As of May 31, industry sources report that the U.S. and Mexico-Canada are 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 of the agreement every six years.
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 automotive origin regulations, as well as critical matters related to steel, aluminum, and economic security.
According to reports from outlets such as The Wall Street Journal, the U.S. negotiating team is considering a plan to raise the domestic content requirement for auto parts and materials to over 50%. Additionally, there is a proposal to increase the threshold for receiving tariff-free benefits from sourcing over 75% of parts from the U.S., Mexico, and Canada to 82%. 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 implemented, companies like Hyundai Mobis, SL, and Sambo Motors, which operate production bases in Mexico, will likely need to overhaul their entire production and sourcing systems.
An industry insider 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 may need to explore partnerships with U.S. suppliers and expand local production."
Hyundai Mobis, for instance, supplies parts to Kia's Pesquería plant in Mexico from its Nuevo León facility. SL has established a new factory in San Luis Potosí, capable of producing up to 1 million headlamp modules annually.
Complete vehicle manufacturers receiving parts are also expected to be affected. Global automakers, including Hyundai, Kia, Toyota, and Nissan, have previously expressed concerns about potential cost increases due to stricter origin regulations. There are worries that rising costs could negatively impact the profitability of some lower-priced models.
The industry leans toward the likelihood of U.S. demands being reflected in the negotiations. The Korea Automotive Technology Institute, in a report published in February titled 'USMCA Joint Review: Trends in the Automotive and Parts Sector,' analyzed that the U.S. holds a structural advantage in negotiations as it is 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 in the desired direction, the burden on automakers will vary based on production scale in the U.S. and the share of U.S. parts procurement."
* This article has been translated by AI.
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