Thus, it is important for suppliers to be aware of the LVC requirements and the manner in which LVC is required to be calculated under the USMCA. However suppliers may elect (or may be required by their customers) to comply with LVC requirements and thus “contribute” to the LVC percentages that the OEs are mandated to follow. Under the USMCA 2, a passenger vehicle, light truck, or heavy truck only qualifies as originating under the Rules of Origin of the USMCA as set forth in Chapter 4, if the vehicle “producer certifies that its production meets Labor Value Content (LVC) requirement set forth in Article 7(1)-(2) of the USMCA, with the LVC calculated in accordance with the formulas set forth in Article 7(3) of the USMCA.”Īutomotive component suppliers are not strictly obligated to comply with the LVC requirement for their goods to be USMCA-originating, as long as they fulfill the relevant Rule of Origin for their particular products. 1 The LVC requirement applies exclusively at the automotive manufacturing (“OE”) level. The stated goal of these requirements is to drive higher wages in the USMCA zone. The LVC requirements under the USMCA impose certain minimum wage thresholds, beginning at 30 percent on July 1, 2020, and gradually increasing to 40 percent by July 1, 2023. Application and Purpose of LVC Under the USCMA The USMCA also imposes a prohibition on duties for electronically transmitted products, among other various modifications. Companies also must contend with modifications to the requirements of the certificates of origin for covered products, the IP protections granted traditionally provided under NAFTA, the Investor State Dispute Settlement provisions. Other notable changes under the USMA include changes to the allowable percentage of regional steel and aluminum, modification of the de minimus percentage for non-originating materials, and the addition of “recovered materials” and “remanufactured goods” as a product classification. Among the more notable additions, this article will provide an overview regarding the first of its kind Labor Value Content (LVC) rule imposed by the USMCA. In particular, the automotive sector faces a complex set of new requirements. USMCA parred back rules of origin regulations for certain goods (e.g., chemicals), but also increased restrictions on others (e.g., automotive and steel). While many of the obligations imposed by NAFTA remain in place, new differences have emerged under USMCA that will require attention from the private sector looking to conduct transnational business within North America. On July 1, 2020, the long awaited United States – Mexico – Canada Agreement (USMCA) went into effect, replacing the North American Free Trade Agreement (NAFTA). This article originally appeared on, and is republished here with permission.
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