Canada, Mexico To Challenge United States USMCA Auto Component Interpretation

Earlier this month, the Mexican government announced that it would initiate a dispute settlement panel under the United States, Mexico, Canada Agreement (USMCA) regarding automotive rules of origin that the Mexican government had argued the United States is interpreting too strictly. The requirements mandate that 75 percent of a vehicle’s components must originate in North America to qualify for tax-free status. That number represents an increase from 62.5 percent under NAFTA.

As CBC explained, the Mexican government believes that if 75 percent of an essential car component is manufactured regionally, that is enough for it to receive duty-free status. The U.S. government does not agree.

Canada announced on January 13 that it would join the complaint, and leaders in the country’s auto industry praised that decision. Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said that if the United States goes ahead with its interpretation, North American automakers might opt not to try to comply with the new rules and instead source auto parts from outside of North America and just accept the 2.5 percent WTO tariff. “The biggest winners are the low-cost Asian or Eastern European countries who make those same parts with very cheap labor,” Volpe told the CBC.

The complaint sets off a process to set up a panel of independent experts who will review each country’s arguments and render a ruling. The dispute resolution panel requested by Mexico and Canada should have time to review submissions from all three countries and issue its report before the new rules take effect in 2025.