Regional content per vehicle in Mexico and the United States increased 23% in 2023 compared to 2019, according to data from the Nuevo Leon Automotive Cluster.
Thus, the regional content per vehicle increased from $23,923 to $29,457 per unit.
The United States is the main trade and investment partner of Canada and Mexico. The three countries put the North American Free Trade Agreement (NAFTA) into effect in January 1994. Since July 2020, this trade agreement has been replaced by the Agreement between Mexico, the United States and Canada (USMCA).
In the automotive sector, the USMCA introduced specific changes to the rules of origin. These rules determine the value to be added or processes to be carried out within the territory of one or more parties to the USMCA. Thus, a good may be considered “USMCA originating”.
If a good obtains this status, it benefits from preferential treatment. In other words, it may be imported into Mexico, the United States or Canada without paying tariffs.
Regional content per vehicle
The USMCA increases the regional content requirements for automobiles marketed under it. Previously, NAFTA required 62.5% of the value of an automobile’s parts to come from North America. Now, the USMCA raises this percentage to 75 percent.
In addition, under the USMCA, North American automakers must purchase at least 70% of their steel and aluminum in the United States, Canada or Mexico. Added to this is another requirement: 40-45% of the manufacturing costs of imported cars must be generated by workers earning at least $16 per hour.
Effects of the rules of origin
The International Trade Commission (USITC), in its June 2023 report, estimated that through the end of 2022, the USMCA automotive rule of origin had a marginal impact on U.S. competitiveness. However, the full effect of this rule will not be clear until it is fully implemented in 2027.
The USITC also noted other relevant factors. For example, supply chain disruptions due to the Covid-19 pandemic affected more than the rule of origin during the analysis period (July 2020 to December 2022).