New US approach to rules of origin is as strict as original proposal, says Mexican official

New US approach to rules of origin is as strict as original proposal, says Mexican official

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The United States has adopted a new approach to one of the key points to advance the renegotiation of the North American Free Trade Agreement (NAFTA), according to sources from Bloomberg.

Under the current NAFTA, at least 62.5% of the parts of a car or light truck must originate in the United States, Canada or Mexico to avoid tariffs, but the Trump administration has sought to raise the threshold to 85% and half of the content is made in the United States.

However, now the US government supposedly seeks to distinguish between different parts of cars and group them into five categories. With this measure, the United States would apply the 85% threshold to the main auto components, such as transmissions and engines, but not for simpler parts like nuts and bolts.

One of the problems with this alleged proposal, commented one of the sources, has to do with the fact that many of the automobile manufacturers build important components abroad and assemble them in North America.

The new rule of origin would also be very difficult to meet for the industry in the region, said a high-level representative of the Mexican automotive industry on Monday.

The technical negotiators from Canada, the United States and Mexico plan to analyze this week the issue in Washington, said the general director of the Mexican Association of the Automotive Industry (AMIA), Fausto Cuevas.

"It is very difficult to achieve these values of regional content raised by the United States," Cuevas explained at a press conference. "We have been discussing this same position with our counterparts in Canada and the United States, and they have the same impression," he added.

In addition, the United States proposed eliminating the tracking list of the components, a tool that allows that when any part includes the 62.5% stipulated content made in North America, it can be considered as 100% original and thus adds to the final calculation.

The new proposal supposes to eliminate this system and to do the direct accounting, that is to say, it would only consider the net regional content.

The Trump administration also proposed that 40% of the total components of a vehicle to be manufactured with a salary between US$ 16 and US$ 19 per hour on average, Cuevas said.

"As an industry, we are aware that it is very difficult to reach these levels of regional content," reiterated the director of AMIA. "The new proposal contains elements that make it even more strict and unreachable than the original proposal," he added.


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