Observers Question if US Will Comply With Auto ROO Panel Decision

Ahead of a meeting of the "Three Amigos" -- the presidents of the U.S. and Mexico and the prime minister of Canada -- Jan. 9-10, business groups that advocate for North American integration said during a Jan. 6 webinar that they're hoping to see more evidence of nearshoring and using North American resources to diversify away from China.

In a brief produced by the Americas Society/Council of the Americas and the U.S.-Mexico Foundation, the groups said the U.S. lost its case in the-not-yet-released USMCA panel report on auto rules of origin. Mexico and Canada said that the U.S. interpretation of calculating regional content is too strict, and was not agreed to during negotiations (see 2208030042).

In response to a question from International Trade Today, U.S.-Mexico Foundation Managing Director Enrique Perret said he doesn't know if the U.S. will comply with the panel's decision.

But he said he hopes U.S. officials will factor in the time that companies in Mexico and Canada need to comply with the rules of origin as they consider how to respond.

If the U.S. does change its approach as the panel recommends, he said, it would be "good for the U.S. in the next potential panels that come -- in energy -- and it gives a lot of credibility and trust to the three countries in the USMCA."

Council of the Americas Vice President Eric Farnsworth, who also participated in the webinar ahead of the summit, added: "The credibility of USMCA … depends on the full compliance of all three countries. It’s true when you win a case -- it’s also [true] when you lose a case."

Perret noted that if the U.S. chose to defy the panel, Mexico could impose tariffs on U.S. exports, as it did when the U.S. chose not to comply with commitments to allow Mexican truckers to deliver goods in the U.S.

"We don’t want to see that," he said.

Another reporter asked if they expect there to be new panels in early 2023 under USMCA, on energy, on genetically modified corn, or on barriers to milk and cheese exports in the Canadian market. The U.S. previously won a panel a year ago on Canada's tariff rate quota regime in dairy (see 2201040041), but the Office of the U.S. Trade Representative has not been satisfied with the changes Canada made in response (see 2205250064).

Farnsworth said it wouldn't be surprising if that happens, because USMCA included commitments in more areas than NAFTA, including "difficult, politically sensitive economic issues. By definition, the more complicated the issues you bring in, the more disputes you're going to have."

Former Canadian diplomat Louise Blais, now a senior special adviser for the Business Council of Canada, said that while Canada is relieved that its automotive parts and vehicles will be eligible for electric vehicle tax credits, other incentives for manufacturers in the Inflation Reduction Act make it more attractive to open or expand factories in the U.S. than in Canada. She said that while the policies in the Chips Act and in the Inflation Reduction Act are aimed at lessening dependency on China, "they do have collateral damage on Canada and the Mexican economy."

She said that she expects the prime minister to raise those issues during the summit.

With regard to the complaints about Mexican energy and biotechnology policies and Canadian dairy trade, she said the leaders might be able to resolve some of these issues, heading off dispute panels, but she also wouldn't be surprised if some issues do go that route.

On dairy, she said, "I don’t see us moving on dairy in Canada -- this has been a decades-long issue. I’m not sensing any political will in Canada to make a change in our supply management."