Automotive Products

Rules of Origin

The NAFTA rules of origin for automotive products are based on a tariff change alone or a tariff change and a regional value-content requirement. The Agreement requires that the regional value content for these products be calculated using the net cost method. The regional value-content requirement for autos and light vehicles, and their engines and transmissions, will be 50 percent under the net cost method when the agreement enters into force; this percentage will be increased to 62.5 percent over an eight-year transition period. The regional value-content requirement for other vehicles (e.g., tractors, vehicles for the transport of 16 or more persons, trucks), and their engines and transmissions, as well as other auto parts, will be 50 percent under the net cost method; this percentage will be increased to 60 percent over an eight-year transition period. The ultimate regional value-content requirements will be phased in as follows:

Phase-In of Regional Value Content Requirements

Tracing

Tracing ensures greater accuracy in calculating the regional value content by tracking the value of major automotive components and subassemblies imported into the NAFTA region, so that the non-originating value of these components and subassemblies is reflected in the regional value-content calculation of the motor vehicle or in auto parts destined for original equipment use. This significantly limits the phenomenon known as "roll-up" and "roll-down," whereby the full value of goods is counted as originating or non-originating content even though they may contain a mix of originating and non-originating materials. For those components subject to tracing, any non-originating (non-NAFTA) value will remain non-originating through all stages of assembly to the time of calculation of the regional value content of the motor vehicle (or auto part destined for original equipment use). The value of traceable automotive components is determined at the time the non-originating components are received by the first person in Canada, Mexico or the United States who takes title to them, after importation from outside the NAFTA region. The value of the components will be determined in accordance with standard valuation norms and will generally be the transaction value. Certain costs must be added to the transaction value if not included in it (e.g., packing, selling commissions).

Election to Average

Producers of automotive goods may elect to average their costs when calculating the regional value content. A motor vehicle producer may average the calculation over its fiscal year either by all motor vehicles or only those motor vehicles in a category that are exported to another NAFTA party. The four categories are:

• the same model line of motor vehicles in the same class of vehicles produced in the same plant;
• the same class of motor vehicles produced in the same plant;
• the same model line of motor vehicles produced;
• special averaging rules for CAMI Automotive, Inc.

Producers of components that must be traced may also average their costs. A producer may average its calculation:

• over the fiscal year of the motor vehicle producer to whom the good is sold;
• over any quarter or month, or
• over its fiscal year, if the good is sold as an aftermarket part.

Producers may elect to calculate the average separately for any or all goods sold to one or more motor vehicle producers or calculate separately those goods that are exported to Canada, Mexico and/or the United States.

Other Provisions

The provisions on accumulation, fungible goods, and intermediate materials may be used to integrate and rationalize production processes throughout Canada, Mexico and the United States. Components that are subject to tracing for autos and light vehicles may be designated as intermediate materials. Producers may not, however, designate as an intermediate material any traceable component for motor vehicles other than autos and light vehicles.

Liberalization of the Mexican Market

The NAFTA will significantly liberalize access to the Mexican market in automotive products, including:

• the immediate reduction by 50 percent of tariffs on passenger automobiles, with remaining tariffs phased out in equal stages over 10 years;
• the immediate reduction by 50 percent of tariffs on light trucks, with remaining tariffs phased out in equal stages over five years;
• tariffs on all other vehicles phased out in equal steps over ten years;
• the immediate elimination of tariffs on certain auto parts, with duties on most other parts phased out over five years;
• restrictions on the import of used cars into Mexico will be phased out between 2009 and 2019.