Background

Mexico is moving ahead with a challenge to a strict U.S. interpretation of some automotive rules of origin under the U.S.-Mexico-Canada Agreement. A decision is expected within a few months and could open the door to retaliation.

According to the Office of the U.S. Trade Representative, the USMCA established a regional value content of 75 percent for passenger vehicles, light trucks, and auto parts (up from 62.5 percent under NAFTA), with similarly high content thresholds for core, principal, and complementary parts. Under this requirement, which will be phased in over several years, subject goods must have the specified amount of content made in North America to qualify for duty-free treatment under the USMCA.

However, Mexico believes the U.S. is violating its USMCA obligations by not allowing parts that have acquired origin by meeting the applicable RVC threshold to then be considered 100 percent originating for purposes of determining whether the vehicles into which they are incorporated are originating. Mexico recently requested the establishment of a USMCA dispute settlement panel to consider its argument after talks with the U.S. last fall failed to yield an agreement.  

If the panel’s decision favors Mexico, the two sides will have some time to reach agreement on a remedy, but if that effort fails Mexico could be allowed to impose retaliatory trade measures against U.S. exports to that country.

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