Remaining Competitive in the EV Market Against USCMA Restrictions
Accumulation, super-core calculation and automotive component qualification under the USCMA trade Agreement are crucial elements to remaining competitive in the electric vehicle market against the elevated EV inputs tariff and restrictions on automotive rules of origin.
As future trade actions remain unresolved and electric vehicle inputs are subject to high tariffs, EV producers in Mexico, the US and Canada that wish to qualify for duty-free treatment within North America, need to comply importantly with the USMCA’s rules of origin to remain competitive, advise legal experts from the industry-focused firm ArentFox Schiff.
EV producers have stricter rules of origin to follow under the USCMA Agreement as 75 percent of their supply chain is required to come from North America, including lithium-ion batteries, a rechargeable accumulator used in EVs, which are required to comply with 3.4 percent of rules of origin.
These rules, contrast with the 2.5 percent required for passenger vehicles and the 25 percent needed for trucks, become more challenging as the USCMA is also demanding higher wages under a Labor Value Content (LVC) accompanied with steel and aluminum purchasing requirements.
Initially thought to encourage investment, employment and production in the region expected to bring US$34 billion in five-years-time, the automotive restrictions have caused controversies among the three countries, with Mexico calling for a dispute panel to resolve strict rules of origin for the auto sector.
The trading partners are expecting the US to issue the Final Regulations on the Agreement throughout 2022, however, there is uncertainty on whether the resolution will improve the panorama for the auto industry.
Against these obstacles for EV producers, ArentFox counselors have advised to “rely on strategies such as accumulation and the super-core calculation, in addition to relying on the qualification of the other automotive components, to qualify the vehicle.”
Following this advice, EV producers and importers are suggested to comply strictly with the requirements before claiming USCMA adherence and avoid impositions, tariffs, or penalties through audits or enforcement actions imposed by the US Customs Border Protection (CBP), the entity in charge of verifying compliance with the USCMA.
This legal counseling comes at a time when Mexico has declared, through its Secretary of Economy Tatiana Clouthier, its disagreement toward the US initiative for a domestic electric car tax credit.
“Mexico is considering taking legal actions in response to what is discussed to be contrary to free trade and the USMCA trade Agreement, now that the US Congress and the UAW have proposed a US$12,500 domestic electric car tax credit […] supported by President Joe Biden, the United Auto Workers union and several congressional Democrats,” reported earlier MBN.