Experts Don't Expect US to Comply With Auto Rules of Origin This Year

Although former Mexican officials are pleased with the conciseness and clarity of the USMCA panel ruling against the U.S. interpretation of the auto rules of origin, they have no confidence it will be followed this year.

The text of the USMCA trade treaty says that the countries are supposed to come to an agreement on how to resolve the dispute within 45 days of the final report, and that can be either rolling back the policy that caused the dispute, or providing "mutually acceptable compensation."

Mateo Diego-Fernandez, a former advocate for Mexico in the auto rules of origin dispute, said at a Wilson Center event March 21 that although compliance should have happened a month ago, there has been no signal it is coming. He noted that compensation, rather than fixing the issue, is one possible outcome.

"So even though not ideal for the industry involved, there could have been a scenario where Mexico and the U.S. would agree on some compensation -- OK, I’m not going to change my interpretation of the auto rules of origin, but I’m going to give you access on some agricultural or industrial product. Why hasn’t that happened?" he said.

"We have our own theories," he said. "What we believe is there is an implicit, or at least a nonpublic agreement, between the U.S. and Mexico that Mexico would not push for compliance on that case provided that the U.S. does not get the panel on energy established at least in the short term."

Kenneth Smith Ramos, Mexico's lead negotiator during the NAFTA rewrite, and now, like Diego-Fernandez, a partner at Agon consulting group, said Mexico's leadership does not want panel reports to come out against its energy or biotechnology policies before that nation's presidential election in mid-2024.

"I think the U.S. government is very unwilling to pull the trigger on dispute settlement," Smith Ramos said, because if they end the endless dialogues, it risks "a radicalization of Mexico’s position on immigration or security or other issues. I think the trade agenda has suffered because of that."

Diego-Fernandez said, "I think the autos dispute has become part of a political game."

He said that if auto industry players want to see the U.S. comply with the ruling, "they need to press the [Mexican] government." He said they should argue that it impacts jobs and investment, and give numbers to back up the argument.

Although the panel focused on U.S.-Mexico disagreements, it's Canada that is most tardy in complying with a ruling, at least according to the U.S. -- Canada lost a USMCA panel on implementing dairy tariff rate quotas (see 2201040041) and the U.S. was so disappointed with how Canada changed its TRQs, a second panel has been formed (see 2301310051).

Smith Ramos said agricultural trade has been NAFTA's "golden goose," and that the three countries have great complementarity. But, he said, there are always protectionist instincts in agriculture -- Canadians for dairy, the U.S. with threats of bringing dumping cases against Mexican produce that competes with Southeastern growers, and Mexico's opposition to genetically modified crops.

Smith Ramos said that last sentiment comes from what he calls "a radical wing of the Morena party," which is the majority in Mexico's National Congress and the party of the president. Smith Ramos said that group has been consumed with GMOs for three decades.

Although the presidential decree on GMO corn was watered down, "still it does not seem to be enough for the U.S. government," he said. "I think, correctly, they cannot allow a situation where the USMCA is violated partially." He said it's unacceptable for U.S. trading interests just to have a statement from the Mexican government that GMOs are "bad for human health."