Mexico Begins Search for USMCA Auto-Dispute Panelists

The months-long dispute over the interpretations of rules of origin in the automotive industry as per the USMCA might finally reach an outcome as Mexico begins to seek arbitration from a panel of experts on the matter.

The dispute revolves not around the treaty itself but over how to interpret USMCA as it relates to the trade of automotive parts and vehicles following its July 1, 2020 replacement of the century-old NAFTA. UMSCA calls for a Regional Value Content (RVC) of 75 percent threshold as a requirement for tariff-free trade, a significant increase from NAFTA’s 62.5 percent.

There are two different ways to calculate RVC. One method, the Net Cost Method (NCM) takes into account the transaction value of the good and excludes shipment costs while the Transaction Value Method (TVM) looks at the value of non-originating materials including those of undetermined origin.

Mexico and Canada argue that if a product reaches the 75 percent RMV requirement, it should be able to be rounded up to 100 percent RMV in order to be meet second, broader requirement and be granted duty-free threshold for the overall vehicle. The US believes in a stricter interpretation of USMCA, which would not allow for rounding up.

According to Mexican Minister of Economy Tatiana Clouthier, the US-favored strict interpretation of these rules would impact the industry by reducing competitiveness and raising costs while benefitting suppliers with more lenient rules, such as South Korea. This disagreement, originating between the US and Mexico before Canada also began arguing for a less-strict interpretation, has resulted in months of negotiations between the countries but time is beginning to run out.

Under USMCA rules, if no agreement has been reached within 75 days of a consultations request, then the issue is passed on to an expert panel consisting of five members selected from a roster submitted by the three countries. The only caveat is that the panel members each country submits must be from the opposing nation. A panel of three can also be selected if agreed upon.

Three inside sources have confirmed Mexico’s preparation for finding its panel submissions as November 13, the 75-day-mark since its initial August 30 submission for formal consultation, rapidly approaches. The country’s Ministry of Economy has not yet commented on its current plans, but the nation has made its stance and what is at stake very clear since the value of intraregional exports in the automotive sector amounts to US$236 billion.

“The automotive industry is the driver of growth of the economy and represents the most important part of Mexican exports. The days in which oil was the most important part of what we sold abroad are gone, and therefore it deserves that we take priority over that,” President, Business Coordinating Council (CCE) Carlos Salazar Lomelín told MBN. In just two weeks, the decision will be passed on to a panel of experts, and Mexico is not wasting any time to make sure it is made up of the right candidates.