Canada is joining Mexico’s official complaint today, which claims the US is in violation of the new NAFTA, the Canada-US-Mexico agreement on trade, a strict way of interpreting a key provision around auto parts. Requesting the Dispute Settlement Panel by insisting on
Motor vehicles are the top manufactured trade products among the three countries. Canada argues that the way the US views the trade deal will make it harder for Canadian vehicles and core auto parts — engines, transmissions and steering wheels — to qualify as duty-free.
International Trade and Export Promotion Minister May Ng issued a statement this morning saying the US view of the rules was “inconsistent” with the three countries agreed upon, which went into effect in 2020.
“Canada, Mexico and the United States will all certainly benefit that CUSMA is implemented as negotiated, and Canada is optimistic that a dispute settlement panel will help ensure a timely resolution of the issue,” Ng wrote.
Canada and Mexico have been working for more than a year to resolve the dispute.
The controversy centered around a technical issue in the trade deal. The provision would require that by 2025, 75 percent of vehicles and certain core components must be manufactured in the country to be eligible for duty-free. If not, the US may impose tariffs under WTO rules.
This “rules of origin” provision was supposed to encourage the “production and sourcing” of passenger cars and light-duty trucks in North America, Ng wrote.
“The result was the result of dialogue and close consultation with automotive stakeholders, which ensured that these new rules of origin would deepen regional integration and support the competitiveness of automotive producers in North America,” wrote Ng.
Before the implementation of CUSMA in July 2020, only 62.5 per cent of the vehicle had to be manufactured in the country to qualify for the duty-free treatment.
Canada says US interpretation will be a burden
Mexico and Canada argue that if a core car part uses 75 percent regional manufacturing, it must meet the second requirement to qualify to meet the bar for the entire car to be considered duty-free. fulfills the agreement. The US does not agree, which could make it harder for entire vehicles to qualify for duty-free treatment.
A senior Canadian government official told CBC News that the US interpretation could be too cumbersome for industry and regulators.
While renegotiating NAFTA in 2019, Canada, Mexico and the US agreed on a dispute mechanism process that will now be used. A dispute panel could hear the arguments of the nations.
Ng wrote that the Canadian government “will always stand up for its auto industry and workers as we build towards a sustainable economic recovery.”
The case is not related to Canada’s dispute over electric vehicle tax incentives for US-manufactured vehicles.