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1 1 (January 12, 2023)

handle is hein.crs/govekfx0001 and id is 1 raw text is: Congressional Research Service Informing th legislative dbate sinceo 1914 USMCA: Motor Vehicle Rules of Origin The United States-Mexico-Canada Agreement (USMCA), approved by Congress on January 16, 2020 (P.L. 116-113), entered into force on July 1, 2020. It replaced the 1994 North American Free Trade Agreement (NAFTA). Congress has an oversight role in its implementation and U.S. North American trade relations. The new rules of origin for the motor vehicle industry were relatively contentious in the USMCA negotiations and debate surrounding its passage. Rules of origin (ROO) are the criteria used to determine the national origin of a product. Most free trade agreements (FTA) have ROO provisions to determine which goods traded between member countries are eligible for preferential treatment. They generally seek to ensure that the benefits of the agreement are granted to goods primarily produced by a member country (and therefore subject to the entirety of its commitments) rather than to goods made wholly, or in large part, in other countries. Under USMCA, most goods that contain materials from non-USMCA countries may be considered as North American (i.e., eligible for preferential treatment) if the materials are sufficiently transformed in the region and the transformation results in a change in tariff classification (called a tariff shift). USMCA's general rule is that the regional value content (RVC) is not less than 60% if the transaction-value method is used, or not less than 50% if the net-cost method is used. Producers generally have the option to choose which method they use, with some exceptions, such as the motor vehicle industry, which must use the net-cost method. USMCA also has some product- specific rules for different industries, which in some cases include additional requirements, such as for textiles and apparel and motor vehicles and motor vehicle parts. Motor Vehicle ROO NAFTA phased out U.S. tariffs on motor vehicle imports from Mexico and Mexican tariffs on U.S. and Canadian products as long as they met the ROO requirements. USMCA maintains these tariff eliminations, but tightens the ROO, as shown in Table 1. It also has a new provision to streamline certification requirements and other provisions. Possible Effects During the negotiations, motor vehicle and parts producers generally supported retaining NAFTA ROO. Labor groups, however, sought to require a higher percentage of regional content, which they believed would reduce the share of parts produced outside the United States. Some economists contend that the higher RVC content requirement may have unintended consequences. For example, they state that it would be more cost efficient for motor vehicle and parts manufacturers to pay the 2.5% U.S. MFN tariff rather than meet the extensive ROO requirements. They argue that the new rules pose a risk to Updated January 12, 2023 North American auto production, because they may raise production costs, resulting in higher vehicle prices, reduced demand for motor vehicles, fewer auto exports, and incentivize more automation in motor vehicle production, thereby reducing demand for workers. Table I. NAFTA and USMCA Motor Vehicle ROOs NAFTA USMCA 62.5% RVC 75% RVC for passenger vehicles, light trucks, certain parts No labor value content rule LVC stating that 40%-45% of (LVC) (no wage requirement) qualifying vehicles be produced by workers earning at least $16 per hour No steel and aluminum 70% of a motor vehicle requirement manufacturer's steel and aluminum purchases must originate in North America Source: CRS based on text of USMCA and NAFTA agreements. The Congressional Budget Office (CBO) estimated that USMCA's stricter ROOs for motor vehicles and new wage requirements would result in a decline in duty-free imports of motor vehicles and parts into the United States. A portion of that decline would be replaced by domestic production, while a portion would be replaced by imports subject to duties. CBO estimated that U.S. importers of motor vehicle and parts not meeting the higher ROO requirements will pay approximately $3 billion in duties over the next decade upon full entry into force. A 2019 USMCA study by the U.S. International Trade Commission stated that the ROO changes would have the most significant effects on the U.S. economy and the motor vehicle industry and could lead to price increases or vehicle consumption decrease in the United States. Auto manufacturers in Mexico are concerned that they may lose U.S. market share to auto imports from Asia. Even with these concerns, some motor vehicle producers support USMCA and say that complying with the new rules of origin may be challenging, but probably manageable. Entry ioForce and lmkm ntdo USMCA entered into force on July 1, 2020. To help importers adjust to the new rules under USMCA, U.S. Customs and Border Protection (CBP) established the USMCA Center to coordinate implementation of the trade agreement. CBP staff at the center organized outreach events, developed information resources, and provided technical guidance to public and private sector stakeholders. USMCA provides a three-year transition period for the new ROO. It also allows vehicle producers to request an

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