USMCA Rules of Origin dispute

By Dumont

According to Reuters, Mexico plans to seek the arbitration of a panel of experts to resolve a simmering dispute with the United States over the interpretation of rules of origin in the automotive industry.

Mexico wants the panel to clear up its differences with the United States over how to apply automotive sector content requirements under the United States-Mexico-Canada Agreement (USMCA), Reuters reported.

“Using the panel would escalate the tussle over automotive content rules, which lay at the heart of former U.S. President Donald Trump's drive to replace the North American Free Trade Agreement (NAFTA) with what became USMCA,” the article states.

The USMCA entered into force on July 1, 2020. The USMCA looks to be a mutually beneficial win for North American workers, farmers, ranchers, and businesses. The Agreement aims to create more balanced, reciprocal trade supporting high-paying jobs and grow the North American economy.

The agreement includes many innovative provisions designed to incentivize new U.S. investments in the automotive sector, to promote additional purchases of U.S.-produced auto parts, to advance U.S. leadership in automotive R&D, to support additional high-paying U.S. jobs in the automotive sector, and to encourage automakers and suppliers to locate future production of electric and autonomous vehicles in the United States.

The USMCA requires new criteria for automotive goods that were not present in NAFTA. According to the United States, NAFTA’s automotive rules of origin were outdated, permit ‘free riding’ by countries outside of North America, and have discouraged auto manufacturing and investment in the United States. Therefore the USMCA include:

-Increased Regional Value Content from 62.5% to 75%, increased in stages over a period three years.

-Labor Value Content (40-45% percent of the value of the imported automobile must be sourced from manufacturing facilities where workers earn at least $16 USD per hour.  The U.S. Department of Labor will be performing the assessment of manufacturing facility eligibility, with CBP determining value of the parts, the overall automobile, and the overall Labor Value Content determination.

-Steel and Aluminum (At least 70% of a vehicle producer’s annual steel and aluminum procurement must originate from North America).

Mexico, nevertheless, favors a more flexible interpretation of the auto industry regulations than the United States. Mexico's government on August 20, 2021, that the United States initiate formal consultations on the dispute.