Mexico is not ruling out the possibility of appealing to an international panel over tax incentives proposed by the United States for some U.S.-made electric vehicles, President Andres Manuel Lopez Obrador said on Tuesday.
Mexico has promised to review a range of legal actions in response to a new U.S. tax incentive that Mexican officials say is “discriminatory” and contrary to free trade including the new United States-Mexico-Canada Agreement (USMCA) trade pact.
The U.S. Congress is considering a new $12,500 tax credit that would include $4,500 for union-made U.S. electric vehicles. Only U.S.-built vehicles would be eligible for the $12,500 credit after 2027, under a House proposal.
When asked about the incentive, Lopez Obrador reiterated that his government opposed the plan, arguing the subsidy would threaten Mexico’s auto industry and contravene USMCA rules.
“We’re already taking steps to ensure this subsidy is not applied, and we’re not ruling out the possibility of presenting an appeal as established in the treaty so that this complaint can be heard by an international panel,” he said.
Lopez Obrador added that “there is agreement” with Canada, without giving further details.
Canada has proposed aligning its electric vehicle tax policy with that of the United States to settle the U.S. tax credit dispute, Prime Minister Justin Trudeau said on Monday.
Trudeau said his government was working to ensure the United States understood the credit was bad for both nations, given the integrated nature of the continental auto industry.
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Canada fears the tax credit for American manufacturers will undermine its own efforts to produce electric vehicles in Ontario – the country’s industrial heartland – and also undermine the integrated North American auto industry.
It would encourage US production of electric vehicles by offering a bigger tax credit for local union-built electric vehicles (EV) and phases out for imported EVs after five years. In a letter to US senators on Friday, Deputy Prime Minister Chrystia said it would amount to a 34 percent tariff on Canadian assembled electric vehicles.