USMCA-compliant Mexican exports to avoid US forced labor tariffs exemption.

On Wednesday, Mexico announced that exports meeting USMCA's standards for origin would be shielded from a potential 10% US tariff linked to an inquiry into the country's forced labor regulations.

Following consultations with the U.S. Trade Representative's office, Mexico's Economy Ministry clarified its stance on USMCA-compliant exports. Approximately 85% of Mexican goods shipped to the U.S. meet these specific criteria, thus exempting them from potential forced labor tariffs.

A 10% tariff is being considered by the USTR for imports from several countries, among them Mexico, Canada, the European Union, Argentina, and Britain, following allegations that 60 nations have not adequately prevented the entry of goods produced using forced labor from other countries.

Forty-five other economies will incur a 12.5% tariff increase.

The proposed measure will not impact existing imports subject to Section 232 regulations, such as autos, steel and aluminum products.

A 45-day review period has been introduced for the proposed tariffs, allowing for a thorough consultation before implementation is considered.

Mexico is scheduled to engage in official discussions with the USTR, spearheaded by Economy Minister Marcelo Ebrard, to provide evidence of its efforts to address and prevent forced labor practices within the country.

The Mexican government expects ongoing discussions to address around 15% of exports failing to meet USMCA origin standards. These negotiations will likely persist over several weeks, with officials hopeful for a revised tariff exemption following bilateral talks.

A broader US trade strategy involves replacing previous tariffs with new ones, as part of the Section 301 investigation, which targets Mexican exports subject to forced labor exemptions that could trigger US tariffs under the USMCA agreement.