Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

U.S. Clashes With Mexico, Canada on Car Rules in Risk to USMCA

EconomyJul 16, 2021 03:36PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Bloomberg. Vehicles sit on display for sale at a General Motors Co. Chevrolet car dealership in Louisville, Kentucky, U.S., on Wednesday, Jan. 31, 2018. General Motors Co. is scheduled to release earnings figures on February 6.

(Bloomberg) -- The U.S. is clashing with Mexico and Canada over rules for cars shipped across regional borders, with automakers and governments telling the Biden administration that it’s imperiling the success of their new trade pact.

The dispute focuses on how to calculate the percentage of a vehicle that comes collectively from the three countries under the U.S.-Mexico-Canada agreement, according to people familiar with the matter, who asked not to be named because conversations are private. The deal took effect last July, replacing the North American Free Trade Agreement, or Nafta, but the new so-called rules of origin are designed to be phased in over several years.

The U.S. insists on a stricter way than Mexico and Canada believe they agreed to for counting the origin of certain core parts including engines, transmissions and steering systems in the overall calculation, the people said. That makes it harder for plants in Mexico and Canada to meet the new threshold of 75% regional content, up from 62.5% under Nafta, in order to trade duty-free, the people said.

Read QuickTake: So Long, Nafta; Hello, USMCA. What You Need to Know

For example, if a core part uses 75% regional content, and thus qualifies under that requirement for duty-free treatment, Mexico and Canada argue that USMCA allows them to round the number up to 100% for the purposes of meeting a second, broader requirement for an entire car’s overall regional content. The U.S., however, doesn’t want to permit rounding up, making it tougher to reach the duty-free threshold for the overall vehicle.

That’s how the issue is summarized in a note written by Mexico’s Automotive Industry Association, known as AMIA, and obtained by Bloomberg News.

USTR spokesman Adam Hodge said in an email that the U.S. “remains committed to the stronger regional value content requirements that the countries agreed to in the USMCA,” without elaborating.

The press office of Mexico’s economy ministry declined to comment immediately. A spokesperson for Canadian Trade Minister Mary Ng declined to comment.

U.S. Trade Representative Katherine Tai, appointed by President Joe Biden, has repeatedly stressed in recent weeks that the administration is pursuing a “worker-centered” trade policy and has sought friendly ties with the nation’s trade unions. Last month she addressed the largest U.S. labor federation in a move that its head heralded as a historic first.

United Auto Workers spokesperson Brian Rothenberg said in an email that the group, the largest U.S. auto union, supports the Biden administration’s stricter interpretation of the USMCA.

Surprise Stance

For Mexico, the Biden administration’s demand came as a surprise, because the nation believed that the issue had been settled in talks with then-President Donald Trump’s administration in 2018 and 2019, the people said. Cars are at the heart of the USMCA, and Mexico views the U.S. demand by the Biden administration as an attempt to renegotiate a key aspect of the deal, the people said.

Mexico, together with Canada, is considering filing a formal complaint against the U.S. under the year-old USMCA, which could result in a dispute panel to hear arguments for the nations, the people said.

Mexican Economy Minister Tatiana Clouthier plans to travel to Washington next week and discuss the issue with Tai, the people said.

A quarter century after Nafta went into effect, Trump demanded rules to require more regional content and a minimum hourly wage in car production to incentivize companies to manufacture more in North America and the U.S. Tai, as a lawyer for House Democrats, played a key role in negotiating changes to the USMCA in 2019 to win broad bipartisan support in Congress.

Making the rules too onerous could cause automakers to forgo applying for duty-free treatment and instead pay tariffs that the U.S. charges under World Trade Organization rules, said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association. It comes after the car industry was already forced to close last year due to Covid-19 and is dealing with a crisis due to a shortage of computer chips for vehicles.

The Biden administration’s interpretation of the rules of origin “does not reconcile with the tri-party consensus of how the new rules would be administered,” Volpe said. “Their interpretation of how to administer them would make it materially more difficult for automakers to get to the agreed upon regional value content minimums.”

Mexico and Canada constantly jockey with China for the status of America’s top trade partners, with more than $1 trillion in goods crossing the borders annually. The two North American neighbors are key to U.S. efforts to convince companies to invest and return manufacturing to the region to be able to compete with China. The Trump administration fought a trade war with the Asian nation, including placing tariffs on imports of more than $300 billion, which Biden has kept in place.

©2021 Bloomberg L.P.

U.S. Clashes With Mexico, Canada on Car Rules in Risk to USMCA

Related Articles

Tech mega-caps knock 1% off Nasdaq; banks lift Dow
Tech mega-caps knock 1% off Nasdaq; banks lift Dow By Reuters - Sep 27, 2021 3

By Devik Jain (Reuters) - The Nasdaq index slipped more than 1% on Monday as investors swapped technology heavyweights for stocks linked to economic growth amid increasing...

ECB's Lagarde keeps door open to higher inflation
ECB's Lagarde keeps door open to higher inflation By Reuters - Sep 27, 2021 1

FRANKFURT (Reuters) -Inflation in the euro zone could exceed the European Central Bank's already raised projections but there are few signs of this already happening, ECB...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Connecticut Yankee
A_Jaundiced_Eye Jul 16, 2021 4:43PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Wait a second ! I thought it was all Trump's fault, that he was the only one fighting with our neighbors.  Is it POSSIBLE that I've been mislead by the media ???
Lukas Nowak
Lukas Nowak Jul 16, 2021 4:43PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
they have started to put pressure because they know that weak leadership will evetually give up
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email