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US Tax Break for Electric Vehicles Violates USMCA: Mexico

By Alfonso Núñez | Wed, 11/03/2021 - 16:55

Mexico’s US ambassador warned the US Congress and Senate that a proposed legislation regarding tax breaks for the purchase of US-produced electric vehicles would violate trade agreements and harm the sale of electric vehicles (EV) worldwide.


Mexican Ambassador Esteban Moctezuma Barragán sent a letter to US Speaker of the House of Representatives Nancy Pelosi, amongst other representatives, and supported by 24 other US ambassadors from countries that stand out for their automotive production, according to an October 30 press release. The letter came as a response to a proposal to expand tax credits for union-made zero emissions EV models assembled domestically, with a tax credit of up to US$12,500 per electric vehicle.


The US lawmakers who introduced the bill this September presented it as an extension of President Joe Biden’s plan to raise the country’s EV sales to 50 percent of total sales by 2030. The proposal, introduced this past September as a part of the 2021-2022 budget reconciliation package, also seeks to expand environmentally-conscious technology across the global automotive industry to reduce worldwide carbon dioxide emissions.


However, Barragán argues that the enaction of the bill “discriminates against foreign automotive producers” and violates the international trade commitments agreed upon by the US in the recently enacted USCMA. Barragán claims that the fiscal incentives for US produced electric vehicles specifically affect Mexico by threatening the trust built through the agreement.


“The proposed conditions would reduce consumer choice in the US market to only two vehicles that are eligible for the full credit out of over 50 electric vehicles currently available. This would seem to be counterproductive to meeting our share carbon emission targets,” the press release said.


This response by the Mexican Embassy to the US Senate comes shortly after the US National Renewable Energy Laboratory (NREL) warned that the energy reform proposed by Mexican president Andrés Manuel López Obrador is dangerous because of its high increase in carbon dioxide emissions into the country’s atmosphere. Although the letter did not address this issue directly, its clear that sustainability and environmental preservation have become a key-focus for international relations and a top global priority for the automotive industry.


The proposal was introduced by US Democrats, who hold majority in a 50-50 split Senate under Vice President Kamala Harris’s tie-breaking vote. But recently, the lawmakers have hit a roadblock in rallying behind President Biden due to differing views within their own party, preventing many of their proposed legislation from passing. The same might be the case for the proposed domestic electric vehicle fiscal incentives.


Mexican automotive manufacturers are not the only ones hoping this will be the case, as the ambassador’s letter has received support from the ambassadors to the US of the EU, Austria, Belgium, Canada, Croatia, Cyprus, Czech Republic, Estonia, Finland, France, Germany, Greece, Holland, Ireland, Italy, Japan, Malta, Poland, Romania, Slovenia, Slovakia, South Korea, Spain and Sweden. These countries also aim to reduce carbon emissions and push electronic vehicles as the future of transportation.

Photo by:   Unsplash, Michael Fousert
Alfonso Núñez Alfonso Núñez Journalist & Industry Analyst