The Mexican government published a decree on Monday to replace NAFTA with USMCA.

One of the main changes that the USMCA contains are the rules of origin in the automotive sector.

In this sense, for the cars, the USMCA increases the Regional Content Value (VCR) from 62.5% to 75%, with a new methodology.

It also establishes a Labor Content Value (VCL) of 40%. That is, 40% of the value of the vehicle must be produced using wages, at least US $ 16 per hour.

With the new treaty, credits of up to 10% may be obtained for activities related to research and development and information technologies. Credits of up to 5% for the manufacturing capacity of engines (100,000 units), transmissions (100,000 units) and batteries (25,000 units).

Likewise, 70% of the steel and aluminum must be from the North American region. The following so-called “essential” auto parts must meet 75% VCR on average (value): engines, chassis & body, gearbox, axles, suspension, steering system and batteries.

Discussion on the proposal that 70% of aluminum in cars be smelted in the region was postponed for 10 years.

A seven-year transition period was negotiated so that 70% of the steel in cars is found in the region.

USMCA

The Ministry of Foreign Relations (SRE) published the Decree on Monday, with its entry into force on July 1, 2020, according to the publication issued by the Ministry of Foreign Affairs.

Furthermore, as part of two other major changes to the T-MEC, each Party undertakes to establish in its labor legislation the recognition and respect of fundamental rights recognized under the International Labor Organization (ILO); as well as the obligation to enforce them:

• Freedom of association and the effective right to collective bargaining.
• Elimination of all forms of forced and compulsory labor.
• Effective elimination of child labor.
• Elimination of discrimination in work and occupation.

Additionally, it includes an annex on the implementation of the Mexican labor reform in relation to the negotiation of collective labor contracts.

Labor

In particular, the annex obliges the Mexican government to include provisions in its internal legislation that ensure that, prior to the initial registration of a collective labor contract or during the revision thereof, through the individual and secret vote of the workers, that the contract have the support of the majority of workers.

Cases of sustained or recurring action or inaction in the application of labor legislation by a government, affecting trade and investment, will be subject to the dispute settlement mechanism of the Treaty.

The USMCA allows not only to raise tariffs, but also to block exports from one country to another country in the region, if labor violations by a manufacturing facility, services or involving mining are repeated.

It establishes an expedited panel for certain violations in labor matters, when they involve breaches of the treaty referring to the approval of a union leader and to the constitution or modification of a collective contract.

Creates “an inter-institutional committee” that will oversee the implementation of the labor reform in Mexico, and the requirements of continuous labor reports for Congress.