Canada To Join Mexico in USMCA Dispute

Canada will officially join Mexico in its dispute with the US regarding USMCA rules of origin by calling for an arbitration panel in the first weeks of January that will come to a resolution to the vehicle parts disagreement.

Although US President Joe Biden’s US union-made EV tax break has been the main subject of controversy over USMCA disagreements, the dispute over rules of origin has still not been resolved. After USMCA raised the Regional Value Content (RVC) from 62.5 percent to 75 percent, Mexico and Canada argued for vehicles that meet this threshold to qualify for a second requirement to be granted duty-free conditions.

USMCA rules call for an expert panel of five members from a roster submitted by each of the three countries to decide the outcome of the dispute if no agreement is reached after 75 days of a consultation request, which Mexico submitted on August 30. Towards the end of October, Mexico began searching for panelists to submit as options as the members are ultimately selected by the opposing countries. Media reports from Canada say the country has begun its own part of the process.

If both countries submit their panelists by early January as planned, a decision could be reached as early as July 2022. Previously, Canada had presented itself as an “interested third party” only monitoring talks between Mexico and the US. However, its position changed after business leaders demanded Primer Minister Trudeau to be more assertive with the US over the agreement. This led the prime minister to instruct his top ministers of economy to take “tougher” stances regarding the disputes.

The country’s position also followed the Three Amigos Summit in which Canadian representatives made their disagreement over the US EV tax credit initiative very clear, even more so than Mexican officials. Following the summit, Trudeau stated that Canadian officials had underlined the severity of the problem the tax breaks would be for Canada. While no agreement was reached, continued communication should ensure a resolution.

Meanwhile, the Mexican Ministry of Economy stated that it was prepared to retaliate commercially over these same tax credits. If talks fail regarding the rules-of-origin dispute, the two countries could retaliate against the US through equivalent “suspensions of benefits” resulting in higher tariffs for the US. Resolutions over both conflicts are highly awaited by all three of the countries’ major automotive manufacturing companies.