CPTPP Could Clear the Way for Automakers in Mexico

 

Automotive companies based in Mexico would be able to choose between rules of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and those established in the United States, Mexico and Canada Agreement (USMCA) for exports to the Canadian market.

Regional content is the key to unlock trade benefits in the North American region. If a car assembled in Mexico has components of several of the 11 CPTPP-member countries, it could be exported to Canada under CPTPP conditions instead of those established by USMCA that require a 75 percent of regional content.

CPTPP’s accumulation rule states that inputs from all country members will always be considered equal, as long as they are used to manufacture products in any country that belongs to this trade block. USMCA’s rules of origin, on the other hand, establish different conditions that give a component more or less weight in terms of compliance depending on where it was manufactured. Labor Content Value, which establishes a salary of US$16/hr for a component to be considered local, is one of the factors that could have potential implications for Mexican manufacturers.

Another requirement is that 70 percent of the steel and aluminum used in North American vehicles must be produced by USMCA-member countries, which is worrying Queretaro automotive companies. “How to comply with this rule has implications yet to be seen,” warned the Queretaro Automotive Cluster.

USMCA is yet to become a reality, however, pending ratification in the US. Speaker of the House Nancy Pelosi is set to move forward with the impeachment process against President Donald Trump, which could delay ratification even further.