USMCA Expert: Expect US to Say No to 16-Year Renewal in 2026

Dan Ujczo, senior counsel in Thompson Hine's trade practice, said he expects a second Biden or Trump administration to say it won't authorize USMCA to continue for another 16 years in 2026, when the trade pact is up for review.

"Then where do you go from there," he asked rhetorically. He said each country could put forward proposals on changes, and if they can reach agreement on them, that no could turn into a yes. Ujczo noted that while the text doesn't say how long the countries would have to negotiate proposals, there is another vote every year for 10 years, so he expects that would be the deadline.

"The review is going to be very important, and I think one of the driving factors will be the [Chinese] electric vehicle investments in Mexico," he said in a telephone interview from Ohio with International Trade Today. "My concern is that may not make it until 2026. That issue may dominate the issue in North America prior to the review."

Ujczo said that by itself, the U.S. saying it didn't support renewal for 16 years would not upend commerce that depends on North American trade, because businesses are much more used to uncertainty than they were in 2017.

But, he said, he thinks a Trump administration could rattle businesses one of two ways -- by subjecting Canadian and Mexican exports to a 10% tariff, the U.S. would be withdrawing from USMCA. Or, he said, at the time of the review, the Trump administration could say it's not extending USMCA for 16 years -- "and you’re on the clock for six months until we withdraw."

He said that would be the most intense leverage the administration could use with Mexico and Canada. He said he believes all the evidence -- including remarks from former U.S. Trade Representative Robert Lighthizer in Canada -- is that the Trump administration sees this review as a chance to get what it wants rather than a technical review, and he said he believes the administration will "pull that withdrawal card at some point."

If it does, "You would completely unsettle North America," he said.

He said he's worried that the Trump administration would try to do two different bilateral agreements, with Canada and Mexico, and, in his view, "that would really damage the competitiveness of North America."

Still, he said, there are some checks on radical action. One is that a strong majority in Congress supports the FTA. Another, he said, is that vice presidential nominee JD Vance understands how supply chains work. While he said Vance believes in America First, "there’s enough industry in our state that relies on North America" trade that he wouldn't want to blow that up.

Ujczo also talked about the way the changes to the auto rules of origin -- the most dramatic changes from NAFTA to USMCA -- are playing out in the industry.

He said that most automakers are still sourcing for vehicles made in Canada or Mexico as if they will be able to rely on roll-up methodology to meet regional value content, even though the U.S. trade representative has made it clear that the U.S. is not complying with a panel ruling that said the pact allows roll-up. Companies are still focused, as well, on implementing the alternative staging regimes USTR authorized, which gives them a longer phase-in to meet new ROO for certain models.

He said when he read the USTR's review of how USMCA is affecting the auto sector (see 2407020032), one of his takeaways is that CBP verifications are starting to tick up. "USMCA is really still in its infancy. We haven’t reached toddler stage, in my opinion," he said, even though technically it came into force in 2020. CBP gave the auto industry an extended informed compliance period, and the agency still has not issued uniform regulations for trade covered by the pact.

"It doesn't surprise me that we haven’t seen the uniform regulations … because we are behind. We’re really not a four-year-old, we’re still in our 'terrible twos' in some ways," he said.

Ujczo said he also wasn't surprised that 27% of verifications found discrepancies. "The rules are complicated, and there are areas where that just requires clarification, still to this day," he said.

He found it interesting that the proportion of auto parts that claim the benefits has dropped significantly, with 20% of auto parts imports entering under regular duties. He said the report claimed that trend is leveling off, but he's not sure if that's right.

"Some companies are just saying, particularly down the chain, we’re not going to claim the preferences, we haven’t done the homework, it may not be that cost determinative for us," he said. "At some point, the benefits are outweighed by the compliance costs," and the risk of getting it wrong.

He said some parts coming from Mexico are affected by antidumping and countervailing duty cases, such as hinges, extrusions, tubing, even small blocks of steel and aluminum that hold other parts in place.

"They’re challenging to classify in any event," he said. "I have to tell you one of the largest hurdles right now is the AD/CVD around aluminum extrusions from Mexico. We’re going through scoping right now."

He said depending on how that scoping shakes out, costs will rise for automakers, because there isn't supply from U.S. or Canadian sources of these extrusions used in subassemblies.

Ujczo said the Section 232 actions announced, tying Mexico's tariff extension to melted and poured or cast and smelt requirements (unless Mexico is working metal from Brazil), coordinate well with USMCA's melted and poured requirements. However, he said, data from Mexico on where metals were made is not yet available, because a lot of steel comes from steel service centers that don't track that information. He called it extremely difficult to document now.

He said the auto sector hopes the information will be available by 2027, when the requirement begins. "That timeline is longer than the U.S. wanted -- Mexico negotiated hard to have that ramp-up period," he said.

Although Ujczo said industry will be able to manage more uncertainty with the review, he does think businesses "shouldn’t be waiting to show up [in] fall of 2025." He said they should be giving feedback to working groups that are part of the free trade agreement.

"The best solution would be that the parties use the review and the mechanisms in the agreement prior to the review to have a well-defined set of issues that they agree to work on," he said. "There would be comfort [in the business community] as long as people are talking and working toward a solution."