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Mexican auto sector speeds to meet new trade rules as output falls

MEXICO CITY (Reuters) - Carmakers with operations in Mexico are racing against time to meet regional content rules outlined in the new North American trade agreement, the country’s top auto group said on Monday, with one expecting output and exports to fall by almost a third.

Mexico’s auto sector has been hammered by factory closures over the past few months as authorities sought to curb the spread of the coronavirus.

Fausto Cuevas, head of the Mexican Automotive Industry Association (AMIA), said all assembly plants have resumed operations except those in Puebla state, part of a push to reignite growth in Latin America’s second-largest economy.

But Cuevas and the Mexican association of heavy vehicle makers, ANPACT, said regional content rules in the new U.S.-Mexico Canada Agreement (USMCA) trade pact, set to come into effect on July 1, pose a challenge.

The new trade deal, which replaces the 26-year-old North American Free Trade Agreement, will require 75% North American content for light vehicles compared to 62.5% under NAFTA and 40% content for such cars from “high wage” areas.

This is to be phased in over three to four years, but automakers have to certify compliance with the initial requirements when the agreement takes effect.

Mexico’s auto sector, made up of companies including U.S.-based Ford Motor Co. and Asian carmakers like Honda, contributes 4% of the country’s gross domestic product.

Cuevas said it was “very likely” that all automakers would request alternative transition regimes in the new USMCA trade deal between Mexico, the United States and Canada,

Miguel Elizalde, president of ANPACT, said the group’s companies are focusing on complying with USMCA’s rules of origin regulations as paying tariffs could take them out of the market.

Cuevas added AMIA expects production of light autos to fall between 28-30% in 2020 while exports may slide by 30-33%.

Reporting by Sharay Angulo; Writing by Drazen Jorgic; Editing by David Alire Garcia and Alistair Bell

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