Canada and Mexico have won their challenge to the US interpretation of content rules for vehicles under the new US-Mexico-Canada Agreement (USMCA), a dispute panel ruled on Wednesday, a decision that favors parts makers north and south of the US border.
Canada and Mexico a year ago filed a complaint against the US over how to apply automotive sector content requirements under the free-trade agreement, which came into effect in 2020.
The US interpretation of the rules is “inconsistent” with the USMCA, the panel said in its ruling.
Photo: REUTERS
“The decision is good for Canada and Mexico,” Canadian Automotive Parts Manufacturers’ Association president Flavio Volpe said.
Canada “is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated in USMCA,” Canadian Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng (伍鳳儀) said in a statement.
“This is excellent news,” former Mexican secretary of the economy Tatiana Clouthier said in a video on Twitter. “That helps the entire automotive industry in the North American region enormously.”
Photo: REUTERS
The decision is “disappointing,” Office of the US Trade Representative (USTR) spokesman Adam Hodge said, adding that the decision could result in “fewer American jobs.”
Under the USMCA, the US must now agree with Canada and Mexico on how to apply the panel decision, or face possible retaliatory tariffs.
“We are reviewing the report and considering next steps,” Hodge said. “The USTR will now engage Mexico and Canada on a possible resolution to the dispute.”
“In the coming days, Mexico will begin a process of dialogue and cooperation with its trading partners,” the Mexican Secretariat of Economy said in a statement after the ruling.
ENERGY DISPUTE
The decision was announced amid a separate USMCA dispute centered on energy that has pitted the US and Canada against Mexico.
Ottawa and Washington argue that Mexico’s energy policies are putting US and Canadian firms at a disadvantage, while Mexico has defended its policies and said it has broken no laws.
Under the USMCA, 75 percent of a vehicle’s components must originate in North America to qualify for tax-free status, but the US disagreed with how to calculate that number.
Mexico and Canada said if a “core part,” such as the engine or transmission, has 75 percent regional content, the USMCA allows that number to be rounded up to 100 percent when calculating the broader requirement for an entire vehicle’s regional content.
The US said “core part” content should not be rounded up when determining the content of the entire vehicle.
Volpe said the decision is important because it demonstrates that disagreements can be settled under the rules of the new trade pact.
“It shows that the dispute resolution vehicle within the USMCA works,” Volpe said.
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