Jose Zozaya
Executive President


Expert Contributor

Mexico Auto Industry Expects Good Results From USMCA Inquiries

By José Zozaya | Wed, 09/28/2022 - 12:00

The treaty that allows commercial relations between Mexico, the US, and Canada, the USMCA, has resulted in great benefits for different sectors. One, of course, is the North American automotive industry, which contributed 16.8 percent of global vehicle production in 2021. In other words, it has been transcendent for the three markets by facilitating a supply and production chain that could hardly be achieved without this business bridge and whose objectives could not be achieved in isolation.

As we know, two important USMCA dispute resolution consultation processes are underway. One relates to the automotive industry since it is about the differences in interpretation that persist in the three countries regarding the rules of origin applied to the sector. This one was requested by Mexico and Canada. The second and most watched is that which refers to energy matters. It involves  possible violations committed by Mexico, which is giving priority to one of its biggest national companies, the Federal Electricity Commission (CFE), over international companies.

Although President Andrés Manuel López Obrador has assured that Mexico will defend its sovereignty and will not give in to Canada or the US, other figures, such as Economy Minister Tatiana Clouthier and Foreign Affairs Minister Marcelo Ebrard, have pointed out that the possibility of abandoning the binding treaty of the three nations is not on the table.

As Clouthier has noted, if all parties start moving toward agreements and agree, the period of consultation could be extended over the 75 days that were originally assigned and which started on July 20. Such declarations demonstrate the willingness of Mexico for dialogue and the intention to avoid a panel of resolutions. But it also showcases the undoubted need among the three countries to find solutions that allow them to work together. If there is not a mutually beneficial solution, a panel will take place.

In this context, it is relevant to mention one of the most recent achievements that have occurred for the benefit of North America and that gives us an example of why the cooperation between the three countries is important for the progress of this treaty: the promotion of electromobility by the US, through the approval of tax credits for electric cars, whose batteries contain minerals extracted or processed in one of the countries that are part of the USMCA, which translates into a joint and integrated advance toward the search for alternatives that will support the energy transition in the automotive industry. 

Sectoral data from recent years shows the treaty has provided beneficial results for Mexico. For example, in the last five years, 20 percent of foreign direct investment has gone to the automotive industry. In particular in 2021, 53 percent came from the US and Canada.

On the other hand, Mexico has positioned itself as the seventh-largest producer and fifth-largest exporter of vehicles in the world. In addition, between 2011 and 2021, Mexico increased its share of regional production by 4 percentage points. Recently, Claudia Sheinbaum reiterated on Twitter that Mexico is the leading exporter of light vehicles to the US; according to data from the Mexican Association of the Automotive Industry (AMIA), the country has a 35 percent share. 

Regarding the national economic impact of the USMCA and the automotive industry, it is worth noting that the sector is the main generator of foreign exchange, producing 32 out of every US$100 of manufacturing exports. Given its relevance to Mexico, AMIA highlights that the automotive sector requires energy that must be sufficient, clean, and in line with international goals in terms of environmental protection.

In summary, the USMCA has allowed Mexico to position itself as an attractive country for investments, preventing those investments from being directed to other nations. Those investments highlight Mexico’s internationally competitive character and are aimed toward compliance with environmental commitments. For this reason, the scope of agreements and a satisfactory result are desired since the opposite could cause significant consequences. For example, in a scenario in which Mexico decided to stop promoting renewable energy, this would result in a loss of investment, commercial retaliation over carbon emissions as well as affect job creation.

Even though López Obrador had announced that on Sept. 16 he would share a statement regarding the  controversies in energy matters, he recently said that he will not do so. However, since his rhetoric  has significantly changed over recent weeks, the automotive industry, including (AMIA will be very aware of the development of events and we trust that the consultation process will reach satisfactory results for the three partners, Mexico, the US, and Canada.

Photo by:   Jose Zozaya