Report: Cars That Owe Duties Rose Sharply After USMCA

An analysis of how the stricter rule of origin for auto imports has been implemented -- including the unprecedented labor value content element -- praised coordination among the Office of the U.S. Trade Representative, the Labor Department, CBP and other agencies with expertise, but noted that final regulations have been held up because the U.S. has not reached a final resolution in the dispute it lost at a USMCA panel.

The panel ruled against the U.S. more than a year ago, but Mexico, Canada and the U.S. are still consulting about what approach should be taken to measuring regional value content. As a result, this "has limited CBP enforcement of certain RVC requirements," a new report from the Government Accountability Office said.

Even so, there have been more duties paid on both imported vehicles and parts as a result of the tighter rule of origin, the report said. The three years before USMCA entered into force, importers paid $1.1 billion in tariffs on vehicles from Canada and Mexico; in the three years since USMCA took effect, they have paid $16.5 billion. More than 90% of those vehicles that owed duty were made in Mexico.

"Some importers have opted to pay the 2.5 percent duty on imports of automotive goods from Canada and Mexico rather than follow the new rules of origin requirements negotiated in the USMCA, according to knowledgeable industry representatives," the report said.

Under NAFTA, it was more common for auto parts to be subject to duty, and while the value of parts subject to duties has also increased, it's not as dramatically. There were $53 billion worth of auto parts imported from either Canada or Mexico across the three years that owed duties; about 79% were from Mexico.

GAO analysts said that CBP and DOL are collaborating well as they plan for labor value content verifications and established the certification process. CBP has begun a pilot program to test its labor value content audit process with two firms, the report said.

USTR Katherine Tai responded to the report, noting that GAO found that interagency coordination was strong, but agreeing to add more written guidance in a few areas that GAO said would be useful.

"We will continue to work with our interagency partners and with Canada and Mexico to support our workers and safeguard the competitiveness of the North American automotive industry," she said.