Autos Drive America Asks for the Relaxation of Rules of Origin

Members of the Auto Drive America trade group have asked US President Joe Biden’s administration to ease the US’s position regarding the USMCA’s rules of origin. The US’s interpretation of the rules of origin has been criticized for being too strict by Mexico and Canada. 

The USMCA included several changes that directly affected the automotive industry, including changes to the rules of origin. While NAFTA required a 62.5 percent or more of regional value content based on the net cost of the vehicle, the USMCA increased this percentage to 75 percent based on the vehicle’s core and key parts. However, the three countries have different interpretations as to what should be counted as regional value content, with Canada and Mexico arguing that the US is interpreting the rules of origin in a way that was not agreed to in the free trade agreement, as reported by MBN. 

An inquiry on the interpretation of the rules of origin was first requested by Mexico, which was later joined by Canada as both countries argue that the US applies these rules under a too strict framework. On Jan. 6, 2022, Mexico called for a meeting to discuss this matter, which is expected to reach a resolution in November 2022. If Mexico and Canada win, the US will be forced to start the new rule of origin calculations in 45 days, as reported by MBN.

The dispute places at risk many potential investments and projects in the region because of the uncertainty it generates. In recent days, 11 automotive companies that are part of the Autos Drive America block have asked the Biden administration to relax the US posture in the rules of origin. The petition was presented to the US Trade Representative (USTR) as part of the dispute settlement process. 

BMW, Honda, Hyundai, Kia, Mazda, Mercedes-Benz, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen were the 11 companies that submitted the petition to the US government to relax its interpretation of the rules of origin. The USMCA would make North America the region with the highest level of local content of vehicles built in the world. 

"For the USMCA to fulfill its potential to create jobs and transition to new and greener technologies, the Administration [of President Joe Biden] should reconsider and abandon its advocacy of the previous administration's unilateral reinterpretation of the roll-up provisions, which would allow automakers to smoothly implement the billions of dollars of investments they have planned for the US and the region," stated Autos Drive America, according to El Economista.

The organization considers that the US interpretation of rules changed after automakers were already developing and investing in modifications to their supply chain and operations to meet the new standards that the USMCA implemented. The new US’s interpretation of the rules of origin " would provide consumers with fewer choices or at a higher cost and could force automakers to move some production lines out of the US because of costs," according to Auto Drive America. Biden's administration has made no official response.