Canada Joins Mexico in Challenging How the U.S. Interprets USMCA Auto Rules of Origin

WASHINGTON — Still licking its wounds over a dispute over dairy imports, Canada joined forces with Mexico on Thursday to challenge the United States’ interpretation of North American trade rules that govern duty-free cars and trucks.

WASHINGTON — Still licking its wounds over a dispute over dairy imports, Canada joined forces with Mexico on Thursday to challenge the United States’ interpretation of North American trade rules that govern duty-free cars and trucks.

Commerce Minister Mary Ng said Canada would join Mexico’s request for a dispute settlement panel under the United States-Mexico-Canada agreement to challenge how the United States assess the level of regional content in vehicles built in North America.

The Automotive Rules of Origin, as they are called, establish the amount of a vehicle that must originate in North America to qualify for duty-free status – 75% under the USMCA, known in Canada as the CUSMA name, compared to 62% under NAFTA.

The United States, however, is no longer willing to allow foreign-made materials, components, and parts to be considered regional content after they have been used or modified through the North American assembly process, such as this was the case under the previous agreement.

In a statement, Ng said the rules were negotiated in consultation with automakers and parts suppliers with the goal of deepening regional integration and increasing North American production and supply.

“The interpretation that the United States adopted in July 2020 is inconsistent with CUSMA and the understanding shared by parties and stakeholders throughout the negotiations,” Ng said.

“Canada, Mexico and the United States would all benefit from certainty that CUSMA is implemented as negotiated, and Canada is optimistic that a dispute settlement panel will help ensure a speedy resolution of that question.

Officials from the office of U.S. Trade Representative Katherine Tai did not respond to questions from the media on Thursday.

It is the second major dispute to erupt since the deal took effect in 2020. The first dispute settlement panel ruled last week in favor of a US complaint about how the Canada distributes its tariff rate quotas for imports of dairy products.

USTR managed to convince a panel of arbitrators that Ottawa favored processors over producers for its quotas, violating the terms of the agreement and depriving producers south of the border of their fair share of the Canadian market .

Trade experts say disputes are likely proof that a deal is working as it was designed, rather than not.

“I think that’s the right way to look at it,” said Mark Warner, a Toronto-based trade and investment lawyer with extensive experience in the Canadian-U.S. auto sector.

“No one promised that we wouldn’t have trade disputes… The point was to create a legal mechanism to resolve them.”

The USTR is trying to challenge long-standing precedents for how continental auto manufacturing has operated between the three countries for decades, said Dan Ujczo, Canada-U.S. trade specialist and senior attorney at the Thompson Hine firm, based in Ohio.

“I think it’s hard to ignore that there’s 30 years of history there, that’s how we did it for 30 years,” Ujczo said. “But it’s problematic – we need to get some certainty around this, especially as North America competes with the world for new automotive investment.”

The danger, he added, is that some automakers decide that the effort to respond to Byzantine new interpretations of the rules of origin is not worth the savings offered by the exemption of tariffs which only rise at 2.5%.

“At the end of the day, everyone agreed that we wanted more North American content, including the industry. But there’s a very careful balance to make sure you encourage North American production,” Ujczo said.

“The last thing we need right now in North America is more inflationary pressures, especially in the auto sector.”

Consumer prices in the United States rose 7% last year, the Bureau of Labor Statistics said on Wednesday, fueled by supply chain pressures, staffing shortages and strong consumer demand. , all because of the COVID-19 pandemic.

This report from The Canadian Press was first published on January 13, 2022.

James McCarten, The Canadian Press


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