CUSMA/USMCA and the Automotive Industry: Rising Regional Value Content Requirements for Vehicles and Auto Parts

Source: Canada US
Link: CUSMA/USMCA and the Automotive Industry: Rising Regional Value Content Requirements for Vehicles and Auto Parts

CUSMA/USMCA will come into force on July 1, 2020, at which time increased and more complex Regional Value Content (RVC) requirements for both vehicles and automotive parts will be effective.  The RVC for passenger vehicles and lights trucks will increase to 66% on July 1 and for heavy trucks, it will be 60%.  The chart below summarizes the transition of those requirements to their final RVC of 75% and 70%, respectively.

Similarly, the regional value content requirements (RVC) for automotive parts will increase, but determining the applicable RVC for a particular part will be more complex.  The RVC for a part will depend not only on its description and tariff classification, but also on how it is used and into which of the parts categories it fits.  To qualify as originating, some parts may require a change in tariff classification requirement, an RVC or both.  Where a part must satisfy an RVC requirement, the following chart generally describes the RVC that will apply following the applicable transition periods, based on the category of part and the type of vehicle into which it will be incorporated.  The transition period for the listed parts categories for use in passenger vehicles and light trucks is 3 years, ending July 1, 2023.  For heavy trucks, the transition period will end on July 1, 2027.  The higher RVC for the listed engines and gear boxes incorporated into Other Vehicles (e.g. ambulances, motor homes, vehicles for the transport of more than 15 persons, etc.) kicks in immediately on July 1, 2020.

Detailed descriptions of the Parts Categories can be found in Tables A.1 – G of the Uniform Regulations . The Uniform Regulations were posted on June 3, 2020 on the USTR website and, as of June 28, remain subject to legal review and authentication.

Most vehicle producers also face new certification requirements in the form of:

1. Minimum Steel purchase requirements where 70% of corporate purchases must be originating;
2. Minimum Aluminum purchase requirements where 70% of corporate purchases must be originating; and
3. Minimum Labour Value Content requirements where a certain minimum percentage of the vehicle must be produced using high-wage labour.

The detailed requirements of these three requirements remain somewhat unclear, but it is possible, if not likely, that vehicle producers will look to their auto parts suppliers for information that will support the vehicle producer’s certifications of compliance.  While the U.S. Government, as part of its Updated Interim Implementing Instructions (June 16, 2020), has issued non-binding guidance on their intended application of certain of these requirements, further guidance has not yet been provided by the Canadian Government.

We will continue to monitor for updates.  Please do not hesitate to contact me if you would like further information, training, or other support to implement the new CUSMA/USMCA requirements.  I can be reached at (416) 350-1234 or at heather@lexsage.com.