USMCA Automotive Rules Face Formal Review
The U.S. International Trade Commission has launched a formal review of the US-Mexico-Canada Agreement's automotive rules of origin. The review could reshape compliance obligations for North American manufacturers by altering local content calculations and documentation requirements. This action puts a spotlight on cross-border supply chains in the automotive sector.
- The USMCA mandates a 75% regional value content (RVC) for vehicles to qualify for duty-free treatment, an increase from 62.5% under the previous NAFTA agreement. - A key addition under USMCA is the Labor Value Content (LVC) requirement, which stipulates that 40-45% of a vehicle's content must be made in facilities where workers earn at least $16 per hour. - The agreement also introduced stricter metal sourcing rules, requiring that 70% of the steel and aluminum used by vehicle manufacturers originates in North America. - This review is the third of five biennial reports the U.S. International Trade Commission (ITC) is required to conduct by 2031 to assess the rules' economic impact, effect on U.S. competitiveness, and relevance in light of new technology. - A public hearing for this investigation is scheduled for October 14, 2026, with written submissions accepted until November 2, 2026, and the final report is due to be sent to the President and Congress by July 1, 2027. - A previous dispute over the rules was settled in January 2023, when a panel ruled in favor of Canada and Mexico's interpretation of how to calculate the origin of "core parts," allowing for a more lenient "roll-up" calculation than the U.S. had sought. - An earlier ITC report found the rules increased production costs and led some automakers to pay the 2.5% tariff rather than comply, while also increasing employment and revenue for U.S. auto parts producers. - The review is expected to heavily consider the rise of electric vehicles, as the original agreement did not fully anticipate the speed of the EV transition, creating potential divergences in how components like e-axles and new battery chemistries are treated.
