The governments of Canada and the United States recently initiated procedures whereby automakers may request an alternative transition plan or “staging regime” to bring their production into compliance with the strict new origin rules in the revamped North American Free Trade Agreement.
New Origin Rules
NAFTA required automakers to use 62.5% of North American-made parts in their cars to be imported duty free. The USMCA/CUSMA gradually raises the bar to 75% by 2023. Additionally, the new agreement also mandates that automakers manufacture 40% of their motor vehicles in facilities where assembly workers are earning at least US$16 an hour.
According to an April 21 Federal Register notice issued by the U.S. Trade Representative, interested North American producers of passenger vehicles or light trucks must submit a petition with a draft alternative staging plan no later than July 1, 2020; and a final alternative staging plan, correcting any deficiencies, must be submitted no later than August 31, 2020.
The USTR indicates that producers of heavy trucks or other vehicles, although having other rules of origin and regional value content requirements, may also request the alternative staging regime through this process.
Petitioning for an Alternative Staging Regime
Vehicle producers must provide detailed business information in their alternative staging proposals, along with a “credible plan” that includes:
- how the vehicles meet the eligibility requirements; a description of the changes planned to become compliant with the applicable USMCA rules of origin;
- an annual calendar of new investments, sourcing changes, jobs, and other changes to operations, beginning with changes that occurred in calendar year 2019, and plans for 2020–2025;
- and a description of the corporate approval process for investments, sourcing changes, and other operational changes.
USTR Review and Approval
In making a final decision, the USTR says it will consult with the recently formed Interagency Committee on Trade in Automotive Goods to determine whether to authorize a proposed alternative staging regime.
If the plan is approved, during the five-year transition (or seven years for heavy trucks), approved vehicle producers can avoid the 2.5% duty that must be paid for many noncomplying vehicles under the current NAFTA regime.
Separate Approvals Required for Each Country
Approval by USTR to use an alternative staging regime applies only to the vehicle producer’s eligibility to use the regime for imports into the United States.
The USTR notes that vehicle producers will need to provide a similar petition to Canada and/or Mexico under their respective procedures, in order to have the petition approved by each of the countries that are parties to the USMCA.
Global Affairs Canada issued an advisory dated April 24 to producers of passenger vehicles, light trucks and heavy trucks concerning the eligibility to apply for alternative staging regime under CUSMA/USMCA. Applications must be submitted by July 1, 2020.
Requests for alternative staging (if covering more than 10% of the producer’s total North American production) must be supported by the information outlined the U.S. Federal Register notice, along with a “detailed and credible plan.”
Petitions for alternative staging under provisions of the Treaty between Mexico, the United States and Canada (T-MEC) must be made to the Ministry of the Economy via e-mail or to Pachuca # 189, Ground Floor, Col. Condesa, Alcaldía Cuauhtémoc, CP 06140, Mexico City.
It is understood that the information required by the Mexican government is the same as that outlined in the U.S. Federal Register notice.
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