Mexico Asks for USMCA Consultations Over Auto Rules of Origin Disagreement
The Mexican government has asked the Office of the U.S. Trade Representative for formal consultations under USMCA's dispute resolution process over a disagreement on how the auto rules of origin should work. Mexico says that when it agreed to a 75% regional value content standard at the end of the phase-in period, its negotiators were assuming that once a part is considered originating, its value should count as North American as you move to assemblies, and ultimately, to the vehicle as a whole. So, Mexico says that in the text on the rules of origin, if a core part is originating, its full value is counted in a super-core part, such as an engine, and if that engine is originating, its value counts in the RVC for the vehicle as a whole.
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This concept of roll-up was allowed under NAFTA. But, Mexico said in its argument published Aug. 21, the U.S. is not interpreting the rules of origin that way. A lawyer who represents automakers in trade compliance said on Aug. 23 that Canada has not yet taken a position on the question. Dan Ujczo, a senior counsel for Thompson Hine's international trade practice, said that the calculations on super-core parts are most important for the industry (see 2106180027). USTR didn't comment.
Rep. Kevin Brady, R-Texas, the top Republican on the House Ways and Means Committee, has said that he is neutral on the issue, even after Mexico's economy minister talked to him about why it's a problem. "I've just been encouraging all sides to stay at the table, to work this thing out," he said last month, but added, "I think this will be difficult to change, given that both [the Trump and Biden] administrations agree on the interpretation" (see 2107280045).
Mexico said it would like to settle the matter in consultations so that it will not have to ask for a dispute panel. Panels can no longer be blocked under USMCA, and if the panel were to find in Mexico's favor, Mexico could withdraw tariff benefits on U.S. exports as a way of encouraging a change of policy on the issue.