, 97% of U.S. imports in motor vehicles fromCanada and Mexico and 70% of U.S. imports in motor vehicle parts entered duty-free under NAFTA/USMCA in 2020. USMCA Key Changes The USMCA maintains NAFTA's tariff and nontariff market-opening provisions. Key changes include: New motor vehicle ROO and procedures with an increase in the North American content requirement fromNAFTA's 60%-62.5% to USMCA's 70%-75%. Requirements that 70% of the aluminumused in vehicles subject to tariff-free access be produced in Updated October 14,2021 North America and that70% of steelbe domestically melted and poured. New wage requirements stipulating that40%-45% of North American auto contentbe made by workers earning at least $16perhour, averagedby class, model or plant, with credits for research and development and productionin high-wage regions. (NAFTA did nothave a wage provision.) Figure I. Comparison of U.S. Imports from Canada and Mexico: NAFTA/USMCA and Other, 2020 ($ in billions, percentage imported under NAFTA/USMCA) 1% NAFTA/USMCA % Other MOTORV EH CLE M[TOR VEH CLE , ARTS COMPUTEY EQU 1ENT NONFERROUS EXC ALUMI ! 'OCE- N3 ELEC PCAL EQU 1EN-* AUDiO&' /DEOEQU PMEN * O-HER GENE.RAL PU3FOE 1A-INEF EROSPACE PROUC-. . P0AU - NAV GAT ONAL/MEAS[ Ne/MED CAL/ CONTROL 11S'. UMEPJ $O $20 $40 $60 $30 $100 $120 Source: Compiled byCRSwith USITCdata Trade Agreerments and Rukes of Origin ROO are used to determine the country of origin of imported products. PreferentialROOare applied in FTAs to ensure that a good receives preferential tariff benefits only if it 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 regionalvalue 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. 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 (MFN) tariffrates. For example, U.S. MFN rates are 2.5% for passenger vehicles and25% for trucks. Importers may choose to import underMFNrates ifthe costofcomplying with ROO requirements are higher, which could potentially increase inputs fromAsia or other countries outside the region. U.S. Motor Vehidle industry Globally, motor vehicle manufacturing has largely been reorganized around regionalrather thanpurely domestic supply chains. North America is the world's third-largest motor vehicle manufacturer, after China and the European

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