GRAPEVINE, Texas – The Canada-U.S.-Mexico Agreement (CUSMA) is nearing final approval — and the trade deal means a larger share of the trucks you buy will be sourced in North America.
It was a key topic of discussion this week as representatives of the truck aftermarket participated in the annual Heavy-Duty Aftermarket Dialogue conference, and it was a timely discussion at that. Minority Liberals are scheduled to table a related bill this Wednesday. U.S. President Donald Trump is expected to sign the agreement on the same day.
Trump triggered the negotiating process in 2017, when he threatened to pull out of the North American Free Trade Agreement (NAFTA) and introduced a series of tariffs to force the issue. That agreement’s replacement — complete with a series of last-minute amendments — was approved by the Mexican government and U.S. Senate last December.
Manufacturing content for trucks
Seventy percent of a truck’s identified principal parts – including components such as clutches, drive axles, and wheels — will now need to come from this trade region, along with 60% of “complementary” parts like brakes and lithium-ion batteries. Those levels will be phased in over seven years, with interim levels of a respective 64% and 54% to apply in Year 5.
Both levels are up from NAFTA-imposed limits that mandated 60% of principal parts and 50% of complementary parts.
Aftermarket replacement parts are not affected by the limits, however.
Meanwhile, 70% of a vehicle producer’s annual steel and aluminum purchases will need to come from North America before a vehicle can be said to originate here.
Forty-five percent of new trucks must also be produced by workers who make at least US $16 per hour. Thirty percent has to be linked to high-wage material and manufacturing expenditures, with no more than 10% linked to research and development and IT expenditures, and no more than 5% linked to high-wage assembly expenditures like engines, transmissions or batteries.
The wage figure is an annual average of base wages paid to employees who are directly involved in production, and doesn’t include benefits.
A sense of certainty
The trade deal that emerged has created a sense of certainty for manufacturers and suppliers, says Ann Wilson, the Motor and Equipment Manufacturers Association’s senior vice-president – government affairs. She’ll be part of the signing ceremony in the U.S., along with American Trucking Associations president Chris Spear.
“I think it’s a big deal relative to just giving us kind of a level set that we know — stability so that we can make investment decisions, and we’re going to move forward with that,” said Jim Kamsickas, Dana’s chairman and CEO.
He also sees it as a bargaining tool when negotiating future trade agreements: “The government needed to do what it did in the USMCA if they were going to be able to be perceived as a really [having] the backbone to do it elsewhere around the world. Obviously we’re now there and I think you’re going to see some things level out.”
The deal is referred to USMCA in the U.S., or MUSCA in Mexico.
“I think the recent USMCA will slow any more shifts down to Mexico. We’ve basically locked in where we’re at now,” said Rick Dauch, CEO of Delphi Technologies.
Canada is expected to actually pass the agreement sometime in early February, Wilson adds.
Still, there are significant changes for the vehicle supply chain to digest, particularly when it comes to identifying how different tariffs fit into the agreement. “It’s mind-bending. It looks like you’re splitting hairs,” Wilson admits. There are also different ways to meet the requirements for labor content, as a percentage of the net cost of a vehicle, or basing it on the total vehicle plant assembly.
But the labor and environmental rules established under NAFTA were outdated, Spear told the crowd, noting how trucks themselves now move 76% of North American surface freight, and account for 72% of the trade-related border crossings between Canada and the U.S.
“We were really pleased with the outcome,” he said. “We’ve got a lot of work to do in terms of the implementation.”
Global suppliers such as Delphi also need to keep a close eye on trade negotiations elsewhere.
“We still have three factories in the U.K. How Brexit is negotiated is a question,” Dauch says, referring to Britain’s pending exit from the European Union and negotiations for a replacement trade deal.
“That could have an impact on whether we’re staying in Britain or the U.K. or we’re moving somewhere else.”
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