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A trade panel ruled in favor of Mexico and Canada in a dispute with the U.S. over rules to calculate regional content required for tariff-free imports of vehicles under the U.S., Mexico, Canada Agreement, officials said Wednesday.
Mexico and Canada had challenged the U.S. method for calculating the regional content required under the USMCA trade pact for cars to have tariff-free access to the U.S., and requested the panel early last year after failing to reach agreement during consultations.
The Trump administration’s demand for increased North American content in automobiles proved to be one of the most contentious issues during the renegotiation of the North American Free Trade Agreement, or Nafta, which was then renamed and went into effect in 2020.
The minimum regional content requirement was raised to 75% under USMCA from about 62% under Nafta.
Canadian Trade Minister
Mary Ng
said the ruling reaffirms “our understanding of the negotiated outcome on the rules of origin for automotive products.” Canada joined Mexico’s initial complaint, warning the U.S. interpretation could inhibit the ability of domestic manufacturers from qualifying for duty-free trade in North America.
Canada “is glad to see that the dispute settlement mechanisms in place are supporting our rights and obligations negotiated” in the trade treaty, Ms. Ng added.
The ruling means that the U.S. must use Mexico’s and Canada’s methods to calculate regional content, or face retaliatory tariffs.
In a statement, the U.S. Trade Representative’s office called the ruling “disappointing,” warning it could result in “less North American content in automobiles, less investment across the region and fewer American jobs.”
The USTR said it is considering its next move, adding it would discuss a possible resolution with Mexico and Canada.
Mexico’s Economy Ministry said it would begin a dialogue with its trade partners on the ruling in the coming days.
The U.S. Chamber of Commerce said the ruling could provide certainty for the North American motor-vehicle industry, and called on the Biden administration to implement the report’s findings.
Write to Anthony Harrup at anthony.harrup@wsj.com and Paul Vieira at Paul.Vieira@wsj.com
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