WASHINGTON — An escalating quarrel over how the U.S. is interpreting vehicle content rules under North America's trade pact could be resolved this year, erasing some uncertainty as automakers try to meet the deal's more stringent requirements.
Canada last week joined Mexico in its request to form a dispute settlement panel that would address the U.S. interpretation of the automotive rules of origin under the United States-Mexico-Canada Agreement. The trade pact replaced the North American Free Trade Agreement in July 2020.
Mexico filed the complaint this month after consultations among the three countries failed to resolve disagreements on how to apply the vehicle content requirements.
The panel, which likely would be made up of experts from each country, would be expected to issue a report this summer, according to Canada Trade Minister Mary Ng. While that timeline could be extended, Autos Drive America CEO Jennifer Safavian said she's hopeful there will be a resolution this year.
"The clarity is needed to ensure that we continue to have a successful North American automotive industry," Safavian, whose group represents the U.S. operations of international automakers such as Hyundai, Toyota and Volkswagen, told Automotive News.
Under USMCA, significant changes were made to the auto-specific rules of origin, including a requirement that 75 percent of auto content for passenger vehicles and light trucks be made in North America to avoid tariffs, compared with the previous trade pact's 62.5 percent.
At issue is the stricter interpretation of those rules by the U.S., specifically, how it is calculating regional value content, or RVC, for core parts — components such as engines, transmissions and suspension systems — and how those parts should count toward the vehicle's RVC.
Canada and Mexico, in their interpretation, say that if a core part meets the 75 percent regional content threshold, then that part can count as 100 percent originating in North America when determining the vehicle's overall RVC.
The U.S., however, considers the regional content for core parts and vehicles as separate calculations. For instance, if an engine meets the 75 percent threshold, then only 75 percent is counted toward the vehicle's overall RVC.