Are content provisions for fabricated metal products suggested in USMCA?

2022-09-17 01:37:13 By : Ms. Connie Yip

The new, very detailed report from the U.S. International Trade Commission (ITC) makes it clear that the major manufacturing provisions in the proposed U.S.-Mexico-Canada Agreement (USMCA) have to do with automobiles, and a key aspect of those provisions is steel and aluminum purchasing requirements. But it also might involve other fabricated products that include steel.

The bottom line is that 70 percent of the steel and aluminum used in cars and trucks manufactured in the U.S. would need to come from one of the three countries. The ITC report states: “Many vehicle manufacturers would need to modify their supply chains to fully comply with the new provisions, which would increase the cost of producing vehicles in North America.”

But the 70 percent steel and aluminum requirements will apply to a number of other manufacturing sectors beyond automobiles, although it is unclear what the full range of sectors will be.

“Too many people view NAFTA as just about cars when the agreement impacts virtually every aspect of the manufacturing sector,” said Omar Nashashibi, founding partner with The Franklin Partnership and a lobbyist for the Precision Metalforming Association (PMA) in Washington, D.C. “If the new NAFTA takes effect, you could see significant changes in supply chains for agribusiness, electrical, and other industries as multinationals examine expanding operations in Mexico and domestic companies re-examine their steel and aluminum sourcing to meet regional value content requirements. At PMA, we are advising our members in the U.S. to watch for increased competition from Mexico and additional demands from customers.”

The USMCA’s automotive provisions have regional value content (RVC) requirements for vehicles (which is 75 percent), core auto parts (75 percent), principal auto parts (70 percent), and complementary auto parts (65 percent). The 75 percent for autos is an increase from 62.5 percent in NAFTA. These RVC numbers, though they refer to all inputs such as glass and plastic, are an incentive to use as much regional steel and aluminum as possible.

The separate 70 percent requirement for steel and aluminum across other manufacturing sectors adds a new wrinkle to North American trade relations. It’s a new requirement and is not part of NAFTA. It also increases the likelihood that U.S. steel will have to be used in more auto parts.

With all of these changes comes uncertainty. The ITC report says that a number of new RVC or content provisions for certain sectors appear to go beyond automotive manufacturing. The general purpose looks to be encouraging greater use of North American-produced steel and aluminum products.

The report lists “affected sectors” as including “automotive products, certain fabricated steel products, and steel-intensive products.” The fact that “fabricated” and “steel intensive” are listed after automotive products implies that the 70 percent RVC for steel and aluminum also applies to fabricated and steel products having nothing to do with automobiles, according to Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics (PIIE), who has written about steel tariffs.

What fabricated sectors will be affected is unclear because that apparently has not been decided. The ITC said the USMCA “does not identify the relevant classifications in the international Harmonized Commodity Description and Coding System (HS) of tariff categories.” Instead, USMCA leaves the parties to “develop any additional description or other modification of steel and aluminum … if needed, to facilitate implementation” of this new requirement.

Despite the overall ambiguity as it applies to manufacturing sectors, some metal product categories have been specified in the agreement as areas of focus. They include certain welded tubes and pipes, fittings, and tool joints; iron and steel structures and parts thereof; and nails, tacks, drawing pins, corrugated nails, and staples. They have some transition period to meet a standard of either 70 percent steel or 75 percent RVC. So these nonautomotive sectors likely will be industrial ones, not consumer ones, such as refrigerators and HVAC products.

Political fault lines are already developing as the action now shifts to Congress, which must approve the USMCA. Democrats in both the House and Senate are threatening to withhold support because the labor and environmental provisions in the agreement are, to their minds, too weak. Moreover, Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, which will be instrumental in the Trump administration’s effort to get congressional approval, has said that GOP members will balk unless Trump drops the 25 and 10 percent national security steel tariffs on Mexico and Canada.

The FABRICATOR is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1970.

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