News Article

The USMCA is Transforming Mexico’s Automotive Industry

By Rodrigo Andrade | Tue, 08/30/2022 - 17:20

Mexico’s privileged geographical position facilitates trade with two of the most important economies around the world: the US and Canada. The trade agreement between the three countries opens the door to numerous advantages to the country’s key commercial sectors, but also brings several challenges. 

The USMCA entered into force on July 1, 2020, generating a constant back and forth between the three countries. While trade in products and services has grown since the implementation of the agreement, it is clear that the complex trade relationship in the region brings issues that need to be addressed. 

Automakers turn to Mexico tempted by the country’s location, manufacturing processes and industry regulations. Nearshoring is becoming an attractive solution for companies that have identified supply chain challenges in their international transportation logistics and are starting to seek manufacturing locations closer to their main markets. The USMCA’s rules of origin allow automakers in Mexico to efficiently optimize their trade with North America. 

The USMCA also introduced cohesive labor standards that led to reforms in Mexico’s labor laws. This move, however, also led to frequent complaints against the major companies in automotive industry and others following the Rapid Labor Response Mechanism, a tool designed to reinforce compliance with the labor commitments agreed in the USMCA. 

Mexico’s trade partners have also called for consultations to address the country’s energy policies, claiming they favor local state-owned companies in violation of the USMCA. This dispute has raised concerns among key players of the Mexican automotive industry, with the Mexican Association of the Automotive Industry (AMIA) warning that if the consultations resolve against Mexico, the repercussions could affect the automotive supply chain. The National Auto Parts Industry (INA) added its voice to the concerns, mentioning that the collaboration between countries of the region has been critical for the development of the Mexican economy in the last two decades, as reported by MBN. 

Other foreign policies could also affect Mexico’s automotive industry. For example, the US’s Inflation Reduction Act of 2022, recently approved by US President Joe Biden’s Administration, could also benefit the Mexican automotive industry. This measure includes a US$7,500 tax break for the purchase of EVs. Mexico’s Ministry of Economy (SE) celebrated that this act did not discriminate against the manufacture of auto parts and EV’s in North America. “In our region, we produce together to compete globally. We must deepen our productive integration to provide well-being to our societies and leave no one behind. We will continue to monitor [the bill’s] passage through the House of Representative,” said SE, as reported by MBN. 

The current state of the industry’s international relations will be discussed in Mexico Automotive Summit 2022 ECHO by Fausto López, Director of International Treaties and Customs, Volkswagen Mexico.

The event hosted by Mexico Business on Sep. 28-30, 2022, will feature industry leaders to discuss the latest trends impacting one of the most important sectors for the country’s economy. Do not miss the opportunity to get the insights of the Mexican automotive industry directly from the leaders who are transforming the sector. Tickets for the summit are available here.

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Rodrigo Andrade Rodrigo Andrade Junior Journalist & Industry Analyst