Vehicles produced in Mexico and exported to the U.S. [AFP=Yonhap News Photo. Reproduction and database prohibited.]

The U.S. Donald Trump administration plans to demand strengthened rules of origin for U.S.-made parts as a condition for maintaining tariff benefits for automobiles in the renegotiation of the United States-Mexico-Canada Agreement (USMCA), informed sources told The Wall Street Journal (WSJ) on May 29 (local time).

According to the report, the U.S. negotiating team plans to propose increasing the proportion of U.S.-made parts and materials to over 50% in relation to the rules of origin for finished vehicles ahead of the USMCA revision.

The current USMCA regulations require over 75% of finished vehicle parts to be sourced from North America, but there are no rules of origin that specifically stipulate the proportion of U.S.-made parts.

The Trump administration also plans to propose an additional increase to the current North American content requirement of over 75%, the WSJ reported.

In this regard, Reuters reported that the negotiating team is pushing for an increase in the North American content requirement to 82%.

However, these proposals are the initial stance of the Trump administration and may change during the negotiations.

Automotive industry officials said that Reuters reported that it is highly likely that U.S. Trade Representative (USTR) Representative-designate Katherine Tai will adopt a strategy of first negotiating new rules of origin with Mexico and then letting Canada decide whether to accept them.

The Trump administration has been strongly pursuing a policy to shift manufacturing bases back to the U.S. through the imposition of tariffs since its second term began last year.

The USMCA, which replaced the former North American Free Trade Agreement (NAFTA), was an agreement reached between the United States, Mexico, and Canada during the Trump administration's first term in 2018 and came into effect in 2020 after some modifications. As the largest trade agreement among North American countries, free trade with generally no tariffs is the framework of the agreement.

According to the sunset clause, the extension of the agreement must be reviewed every six years, and a decision on whether to extend it must be made by July of this year.

The U.S. Trade Representative's Office began its first round of USMCA revision negotiations with the Mexican government on the 28th of this month, focusing on economic security and rules of origin for key industrial products.

While the United States and Mexico are conducting bilateral negotiations, Canada, a pillar of the agreement, is absent from the negotiation schedule.

If the USMCA's rules of origin for finished vehicles are revised to significantly increase reliance on U.S.-made parts, it is expected to have a significant impact on domestic finished vehicle manufacturers, including Hyundai Motor Company.

Previously, the WSJ reported that if the USMCA is not maintained at its current level, foreign finished vehicle manufacturers such as Hyundai-Kia and Toyota are considering withdrawing their low-cost, entry-level models from the U.S. market.

Currently, Kia Motors exports vehicles produced in Mexico to the U.S. under the USMCA tariff benefits.

The WSJ diagnosed that "Finished vehicle manufacturers that produce vehicles for export to the U.S. in Mexico are likely to face difficulties in meeting the 50% U.S.-made parts requirement," and added, "In particular, difficulties may arise if the grace period for application is short." (Yonhap News)