OTTAWA – Canada and Mexico have won a challenge to the US interpretation of automotive content rules under the new North American Trade Agreement. A dispute panel ruled Wednesday, ruling in favor of parts makers north and south of the US border.
A year ago, Canada and Mexico filed a complaint with the United States over how to apply content requirements for the automotive sector under the United States-Mexico-Canada (USMCA) 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.
“This decision is good for Canada and Mexico,” said Flavio Volpe, president of the Canadian Auto Parts Manufacturers Association.
“We are pleased that the dispute resolution mechanisms in place support our rights and obligations negotiated in the USMCA,” Canadian Trade Minister Mary Ng said in a statement.
“This is great news,” former Mexican Economy Minister Tatiana Cloutier said in a Twitter video. “It will greatly help the entire automotive industry in the North American region.”
U.S. Trade Representative (USTR) spokesman Adam Hodge said the decision was “disappointing” and could “reduce U.S. jobs.”
Under USMCA, the United States must agree with Canada and Mexico on how to apply panel decisions.
“We are reviewing the report and considering next steps,” Hodge said. Hodge said the USTR will now “reach out to Mexico and Canada to resolve the dispute.”
“In the coming days, Mexico will begin a process of dialogue and cooperation with its trading partners,” the economy ministry said in a statement after the ruling.
The decision was announced amid another USMCA dispute centered on energy fought by the United States and Canada against Mexico. Ottawa and Washington argue that Mexico’s energy policy puts U.S. and Canadian companies at a disadvantage, but Mexico has defended its policy and said it did not violate the law.
Under USMCA, 75% of a vehicle’s components must be produced in North America to qualify for tax-exempt status, but the United States disagreed on how that number was calculated.
If Mexico and Canada are 75% locally sourced for “core parts” such as engines and transmissions, the USMCA counts that figure at 100% when calculating the broader requirement for regional sourcing for the entire vehicle. It can be rounded up to .
The US said “core” content should not be rounded up when determining the content of the entire vehicle.
Volpe said the decision was also important because it shows that disagreements can be resolved under the rules of the new trade deal.
“This shows that the dispute resolution bodies within the USMCA are working,” Volpe said.