Mexico, Canada Win Trade Dispute With US on Rules of Origin

Mexico and Canada have won their challenge to the US interpretation of content rules for vehicles assembled under USMCA, a dispute panel ruled.

The complaint was filed one year ago by Mexico and Canada against the US over how to apply the automotive industry requirements under USMCA, which came into effect in 2020. The new treaty increased the Regional Value Content (RVC) for light vehicles and trucks to 75 percent. 

Mexico and Canada argued that if an auto part complies with the minimum required RVC it can be considered to have a 100 percent of RVC in the total sum of the RVC inside a vehicle. On the other hand, the US argued that the RVC value of an auto part cannot be rounded up to 100 percent.

The US interpretation of the rules is “inconsistent” with the USMCA, the panel ruled. The decision benefits Canada and Mexico, assured Flavio Volpe, President, Canada’s Automotive Parts Manufacturers Association. Canada “is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated in USMCA,” said Canadian Trade Minister Mary Ng.

In the coming days, “Mexico will begin a process of dialogue and cooperation with its trade partners to keep track of the final report. Mexico reiterates its commitment to dialogue as the best tool for strengthening North American trade integration,” the country’s Ministry of Economy said.

Tatiana Clouthier, former Minister of Economy, celebrated the panel’s resolution with a video uploaded on her Twitter account. “This is excellent news, not only because of the excellent work of Mexico’s legal and administrative teams, but also because the USMCA will be fulfilled as negotiated and that immensely helps the North American automotive industry,” she said.

However, Adam Hodge, Spokesperson, US Trade Representative’s (USTR) office, called the panel ruling as “disappointing,” adding that it could result in “fewer American jobs,” reported Reuters. Under USMCA, the US must agree with Mexico and Canada on how to apply the panel decision, or face possible retaliatory tariffs. "We are reviewing the report and considering next steps," said Hodge. The USTR will now engage Mexico and Canada on a possible resolution to the dispute.

Volpe said the decision is also important because it demonstrates that disagreements can be settled under the rules of the new trade pact: "It shows that the dispute-resolution vehicle within the USMCA works."