US and Mexico cannot agree on light vehicle rules
When the United States abandoned the North American Free Trade Agreement (NAFTA) to join the United States-Mexico-Canada Agreement (USMCA), it did so in an effort to develop a better trade deal for themselves. Established in 1994, NAFTA created a trilateral trade bloc that encouraged trade between nations. But critics accused him of encouraging the offshoring of jobs to the United States and drastically cutting wages, especially in the auto and manufacturing sectors.
Signed in 2018, and revised the following year, the USMCA was supposed to address these issues. But it has been difficult to involve all parties, especially with regard to these fussy rules of origin which stipulate how much of a vehicle’s material must come from member countries.
U.S. Trade Representative Katherine Tai and Mexican Economy Minister Tatiana Clouthier were supposed to find a solution to the problem in Washington earlier this week. However, the pair broke up on Thursday without reaching a compromise.
The conflict has been virtually all since the introduction of the USMCA. Although promulgated by former US President Donald Trump, former Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau, the deal has been the subject of ongoing negotiations. Although the wording is often tempered to be less inflammatory, the Canadian and Mexican governments really don’t seem to like the way the rules of origin are calculated.
NAFTA required 62.5% of a vehicle’s overall content to originate in North America to be exempt from tariffs. But the USMCA has raised the threshold to 75 percent regional content and is a bit more specific in breaking down the individual components (eg engines, transmissions, etc.) that make up the entire automobile. Canada and Mexico want more flexibility and have said this is what they thought they signed when former President Donald Trump was still in office. Automotive News has been covering the topic consistently since 2017 and expanded on these demands in a recent article.
For example, if a main play uses 75 percent regional content and therefore qualifies for duty-free treatment, Mexico and Canada argue that the USMCA allows them to round the number to 100 percent to meet a second requirement for the overall regional content of an entire car. The United States, however, does not want to allow rounding, making it more difficult to meet the duty-free threshold for the entire vehicle.
Mexico, along with Canada, plans to file a formal complaint against the United States under the year-old USMCA, which could result in a panel to hear the nations’ arguments, according to reports. people familiar with the matter.
Matt Blunt, president of the American Automotive Policy Council, said the industry is “committed to making the USMCA a success.”
“We urge the three countries to implement the agreement in a manner consistent with the negotiated results,” he said in a statement to Automotive News. The Blunt group represents General Motors, Ford Motor Co. and Stellantis.
The Mexican Automobile Industry Association also wants the agreement to be implemented within the framework of the negotiated outcomes. However, it operates under the impression that the talks have resulted in something different from what the United States believes. While Canada has been quieter on the issue, officials have frequently signaled that they are aligning themselves with Mexico and would like to be able to source parts from outside North America without the tariffs. .
If the United States gives in, it is effectively reverting to some of the more controversial aspects of NAFTA that it hoped to abandon with the USMCA. But if he plays hard and tells Canada and Mexico to stick to the rules or kiss each other, he runs the risk of damaging trade relations and encouraging the auto industry to simply abandon the path of duty-free with some models. At least, that’s the theory market analysts have come up with as trading continues.
But your author doesn’t really see this happening. Although the United States’ closest neighbors have other trading partners, they remain by far their largest exporter and importer and it would probably be wise to call their bluff. Breaking World Trade Organization rules means adding a 2.5% tariff on passenger vehicles and opening them up to the dreaded 25% chicken tax, nullifying their ability to ship trucks into the country with all hope of profitability. While there are negative ramifications for the US as well, they seem to have the best hand overall and it would be crazy to fold when one of the USMCA’s main goals was to bring home more. manufacture in the country.
Trade Representative Tai said the United States remains committed to “fully implementing the USMCA” and that her office will continue to discuss the issue with Mexican Economy Minister Clouthier in the months to come.
[Image: Chess Ocampo/Shutterstock]
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