The government of Mexico has approved requests from 12 auto companies to extend the deadline for compliance with new regional content requirements set out in the Agreement between Mexico, the United States and Canada (T-MEC).
The companies have requested an “alternative transition system”, which extends the period to comply with regional content requirements and whose application procedures have been published in the Official Journal of the Federation (DOF) since April 30th. The order has been granted to Tesla, Volkswagen de Mexico, Volvo Car USA, FCA Mexico, Hyundai Motor America, Mazda Motor de Mexico, Toyota Motor de Mexico, Kia Motors Mexico, Kia Motors Manufacturing Georgia, Nissan Mexicana, Ford Motor Company, Cooperative Manufacturing Aguascalientes the plant. Big assembly companies like General Motors and Honda don’t appear on this list.
This system (RAT, for abbreviation in English) was created in Appendix 4-B of Annex 4 of T-MEC and allows auto manufacturers in Mexico, the United States and Canada to have an additional two years (five years in total), to comply with the requirements described in the Rules of Origin and thus Continue to benefit from your identification preferences, in accordance with the following application criteria for this Agreement.
It should be noted that manufacturers may order this system for up to 10% of their total vehicle production, as long as they present a detailed plan justifying how they will comply with the T-MEC’s standard rule of origin once they have completed all three. Additional years.
T-MEC defines rules of origin and procedures for new compounds, including product-specific rules that require 75% (previously 62.5%) of North American content.
For the first time in a business deal, wage requirements state that 40-45% of North American auto content must be manufactured by workers earning at least $ 16 an hour.
Unlike other industries, the automobile company will then have a period of flexibility to be able to comply with the procedures required in T-MEC’s new rules of origin.
Not that the entire sector has been postponed entry into force of new regional value content requirements to be eligible to enjoy tariff benefits, as required by the assembly and auto parts industries of the United States’ three-nation governments.
Before the T-MEC came into effect, Asian companies Mazda, Honda, Nissan, Toyota, Kia and Subaru were operating at an average of 59% of the Regional Value Content (VCR), according to information from the U.S. Vehicle Labeling Act.
Even with greater difficulties, European Audi, Mercedes Benz, Volkswagen and BMW companies own an average of 51% of the VCR.
What is the alternative transitional system?
• Created in Annex 4-B of Chapter 4 of T-MEC. Automakers in Mexico, the United States and Canada are allowed an additional two years (five years in total), to comply with the requirements described in the Rules of Origin and thus continue to benefit from tariff preferences.
• In April 2020, the Ministry of Economy published the procedures and requirements to be followed by automakers who wish to request the said flexibility
The vehicle producing company was required to submit its application including its detailed and reliable plan no later than July 1, 2020
• The transitional system will be in effect for five years after the entry into force of the treaty, unless the car manufacturer requests a longer period and the Ministry of Economy accepts that.
• After the end of the alternate transition period, all requests for preferential treatment for passenger vehicles and light trucks are subject to compliance with the rules of origin contained in the T-MEC Automotive Annex.