August 2020 Volume 2

WASHINGTON UPDATE

USMCA Conference Call: FIA Members Q&A By FIA Staff

2. What’s the assessment of the supply chain? The global nature of the supply chain does make it fairly easy to resource from one country to another and still have the base component coming from the original country, so you’re resourcing on paper and not necessarily in effect. USMCA applies to the North American-produced vehicles that are moved between North American countries. 87% of vehicles built in the U.S. are not traded (they’re sold in U.S.). What happens to the supply chain and all of the USMCA compliance is not a factor for those vehicles. 3. What is the assessment of economic impact? The U.S. ITC report is quite comprehensive, predicting very little movement and a slight increase in costs to all producers and consumers in North America. 4. What will be the biggest challenges for OEMs to be compliant? The largest automakers are in fairly good position to be compliant in the three year compliance window. They can apply for an extension for five-year compliance, but they have to meet other rules for that. Those plans are due to the government by the end of August, 2020, and then they have to work through that alternative staging. The biggest challenge is getting vehicles out of Mexico due to the labor value content rule, the most restrictive rule. About 30% of Mexican production does not meet USMCA rules right now. Many of these International OEM producers don’t have engine and transmission production in North America, but they're assembling in the U.S. for sale in the U.S. For example, OEMs such as Daimler, BMW, and Subaru are building in the U.S. market and exporting to China or Europe but not selling a lot from their U.S. plants into Canada or Mexico; selling non-traded vehicles, they have no need to be USMCA compliant. 5. Will certain OEMs benefit or be disadvantaged due to USMCA? Which ones? Those that don't have a production footprint in the U.S. or Canada are a little bit worse off. Mazda, for example, is only producing in Mexico and Japan. Mazda is in a bit more of a difficult position than those who might have designs on the Canadian or Mexican markets and don't have powertrain production in the U.S., Canada, or Mexico. We're at a very difficult point in the powertrain evolution. International producers aren’t going to want to put down new internal combustion powertrain production plants in North America if they are on an arc of moving to electrified vehicles from old-style engine transmission operation and when they're maybe five years away from greater electrification across your product line.

FIA members were invited to a USMCA Question & Answers conference call on July 16, 2020. The call’s panel included representatives from the Center for Automotive Research (Ann Arbor, MI) and Cassidy Levy Kent LLP (Washington D.C.). More than 40 FIA members participated and generated 21 questions for the panel. What follows is an edited-for-print transcript of the conference call. The answers represent the combined content of the panel’s responses to each question. The full conference call recording is available for FIA members only at www.forging.org/ member-services/fia-webinars. Disclaimer: The discussion provided herein is for informational purposes only. With respect to Tom Beline and Bill Baldwin (Cassidy Levy Kent LLP), the views presented are their own, should not be attributed to their firm or clients, and are not intended to be providing legal advice. 1. What is the overall assessment of USMCA vs NAFTA, both long term and short term? As of July 1, 2020, NAFTA is no more. USMCA is now the way to obtain trade preferences in North America. USMCA does not move the needle, and overall, makes things more restrictive for trade in North America. More work may come into North America, as USMCA covers everything in the vehicle, unlike NAFTA. USMCA is a much more modern approach to being fully encompassing. Due to USMCA being more restrictive, the ITC Commission predicts lower production in North America and higher vehicle costs may lead to lower vehicle production in North America and higher costs.

FIA MAGAZINE | AUGUST 2020 29