Making a Flawed USMCA Work

It’s been a challenging year for the automotive industry, with the COVID-19 pandemic, factory shutdowns and restarts, and the economic downturn.

At the same time, we are grappling with the new U.S.-Mexico-Canada Agreement (USMCA), which was approved for a July 1 start, triggering both positive reactions and pain points.

There is no doubt the outdated 1994 North American Free Trade Agreement (NAFTA) had to be renegotiated. Since its inception, the global auto industry has changed at internet speed.

Vehicles today are widely described as “mobile phones on wheels.” China is now the world’s largest automobile market, with more than 400 electric-vehicle startups.

The Big Three U.S. tech companies – Alphabet, Amazon and Apple – are building a presence in the future-mobility business. Drones will soon become commonplace conveyances for pizza, medicine and even people.

Against this rapidly changing backdrop, ratification of USMCA became critical to the economic survival and long-term stability of the North American neighbors. There is much at stake for all three countries, including the competitiveness of the North American auto industry versus the rest of the world.

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We lost the opportunity to make USMCA a 21^st-century global gold standard for trade. Parts of the agreement were not changed or updated to reflect the 21st century, such as the chapter on immigration.

In addition, a number of administrative processes could have been eliminated or improved upon. Finally, the non-automotive rules of origin did not change, and a number of rules could have been updated or added.

The negotiation of the new agreement was aggressive and quick. Under normal circumstances, trade agreements take up to four years of back-and-forth discussion. This agreement was negotiated in less than two years.

In addition, questions remain about how much more USMCA might add to the cost of a vehicle, at a time when even a modest price hike is worrisome to the industry and consumers.

With USMCA, there are complex new automotive rules that people must learn, understand and apply – from our customer base to our supply base.

To ease the transition to this new free-trade agreement, Magna is part of an industry group of trade experts and technical-minded people, including vehicle producers and suppliers, working to help the auto sector simplify and minimize the burden the agreement will impose on our industry.

Our priorities include standardizing documentation to streamline and minimize the added administrative burden; understanding the roles and responsibilities of suppliers and vehicle producers; seeking clarification in interpreting the rules; and creating industrywide training.

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We must and will make USMCA work, partially by reinventing how we do things under this new free trade agreement. We must look at our systems, educate our suppliers and manage our customer requests.

It may take a couple of years before we progress through the pain together and make USMCA a win-win-win for all.

Karin Muller (above, left) is Director of Customs Compliance and Trade Governance for Magna International.