KOTRA Publishes Report on Industry-Specific Impacts and Implications of USMCA

[Asia Economy Reporter Suyeon Woo] KOTRA published a report on the 29th outlining the industry-specific impacts and implications in line with the United States-Mexico-Canada Agreement (USMCA), which is scheduled to take effect from the 1st.

USMCA is the new standard for the America First trade agreements promoted by the Trump administration, marking the beginning of strengthening the North American regional value chain (RVC) and can be considered NAFTA 2.0. In this report, KOTRA emphasized the need to newly establish local strategies through industry-specific tailored exports and differentiated investment entry.

Through the 'Industry-specific Impact and Implications Report on the Enforcement of USMCA,' KOTRA forecasted that the North American business ecosystem will change due to strengthened rules on origin and labor. Compared to the existing NAFTA, the major changes can be summarized into four points: strengthened rules of origin, introduction of a new labor value content ratio, deletion of the 3-year clinical information exclusivity clause, and notification at least three months prior to the start of negotiations if wishing to conclude an FTA with a non-market economy country.

Looking first at the rules of origin, USMCA raised the regional value content ratio for passenger cars and core parts from the previous 62.5% to 75%. It also stipulated that 70% of the steel and aluminum used in automobile production must be North American products. Under the newly introduced labor value content ratio, the wages of workers producing automotive parts must be at least $16 per hour, excluding bonuses, to qualify for tariff-free benefits.

The provisions recognizing new use patents for existing pharmaceuticals and the 3-year clinical information exclusivity clause were deleted, preventing patent term extensions through the 'evergreening strategy.' The evergreening strategy is a method used by pharmaceutical companies to extend monopoly periods by adjusting the timing of new drug patents and blocking the entry of generic drugs into the market. A 'FTA clause with non-market countries' was also included. This is a measure to prevent Chinese products from being re-exported to the U.S. through Canada or Mexico if they conclude an FTA with China.

The U.S. International Trade Commission (USITC) predicted that the US GDP would increase by 0.35% and jobs by 0.12% as a result of the USMCA agreement. Additionally, U.S. exports to Canada and Mexico are expected to increase by 5.9% and 6.7%, respectively, while imports will rise by 4.8% and 3.8%, respectively, indicating that trade among the three North American countries will be revitalized.

The report also included voices from local companies collected by KOTRA overseas trade centers in the U.S., Canada, and Mexico. Regarding changes in origin and labor regulations, Korean automotive parts and steel companies operating in Canada and Mexico felt a relatively greater burden compared to those operating in the U.S.

KOTRA emphasized the need for Korean companies to reestablish industry-specific tailored export and localization strategies in response to the enforcement of USMCA. In the automotive and parts sector, approaches such as incorporating next-generation vehicles into the regional value chain, joint collaboration with global companies, and strategic M&A are required. In the steel sector, it was suggested to identify items exempt from import regulations and actively consider local partnerships and joint ventures. For the machinery sector, preparations should be made for increased demand for high-efficiency machinery and equipment by developing related products and parts, and in the aerospace sector, efforts to discover eco-friendly and lightweight products through joint research with global companies are urgently needed.

Kwon Pyung-oh, President of KOTRA, said, "Amid the global trend of protectionism, regional value chains are being strengthened," adding, "If Korean companies diversify their investment entry methods in response to the enforcement of USMCA, they can turn the rapidly changing environment into an opportunity."

This content was produced with the assistance of AI translation services.