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US steel groups hopeful USMCA will boost demand

Highlights

Canada, Mexico account for nearly 90% of US steel mill exports

New rules of origin requirements key change in USMCA

Houston — The US steel industry is hopeful the entry of the US-Mexico-Canada Agreement will help bolster demand for steel throughout North America, steel industry groups said July 1 as the new trilateral trade agreement took effect.

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"For US producers of steel, Canada and Mexico are our two most important export markets, together accounting for nearly 90% of all US steel mill exports," Kevin Dempsey, interim CEO of the American Iron and Steel Institute, said in a statement. "By incentivizing the use of North American steel through its enhanced rules of origin, this agreement will help keep manufacturing supply chains strong for goods made primarily from steel."

The US, Canada and Mexico reached first reached a deal to replace the former North American Free Trade Agreement in November 2018. US steelmakers have been supportive of the updated trade deal as it aims to boost the use of North American steel in automotive production, in addition to strengthening rules of origin and regional value content requirements.

"The USMCA contains significant improvements and modernized approaches to rules of origin, automotive content requirements and labor protections for North American Workers," Philip Bell, president of the Steel Manufacturers Association, said in a statement. "These and other provisions represent the culmination of efforts to update the 25-year-old NAFTA and will help create jobs and expand market access for steel producers in the region."

The most substantial change in the USMCA is new rules of origin requirements, which stipulate that 75% of an automobile to be manufactured in North America to qualify for duty-free treatment, up from 62.5% in the original NAFTA.

The regional value content rules will be phased in over a period of several years depending on the model of car. The US Trade Representatives office has accepted some proposals from companies that could give them an additional two years to reach full compliance.

The USMCA also includes a new labor value content rule, which requires companies to pay a percentage of their workforce $16 per hour to qualify for a reduced tariff rate.

Along with the provisions seen as being beneficial to North American steel demand, the USMCA also includes provisions to promote increased cooperation, transparency and information sharing between the three North American governments to address steel circumvention and evasion of trade remedy orders.

"This increased cooperation strengthens our industry's competitiveness in the face of the continuing challenges to the industry from global steel excess capacity and weakening demand, especially as the industry works to recover from the COVID-19 pandemic," North America steel groups -- including the AISI, SMA, Canadian Steel Producers Association, Canacero, the Committee on Pipe and Tube Imports and the Specialty Steel Industry of North America -- said in a joint statement.