USMCA: Automotive Rules of Origin

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USMCA: Automotive Rules of Origin

Today, the USMCA panel ruling was published regarding the interpretation of the rules of origin in the automotive sector in the Agreement.

Mexico and Canada believe that the U.S. is misinterpreting the rule of origin regarding the calculation of regional value content (RVC) for essential parts in the production of automobiles. Mexico and Canada argue that once the essential parts of an automobile exceed the minimum 75% RVC, they should be considered 100% originating for purposes of calculating the RVC of the vehicle as a whole. However, the US argues that the non-originating content value of the essential parts should be deducted when calculating the RCV of the vehicle.

This interpretation makes it much more difficult for automakers to comply with the vehicle’s RCV and manufacturers would have to pay the 2.5% tariff charged by the U.S. to countries with which the U.S. does not have a free trade agreement.
Pursuant to its ruling, the Panel determined that the USMCA allows vehicle manufacturers to consider the essential parts of a finished vehicle as originating, once, separately, such auto parts have complied with the minimum percentage of regional content (75%), using the alternative methodologies established by the same treaty.

The Secretary of Economy expects to continue the dialogue with the Parties (press release). The U.S. now has 45 days to comply with the panel’s ruling. Otherwise, Mexico and Canada could impose retaliatory tariffs on any U.S. export product for the same amount of the damage generated.

 

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