La Silla Rota: Zero Tariff on Auto Parts Will Open the Door for Asian Brands to Assemble Cars in Mexico

The five-year exemption from the 10% tariff on imports of parts and components for vehicle assembly will shield automakers established in Mexico so they keep their investment in the country instead of relocating production lines, according to Eliel Amaya Managing Partner of Foreign Trade at Baker Tilly.

In an interview with La Silla Rota, he explained that the decree published on October 13 responds to the Trump administration's intention to move manufacturing plants to the United States and also opens the door for Asian brands to set up light vehicle assembly plants in Mexico.

A signal in response to U.S. pressure

"After the Trump administration's push to bring manufacturing plants to the United States, we are indeed responding to that intention with a concrete fact, which is the publication of this decree reducing tariffs," Amaya said.

In his view, the Mexican government is sending a very important signal that it is easing the tax burden on the automotive industry. As a result, new production lines, such as batteries or vehicle parts, would have more incentives to stay in Mexico, where there is already installed capacity a skilled workforce and stable suppliers.

Who can take advantage of the benefit

The benefit applies to assemblers operating under an automotive bonded warehouse regime which covers most long-standing investments, such as Volkswagen, Ford, Nissan and Daimler, as well as some new investments that have obtained this authorization.

This regime allows them to import production materials, assemble a vehicle and then remove it to sell abroad or in the domestic market. According to Amaya, any automaker will be able to source parts from suppliers worldwide, bring them in tariff-free and produce from Mexico, which broadens its options while it manages the USMCA rules of origin requirements.

What a bonded warehouse is

Amaya explained that a bonded warehouse is a supervised space where domestic or foreign goods intended for export are stored. In the automotive industry, this figure has existed for more than 20 years and is key to assembly operations.

"The difference is that it allows the goods to change, that is, to be processed to assemble a vehicle," he said. In an ordinary bonded warehouse goods cannot be transformed, while the automotive regime is authorized precisely for that purpose.

At Baker Tilly, we help the automotive industry assess its customs schemes and leverage tariff benefits within its foreign trade strategy.

Article originally published in La Silla Rota, by José Manuel Arteaga.