Canada Joins Consultations Over USMCA Auto Rules of Origin
The U.S. is now facing formal complaints from both Mexico and Canada over how it's calculating regional value content in the auto rules of origin under USMCA. Canada formally joined Mexico's call for consultations, it announced Aug. 26. Canada says that, like Mexico, it does not agree "with the interpretation of the United States of the relationship between the core parts and vehicle regional value content calculations."
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"There is considerable integration among the auto industries in the three CUSMA parties. Canada is a major manufacturer of motor vehicles and both imports and exports parts and motor vehicles from and to the United States and Mexico. The approach taken by the United States to determine the originating status of motor vehicles could have significant implications for parts and motor vehicle manufacturers throughout their supply chains, and may have a significant economic impact on Canadian manufacturers as well as consequences for trade flows into and out of Canada. Moreover, Canada also has an important systemic interest in ensuring the correct interpretation of the terms of the CUSMA," the letter said.Canada calls USMCA the Canada-U.S.-Mexico Agreement, or CUSMA.
Mexican Economy Minister Tatiana Clouthier responded on Twitter to the news. "We are pleased that Canada has decided to join the call for consultations ... over the U.S. interpretation of the auto rules of origin in the TMEC," she tweeted Aug. 27 in Spanish, referring also to USMCA.
The U.S. asserts that all three countries agreed to the rules of origin. "We remain committed to fully implementing the USMCA, including the strong auto regional content requirements to which we all agreed,” an Office of the U.S. Trade Representative spokesman said when Mexico first asked for consultations.
The auto rules of origin were one of the biggest changes from NAFTA to USMCA, and the U.S. is arguing for a change in roll-up provisions. Under NAFTA, if a part qualified as originating, then all of its content would count as North American when making the vehicle-level calculations. Mexico and Canada are saying that they did not agree to a change in that approach. But the U.S. is saying that only North American content should count, so each bit of Asian or European content needs to continue to be counted as outside the agreement as you move from core parts to supercore parts to the finished vehicle (see 2106180027).
Dan Ujczo, a senior counsel for Thompson Hine's international trade practice and a USMCA expert, said as cars and trucks move away from internal combustion engines to electric motors, Canada is essential, with its lithium and cobalt supplies and its manufacturing capability in Ontario.
"Canada was the key architect of the auto rules of origin in USMCA and Canada’s voice is critical for these consultations," he said via email Aug. 31. Canada came up with the idea of the labor value content, which replaced the original U.S. proposal of requiring 50% of the value of vehicles to come from the U.S. (see 1802150060).