Canada and Mexico reject the US position on the free trade agreement

The United States (EU) differs with Mexico and Canada on the rules regarding the shipment of cars between countries. Automakers and the governments of countries neighboring the United States have signaled to the Biden administration that they are jeopardizing the success of a new trade deal.

The dispute is how to calculate the percentage of the vehicle that comes together from the three countries under an agreement between the United States, Mexico and Canada, according to people familiar with the matter, who asked not to be identified.

The agreement went into effect last July, replacing the North American Free Trade Agreement, or NAFTA, but the new rules of origin are designed for gradual implementation over three years.

People said the United States insisted on a more rigorous method than Mexico and Canada believed they agreed to account for the origin of certain important parts, such as engines, transmission and steering systems, in the public account. People said this makes it difficult for factories in Mexico and Canada to meet the new threshold of 75% regional content, above 62.5% of NAFTA, in order to trade under a tax-free formula.

For example, if the central party uses 75% of regional content and therefore qualifies under this requirement, Mexico and Canada argue that T-MEC allows them to round the number to 100%, for purposes of a broader computation of general regional content from a vehicle. However, the US argues that 75% is the percentage that should be used in the broader calculation, making it difficult to reach the overall minimum tax-exempt status.

Adam Hodge, a spokesman for the US Trade Representative, said his country remains committed to the regional value requirements that countries have agreed to under the T-MEC. Brian Rothenberg said the group, the largest US auto association, supports the Biden administration’s tougher interpretation of T-MEC.