The commercial controversy over the rules of origin agreed for the automotive industry in the T-MEC is on the rise. The Government of Canada has joined Mexico's request this Thursday to establish a dispute settlement panel due to the different interpretation that the US makes of the rules of origin of the automotive sector. "The interpretation that the United States adopted in July 2020 is inconsistent with the T-MEC and the understanding shared by the parties and interested parties throughout the negotiations," said Mary Ng, Minister of Trade of Canada. The Secretary of the Economy of Mexico, Tatiana Clouthier, has celebrated the decision of the Trudeau Government: "Together we will defend the competitiveness of this regional industry" she has written on her Twitter account.
The Canadian official emphasized in writing that the rules of origin established for passenger cars and trucks, after a process of negotiations and close consultations between the three countries, seek to deepen regional integration and will support the competitiveness of automobile producers in North America. North. “Canada, Mexico and the United States would benefit from the certainty that USMCA is being implemented as negotiated, and Canada is optimistic that a dispute resolution panel will help ensure a timely resolution of this issue. The Government of Canada will always stand up for our auto industry and our workers as we move towards an economic recovery."
The different interpretations that exist regarding the content of origin that applies to automobiles and auto parts have become a headache between Mexico, the United States and Canada. The panel represents a new phase of a dispute that began on August 20, when Mexico requested consultations with the United States to resolve their disagreements over the automotive rules of origin, however, the consultations that lasted more than two months were not enough. to resolve the differences. At the beginning of this month, the Government of López Obrador requested the establishment of the panel and in the schedule provided for in NAFTA, it is expected that a report will be issued in the summer of 2022 after this new measure.
The point of trade controversy centers on the methodology for measuring regional content so that cars are traded duty-free: the United States insists on a more stringent method than Mexico and Canada believe they agreed to for counting the origin of certain core parts. , including engines, transmissions and steering systems in the overall calculation. The T-MEC provides that, in order to have preferential treatment, automotive exports between Mexico, the US and Canada must meet a minimum regional content value (VCR). The percentage will gradually increase, with a goal of 75% by 2024.
José Luis de la Cruz Gallegos, director of the Institute for Industrial Development and Economic Growth, acknowledges that this controversy will put the T-MEC to the test. “In the United States, it is a priority for them to recover the largest proportion of the productive chain of the automotive sector based on criteria that they consider strategic. It is very clear that the automotive industry has become of national interest for North Americans. The United States is going to exert very strong pressure through formal and informal channels to try to win that discussion,” he explains.
The specialist adds that although Mexico and Canada have the legal arguments to defend themselves in the trade controversy panel, the United States will not give in easily and may even invoke criteria of national security for the North American country.
Under this scenario, the expert also foresees that the industry's investments will moderate until a definitive resolution is reached.
De la Cruz Gallegos points out that if the rules of origin are applied with the US criteria, Mexico will see a halt to the expansion that it registered in the last decade in automotive exports.
“Mexico will continue to be part of the production chain, but the United States wants to pull the most profitable part and it is in the part of electronic supplies, in specialized steels and everything where added value is generated,” he points out.
The regional automotive sector is the jewel in the crown between Mexico, the United States and Canada.
This industry represents about 4% of the GDP and 19% of the industrial sector.
Despite the fact that in 2021 the automotive industry has been affected by a decrease in domestic sales and the scarcity of inputs, this year Mexico exported 2.7 million light vehicles, a figure similar to the previous year, according to data from the National Institute of Geography and Statistics (Inegi).
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