As the decision on whether to extend the United States-Mexico-Canada Agreement (USMCA) approaches in a month, the domestic automotive industry is on high alert. Reports indicate that the U.S. has proposed increasing the domestic content requirement for auto parts and materials to over 50%, raising concerns among companies operating in Mexico.
According to industry sources, the U.S. and Mexico-Canada are currently conducting a joint review ahead of the USMCA extension decision scheduled for July 1. The USMCA, which took effect in July 2020, includes a sunset clause that mandates a review every six years to determine whether to maintain the agreement.
During recent bilateral talks between the U.S. and Mexico, key issues included reducing the trade deficit with Mexico and strengthening U.S. supply chains. Discussions also covered significant topics such as auto origin regulations, steel and aluminum tariffs, and economic security.
According to reports from outlets like The Wall Street Journal, the U.S. negotiating team is considering raising the domestic content requirement for auto parts and materials to over 50%. Additionally, they proposed increasing the threshold for tariff-free benefits from 75% to 82% for parts sourced from the U.S., Mexico, and Canada. This proposal reflects the initial stance of the Trump administration and may change during negotiations.
Domestic automakers and parts suppliers are closely monitoring the USMCA negotiations. If the domestic content requirement is enforced, companies like Hyundai Mobis, SL, and Sambo Motors, which operate production bases in Mexico, will likely need to overhaul their supply chains.
An industry representative expressed concern, stating, "We have established production bases in Mexico based on relatively low labor costs, and we are worried. If the domestic content requirement is strengthened, we will need to explore partnerships with U.S. suppliers and expand local production."
Hyundai Mobis, for instance, supplies parts to Kia's plant in Pesquería, Mexico, from its facility in Nuevo León. SL has established a new plant in San Luis Potosí, capable of producing up to 1 million headlamp modules annually.
Automakers receiving parts are also expected to be affected. Global manufacturers, including Hyundai, Kia, Toyota, and Nissan, are concerned about potential cost increases due to stricter origin regulations. There are also worries that the profitability of some lower-cost models could decline.
Industry experts believe there is a strong possibility that U.S. demands will be reflected in the negotiations. The Korea Automotive Technology Institute analyzed in a report published in February that the U.S. holds a structural advantage in negotiations, being the largest market among the three countries and the top exporter of automobiles to Canada and Mexico.
The institute projected, "If the U.S. government strengthens origin regulations as desired, the burden on automakers will vary based on production scale and the proportion of U.S.-sourced parts."
* This article has been translated by AI.
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