USMCA Transition Has Been Difficult for Some in Auto Sector

The shift from NAFTA to USMCA has been taxing for vehicle manufacturing sector companies, panelists on a KPMG seminar said about the trade deal, one year in. But for Georgia-Pacific, compliance is simpler after the rewrite. Myesha Cottom, director of international trade at Georgia-Pacific, said that getting rid of the template for NAFTA goods and going to minimum data elements means less administrative burden. "I’m optimistic that the administrative burden will continue to decrease," she said during the July 28 webinar.

The experience is completely the opposite at Magna International, a multinational auto parts manufacturer, and at Polaris, which makes ATVs, electric golf-cart style shuttles and snowmobiles. When asked what has been a challenge about the change-over to USMCA, Karin Muller, director-customs compliance at Magna International, replied: "What hasn't been a challenge?"

She said that trade professionals in the auto sector have had to unlearn NAFTA and learn USMCA in six months. "Anyone in compliance or anyone responsible for implementing USMCA in their organization deserves an Olympic gold medal," she said.

Not only is USMCA very different from NAFTA for her industry, she said, there have been inconsistencies in both interpretation and application of its rules. And, she complained, even though the auto sector has now exited the period of restrained enforcement, the final rules have not yet been published.

Aasha Wanless, director of global trade compliance at Polaris, said that some terms in the regulations that have been published are not defined, and in some cases, the regulation contradicts itself. She said the rules for off-road vehicles changed dramatically from NAFTA to USMCA.

Asked how USMCA has changed companies' certification processes with vendors and with customers, Magna's Muller said she doesn't "think the USMCA solicitation process [of vendors] is so much different from the NAFTA process, it’s just that there’s more of it." She gave the example of stampings. In the past, it could be qualified as originating under NAFTA "through a simple tariff shift." Now, it's considered a core part, so Magna has to solicit for certification from its suppliers.

Wanless said that Polaris has changed sourcing of subassemblies to make parts qualify, and has also started using the intermediate material rule more often. She said that has had a huge impact on profits. But, she said, the administrative burden has led Polaris to hire a team in India that handles solicitation and qualification.

Andrew Doornaert, a managing director at KPMG in trade and customs, advised listeners: "Be sure you're including all costs," such as the cost of tools and dyes, molds, materials consumed in the building of equipment.

Wanless said the complexity of USMCA for her sector has caused purchasing, trade compliance, and business side teams to all work together. The business side makes the final decision on whether it makes sense to work to meet the rules of origin, or just pay duty "because we would rather not spend the money to get parts to qualify." She said Polaris intends to extend that kind of coordination to identify if there are ways to take better advantage of Mexican free trade agreements with countries in Central or South America as it exports products built in Mexico to other countries in the hemisphere.

At Magna, Muller said she hasn't seen any changes in sourcing, but said it could be that once the regional value content requirement rises over the phase-in period, it could happen. She said Magna's customers, the automakers, are still figuring USMCA out. They are asking Magna to prove that its parts can contribute to the labor value content requirements, which aim to keep a substantial minority of the car or truck's production in plants that pay at least $15 an hour to line workers.

Muller said divisions are not to do their own labor value calculations, and that trade compliance does not sign off on the statement. Instead, she said, Magna identifies which factories do not meet the $15/hour standard, and customers are provided with that "exceptions" list. Every February, the corporate headquarters staff reviews compensation, and the executive vice president signs off on the statement. She said most customers have accepted this approach.