Mexico reserves the right to challenge the U.S. use of "national security" tariffs at the World Trade Organization, people briefed on the talks said.
Exports of cars and SUVs from Mexico would face a 25 percent U.S. tariff if they exceed 2.4 million vehicles and the U.S. imposes the national security tariffs, the sources said. Below the cap, vehicles that comply with new, tougher regional content requirements could enter the U.S. duty-free.
Vehicles within the cap which fail to comply with the new, tougher content rules would pay a 2.5 percent tariff, the sources said.
In 2017, nearly 1.8 million cars and SUVs were exported to the U.S. from Mexico.
The sources did not want to be identified because the details of the agreement have not been officially released.
U.S. officials have said the agreement is aimed at pulling more auto industry jobs into the U.S. and Mexico. Terms of the deal are not final, and could change depending on the outcome of negotiations between the U.S. and Canada, and other factors.
Duty-free auto parts exports from Mexico to the U.S. could be capped at $90 billion a year under the agreement, said Ann Wilson, senior vice president of government affairs at the Motor and Equipment Manufacturers Association.
The figure exceeds current levels, but parts shipments above that quota could be subject to 232 tariffs, Wilson said.
Mexican pickup trucks that do not comply with regional content quotas already pay a 25 percent duty. It was not clear whether they could also be subject to an additional quota.
Moises Kalach, head of the international negotiating arm of Mexico's CCE business lobby, said it was far from certain the U.S. would impose the 232 tariffs, and that the current trading arrangements for the industry were now safeguarded.
"We have a fall-back plan if they impose the 232, but there's also the possibility that Mexico is exempted from the 232," Kalach told Reuters.
It is not clear how the quotas would be counted or administered.
The deal also sets quotas for carmakers to use domestic steel and aluminum, the sources said. Vehicle components would be subject to regional content quotas at different levels, depending on the type of part or system. Engines and transmissions, the highest-value systems in a vehicle, would have a 75 percent regional content quota, the sources said.
A U.S. Trade Representative spokeswoman declined comment about the previously undisclosed details of the U.S.-Mexico agreement.
The Mexican economy ministry did not immediately reply to a request for comment.
The tariff mechanism in the preliminary U.S.-Mexico accord would likely change little for Detroit automakers such as General Motors, which builds large Chevrolet Silverado and GMC Sierra pickup trucks at a complex in Silao, Mexico.
However, Asian and German automakers, and automakers and suppliers that want to expand production in Mexico, could be at a disadvantage, and be forced to source more production of both vehicles and engines in the U.S.
The revised trade agreement is expected to take effect in 2020 and be phased in over five years, the people familiar with the proposal said.