The USMCA (United States-Mexico-Canada Agreement), a North American free trade agreement signed by the United States, Mexico, and Canada, is scheduled for a "joint review" on July 1, 2026. This joint review is a crucial step in determining whether to extend the agreement, and the possibility of strengthening rules of origin, particularly in the automotive and parts sectors, is emerging as a key issue.

On the 25th, the Korea Automotive Research Institute released 'USMCA Joint Review, Trends in the Automotive and Parts Sectors' through Industry Analysis Vol. 162.

According to this, the USMCA entered into force in July 2020 and replaced the existing NAFTA. The agreement includes a 'sunset clause' with a validity period of 16 years, stipulating that a decision on whether to extend it is made through a joint review every six years. If all three countries agree to an extension in this review, the agreement will remain in effect until 2042, but if even one country opposes it, a review will continue every year.

The USMCA significantly strengthened rules of origin in the automotive sector from the time of its entry into force.

Based on passenger cars, the Regional Value Added (RVC) ratio must be gradually raised from NAFTA's 62.5% to meet 75% after 2025.

In addition to this, the Labor Value Added (LVC) requirement and the local steel and aluminum ratio requirement (70%) have been added, so all three conditions must be met to receive duty-free benefits.

Ahead of this joint review, the U.S. automotive and parts industries, as well as the steel and aluminum raw materials industries, are generally in favor of extending the USMCA, but are demanding a revision of the agreement to strengthen U.S.-centric benefits.

In particular, the raw materials industry is advocating for raising the domestic steel ratio to 85% and abolishing the 'Roll-Up' rule, which recognizes non-domestic materials included in core components as domestic.

In a report to Congress, the U.S. Trade Representative (USTR) specified the possibility of revising duty-free trade rules, specifically rules of origin, as a major topic of discussion for the USMCA joint review.

This is analyzed as an attempt to block Chinese automotive parts companies from entering the U.S. market by using Mexico as a roundabout route.

Even after the USMCA came into effect, disputes arose between the United States, Canada, and Mexico over whether to apply roll-up mechanisms to key components.

At the time, the panel determined that the U.S. interpretation deviated from the intent of the agreement, but there are predictions that the U.S. is highly likely to raise the issue again as an official agenda item in this joint review.

As a result of this joint review, experts [discuss] simple extension of the agreement △the agreement It is believed that various scenarios are possible, such as revision, delay in review, and withdrawal by the United States.

However, given that the Trump administration and the Trade Representative have raised doubts about the effectiveness of the USMCA, the prevailing view is that a simple extension maintaining current regulations is unlikely.

Even if the joint review is delayed, the agreement itself will remain in effect, but uncertainty for companies is expected to increase as the review is repeated every year.

In particular, there are also observations that it will not be easy to reach an agreement among the three countries, as Canada and Mexico have different policy stances regarding Chinese automobiles and parts.

The Korea Automotive Research Institute emphasized the importance of scenario evaluation and the establishment and management of supply chain databases in preparation for changes in rules of origin through a report.

It is pointed out that the origin, processes, and ownership structures of the entire supply chain, from raw materials to parts and finished vehicles, must be systematically managed in preparation for various potential changes, such as the abolition of roll-up regulations, the raising of labor value-added requirements, and stricter regulations for steel and aluminum.

In particular, if the proportion of North American-produced steel and aluminum used increases, local procurement capabilities are highly likely to determine corporate competitiveness.

An official from the Korea Association of Automotive Engineers stated, “The joint review of the USMCA is not merely a matter of extending the agreement, but will be a watershed moment for the restructuring of the North American automotive supply chain,” adding that “preemptive response strategies at the corporate level are required.”