Mexico, Canada and the US prepare to sign USMCA by the end of November and take it to ratification with their respective representatives. However, the latest shift in power in the US after midterm elections could still alter the final outcome of the agreement, similarly to what happened with NAFTA when Bill Clinton entered office after President Bush had already negotiated the deal.
USMCA will bring new conditions to the industry but the implementation of a new treaty will bring much-needed certainty to the region and allow for further growth in Mexico. So far, companies have been waiting for the final guidelines to be set to determine the future of their investments but once the deal is done, development will ensue.
Looking at the performance in the domestic market, sales keep free falling, signaling a period of stabilization. The industry will recover eventually but conditions must remain in favor of supporting new-vehicle sales through proper regulations. Read more about our projections on the domestic market in our latest blog.
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Advances Toward a New Agreement
After the midterm elections in the US, Democrats regained control of the House of Representatives. Although USMCA is already slated to be signed at the end of the month, this victory could lead to new negotiations in parallel letter on labor and environmental topics.
Under new USMCA regulations, import certification will be simplified, thus reducing the number of documents companies will have to present at customs offices to show they comply with rules of origin.
Auto parts used in heavy-vehicle manufacturing will have seven years to adjust to new rules of origin, which gives them four more years when compared to those used in light-vehicle manufacturing.
According to the President of the Automotive Cluster of the Central Region Puebla – Tlaxcala (CLAUZ), Ulrich Thoma, the industry is entering a consolidation period with less foreign direct investment than in the last decade and more definition on future projects.
Results on automotive production show an ongoing drop in activities for four consecutive months. Honda stands out as one of the main causes for this outcome due to the halt in activities at its Celaya plant after a flood in June.
Despite expectations for greater sales due to increased consumer confidence, sales in the domestic market keep decreasing. The market contracted 6.5 percent in October 2018 compared to the same month in 2017. With this, it has been 17 consecutive months of negative growth rates.