The United States and Canada reached an agreement on Sunday after weeks of tense bilateral talks to update the 1994 North American Free Trade Agreement (NAFTA). Mexico and the United States first brokered a bilateral accord in late August.
The new trilateral deal, called the United States-Mexico-Canada Agreement (USMCA), will raise the minimum North American content threshold for cars needed to qualify for duty-free market access to 75 percent from 62.5 percent.
“Carmakers, especially Asian and European carmakers, will have to invest more in tools, in North American components to comply with the new content rules,” Oscar Albin, head of Mexican auto parts industry association INA, said in an interview.
The so-called rules of origin dictate what percentage of a car needs to be built in North America in order to avoid tariffs in the trade deal.
General Motors Co (GM.N), Ford Motor Co (F.N), Fiat Chrysler Automobiles (FCHA.MI) Germany’s Volkswagen AG (VOWG_p.DE), Japan’s Toyota Motor Corp (7203.T), Nissan Motor Co (7201.T) and Honda Motor co (7267.T) all build autos in Mexico.
“The American carmakers already have a very well-established footprint in the United States and Mexico” and will more easily adhere to the stricter content rules, Albin told Reuters.
The new rules should boost auto parts production from about $90 billion annually at present to “around $100 billion” over the next three years, he added. In the course of that period, the sector should add about 80,000 new jobs, Albin said.
Stocks in auto parts firms were lifted by the deal.
Shares in Nemak (NEMAKA.MX), the auto parts unit of Mexican industrial conglomerate Alfa (ALFAA.MX), closed up by more than 8.5 percent. Stock in Mexican auto parts maker Rassini (RASSNICPO.MX) rose by more than 4.5 percent.
“The United States and Canada will also grow since the three countries will benefit (from the new agreement),” said Albin.
The deal set a five-year transition period once the accord enters into force to meet the new content requirements.
That looked like a tough deadline, Albin said.
“I think (time) is a bit short because any adjustment or change of the supply (chain) for cars already being assembled is practically impossible,” he said.
U.S. President Donald Trump had put creating more manufacturing jobs at the heart of his desire to rework NAFTA.
Reporting by Sharay Angulo and Anthony Esposito; Editing by Dave Graham and Diane Craft