Canada joins Mexico in disputing how the U.S. interprets USMCA auto rules

The federal government plans to join Mexico as a complaining party against the U.S. interpretation of the automotive rules of origin under Chapter 31 of the U.S.-Mexico-Canada Agreement (USMCA).

The deal is known in Canada as Canada-United States-Mexico Agreement (CUSMA).

Mexico last week asked for a dispute resolution panel to challenge the stringent U.S. interpretation of the auto rules of origin enshrined in the agreement.

Rules of origin in the agreement dictate how much of a product must originate in the region in order to qualify for tariff-free status.

The new deal requires passenger vehicles to contain 75 per cent regional content, up from 62 per cent under NAFTA; but Canada says the U.S. is violating the terms of the agreement by adopting a stricter formula for how those thresholds are met.

“The interpretation that the United States adopted in July 2020 is inconsistent with CUSMA and the understanding shared by the parties and stakeholders throughout the negotiations,” Trade Minister Mary Ng said in a statement on Jan. 13. “Canada, Mexico and the United States would all benefit from certainty that CUSMA is being implemented as negotiated, and Canada is optimistic that a dispute settlement panel will help ensure a timely resolution of this issue.”

Mexico requested the establishment of a dispute settlement panel on this issue on Jan. 6, 2022.

In the timeline provided under CUSMA, the dispute settlement panel would be expected to issue a report in the summer of 2022.