Washington — The United States has lost a trade dispute with Canada and Mexico over vehicle imports and exports, making it easier for automakers to build vehicles in those countries and ship them into the U.S.
The decision released Wednesday is one of the most significant early decisions made through the United States-Mexico-Canada Agreement’s dispute resolution process, which uses a five-member independent panel to resolve conflicts between the trading partners.
Mexico, jointed shortly afterward by Canada, brought a complaint to the panel in January last year over how the United States was interpreting the threshold of core parts necessary to qualify as North American to be exempt from tariffs under USMCA.
USMCA requires core parts — such as a vehicle’s transmission, engine or battery — to be made with 75% regional content to qualify for duty-free shipping across North America.
Mexico and Canada argued that once a core part met the 75% threshold, it counted as a 100% North American-made part for the purposes of meeting another regional content requirement for the overall vehicle, which they say the U.S. agreed to when USMCA was negotiated.
The U.S. said the calculation should be cumulative. For example, if a part had 90% North American content, it would count as 90% rather than 100% North American-made for the final calculation. Canada and Mexico have said they were taken aback by the interpretation, and Mexico called it “nonsensical” in its complaint.
The panel determined the U.S. “breached” the USMCA by using the more stringent interpretation. The decision will make it easier for automakers to build vehicles in Canada and Mexico and import them into the U.S. for sale, said Sam Fiorani, an auto industry analyst at AutoForecast Solutions.
“The short-term argument is that this will allow jobs to be moved to Mexico or Canada, as opposed to building them in the U.S.” for sale in the U.S., he said. “In the longer term, this allows batteries built in the United States to ship across the border, become North American, and come back across as a vehicle. This should allow a more level playing field for battery production across North America.”
Adam Hodge, spokesperson for the U.S. Trade Representative Katherine Tai, called the decision “disappointing.”
It “could result in less North American content in automobiles, less investment across the region, and fewer American jobs,” he said in a statement. He added that U.S. trade officials are reviewing the report and considering next steps. “We will engage Mexico and Canada on a possible resolution to the dispute, including the implications of the Panel’s findings for investment in the region.”
Canadian and Mexican officials welcomed the panel’s ruling. Mexican former economy minister Tatiana Clouthier said it was “excellent news,” while Canadian Trade Minister Mary Ng said in a statement Wednesday that the findings “reaffirm our understanding of the negotiated outcome on the rules of origin for automotive products.”
“Canada is deeply committed to rules-based international trade and is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated in” the USMCA, she said. “Our government will always stand up for the Canadian auto industry and its workers as we continue to build resilient supply chains and foster a sustainable economic recovery.”
The decision came the day after President Joe Biden, Mexican President Andrés Manuel López Obrador and Canadian Prime Minister Justin Trudeau convened in Mexico City to discuss the region’s shared goals and ongoing disagreements. They agreed to work together to increase semiconductor chip production in North America — another crucial component of autos and electric vehicles in particular.
Responses were mixed within U.S. industry groups. The U.S. Chamber of Commerce said in a statement it would provide “certainty” for the auto industry. Autos Drive America, an advocacy group representing major foreign-owned automakers in the U.S., welcomed the decision, saying “stable and predictable trade policies are vital to business investments in the United States, and they help to grow and strengthen our economy.”
The United Steelworkers union, however, said the decision “hurts workers across North America” and undercuts the USMCA, “representing a significant victory for Chinese and other foreign producers.”
“Rules governing the origin of automotive components are important to ensuring that products that qualify for duty free status are truly supporting local jobs rather than fueling a race to the bottom on wages and working conditions,” USW President Tom Conway said in a statement.
The United Auto Workers union did not immediately respond to a request for comment Wednesday evening.
Spokespeople for Ford Motor Co., General Motors Co. and Stellantis NV directed The Detroit News to the American Automotive Policy Council, which issued a statement from its president, Matt Blunt:
“AAPC and its members are reviewing the report with interest; once that process is complete it will be imperative that this decision be implemented by all parties as quickly as possible to provide the American automotive industry with the certainty it needs to maximize our contribution to the U.S. economy.”
rbegin@detroitnews.com
Twitter: @rbeggin