Mexico warns of automaker exodus if vehicle content dispute not settled

Mexico is warning that the U.S. interpretation of the revamped North American free trade deal that also includes Canada could push automakers to abandon the region due to cumbersome and costly content requirements.

Luz Maria de la Mora, Mexico’s undersecretary of economy for foreign trade, said that if the U.S. doesn’t come to an agreement with Mexico about the rules of origin of auto parts, companies could seek to move their business to countries with more favorable trade agreements. The U.S.-Mexico-Canada Agreement pact replacing NAFTA took effect last July with the new so-called rules of origin designed to be phased in over several years

“USMCA may become inconsequential for trade in the auto sector in North America because companies may decide not to bother with even complying with USMCA, because it becomes so costly, so cumbersome, and so difficult,” De la Mora said in an interview with Bloomberg News. “It may not be worth their effort to really try to procure from North America, so why bother investing in North America.”

Last week, Mexico formally requested the beginning of consultations with the U.S. in order to settle a dispute over the U.S. interpretation of the way to measure regional content of a car made in North America in order to trade duty-free.

The U.S. has a 30-day period to respond to Mexico’s request and a 75-day period to reach an agreement with Mexico before Mexico could potentially request that a formal panel hear arguments from the two nations.

De la Mora said that that Mexico wants to solve the issue with the U.S. “in a friendly way,” but warned that the region’s auto trade could be impacted if the U.S. government does not budge.

De la Mora said that the Mexican government requested consultations with the U.S. only after waiting to see if the administration of President Joe Biden would change the Trump administration’s interpretation of the agreement, but that conversations until now have not resolved the differences between the two countries.

“We are not negotiating. The negotiation already took place,” she said. “What we’re trying to do is understand if we have a common understanding on what is the text of the agreement.”

De la Mora said that Mexico is working on solving other issues for automakers by supporting companies in Baja California state that could be involved in improving the semiconductor supply chain. She noted that Intel Corp. and Skyworks Solutions Inc. already have operations in the state and added that Ford Motor Co. is planning additional investment in Mexico.