Trade Panel Sides With Canada and Mexico on Auto Manufacturing Rules

An employee works on an assembly line at startup Rivian Automotive's electric vehicle factory in Normal, Ill., on April 11, 2022. Kamil Krzaczynski/Reuters

A dispute panel for the free trade agreement in North America has ruled in favour of Canada and Mexico in their interpretation of the rules for the production of automobiles.

The dispute pertained to the U.S. having a stricter interpretation of the rules that govern the quantity of parts sourced in North America that must end up in a vehicle for it to qualify for duty-free treatment under the Canada-United States-Mexico Agreement (CUSMA).

The rules state that North American-made cars need to contain a minimum of 75 percent regional parts.

Mexico and Canada argued that if a core part of the vehicle, such as the engine or the transmission, has 75 percent of regional content, the trade pact allows for that number to be rounded up to 100 percent when calculating the overall regional content contained in the product.

The U.S. disagreed and said it shouldn’t be rounded up.

The panel’s decision was announced on Jan. 11 after the conclusion of the North American Leaders Summit held in Mexico City.

It said the U.S. interpretation is “inconsistent” with the agreement rules.

“Canada welcomes the findings of the panel’s report, which reaffirm our understanding of the negotiated outcome on the rules of origin for automotive products,” Minister of International Trade Mary Ng said in a statement.

“Canada is deeply committed to rules-based international trade and is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated in CUSMA.”

Mexico had originally filed the complaint in January 2022 and Canada joined it shortly after, saying the new rules of the agreement were meant to not only deepen regional integration, but also help automotive companies to be more competitive.

A spokesperson for the U.S. Trade Representative said the decision is “disappointing.”

Adam Hodge said in a statement the panel’s interpretation “could result in less North American content in automobiles, less investment across the region, and fewer American jobs.”

“We will engage Mexico and Canada on a possible resolution to the dispute, including the implications of the Panel’s findings for investment in the region.”

Mexico’s Ministry of Economy said in statement it would start in the coming days a process of “dialogue and cooperation” with its partners to address the panel’s decision.

Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said the decision was “good for Canada and Mexico” and that it showed the dispute resolution of the trade pact is effective.

Reuters contributed to this article.