Canada, Mexico best US in major free trade auto dispute

TRENTON, Canada

Canada and Mexico won a major victory over the US on Wednesday in their free trade agreement dispute over components used in the manufacture of new vehicles.

The dispute centered on how to calculate the content requirements of a vehicle under the Canada, United States, Mexico Agreement (CUMSA in Canada, USMCA in the US) free trade agreement that replaced the old North American Free Trade Agreement.

Under the new agreement, 75% of the parts used in the manufacture of vehicles had to originate in North America or face a tariff. The US wanted a different way to determine that 75%. The fear was that the American interpretation could lead to more parts made in the US and lost manufacturing jobs in Canada and Mexico.

Canada and Mexico argued that if a major component such as an engine had 75% North American content, then the number should be rounded up to 100%. The US disagreed.

There was a lot at stake. The car manufacturing industry is worth about US$162 billion annually among the three countries.

Canada and Mexico took their complaint to an international panel that was agreed to in CUMSA as a dispute settlement mechanism.

The ruling panel sided with Canada and Mexico, handing the US a defeat. The decision was made on Dec. 14 but only released Wednesday due to the US-Canada-Mexico Summit in Mexico City that ended Tuesday.

The panel put a lot of weight on an email sent by a US official that supported the complainants' argument that there was no 75% content rule originally in the free trade deal, the Canadian Broadcasting Corporation reported.

Canada was jubilant over the ruling.

"Today's decision is a good decision for the industry," International Trade Minister Mary Ng told reporters in Mexico City. "It's what we negotiated…Clarity in the rules — it's what today's decision provides."