Mexican and Canadian automakers blast Biden administration for protectionist policies

Canada joined Mexico’s official complaint on Thursday, requesting a dispute settlement panel to resolve a claim that the U.S. is violating The United States-Mexico-Canada Agreement (USMCA) — previously known as NAFTA — by insisting on a stricter interpretation of key provisions on auto parts.

Cars are the most valuable product traded between the North American trade partners, and Canada has argued that the way the U.S. views the multi-lateral agreement on trade would make it harder for Canadian vehicles and essential auto parts to qualify as duty-free, CBC reported. 

According to Canadian officials, the Biden administration’s view of the rules is “inconsistent” with the trade deal the three countries agreed to in 2019.

In a statement issued on Thursday, International Trade and Export Promotion Minister Mary Ng said, "Canada, Mexico and the United States would all benefit from certainty that USMCA is being implemented as negotiated, and Canada is optimistic that a dispute settlement panel will help ensure a timely resolution of this issue.”

The dispute ultimately centers on how the U.S., Canada and Mexico define a North American vehicle. A provision in the USMCA states that 75 percent of each vehicle must be manufactured in the country of origin by 2025 in order to cross a North American border duty-free.

But while Mexico and Canada argue that fully-assembled vehicles should be considered duty-free if 75 percent of its components are manufactured regionally, the U.S. doesn’t appear to agree — which could make it difficult for entire vehicles containing those parts to meet the 75 percent threshold for duty-free trade.

Flavio Volpe, president of the Canadian Automotive Parts Manufacturers' Association, said that if the U.S goes ahead with its interpretation, it could have major implications across North America.

According to Volpe, Canadian and Mexican automakers could even decide to not comply with the new rules and instead accept the 2.5 percent WTO tariff after sourcing auto parts outside of North America.

"The biggest winners are the low-cost Asian or Eastern European countries who make those same parts with very cheap labour," said Volpe. "They'll just become part of the Canadian cars we all see on the road today."

Such an outcome would undermine the goal of the USMCA, which is to boost production in North America.

Volpe said that while Canada and Mexico would suffer, the U.S. has the most to lose since it makes about 50 percent of all car parts in North America.

"The Trump administration, though it was tough and sometimes brainless in the negotiation of this agreement, ultimately came to a tripartisan place with rules we all agree to," said Volpe.

But although Volpe said he was relieved when President Joe Biden took office, he now believes there are "a lot of very protectionist leaders in that administration as well."

"Some of us are really surprised to see the Americans go back on the commitments made during this negotiation," he added.