Andrea Sosa Cabrios/picture-alliance/dpa/AP Images
A worker in production at a BMW plant in San Luis Potosí, Mexico, June 2019
The U.S.-Mexico-Canada Agreement (USMCA) was a deal between congressional Democrats and the Trump administration to improve the old NAFTA in multiple respects. The goal was to ensure that more jobs would actually be created in the U.S.
The USMCA required wage rates of at least $16 an hour for auto production to qualify as North American content and added a provision requiring that 70 percent of the steel and aluminum used in such production be North American. But last week, a USMCA dispute resolution panel ruled in favor of a complaint brought by Canada and Mexico that will actually help China. The ruling weakens the USMCA’s rules of origin for autos and parts.
The goal of the complaint that led to the ruling was to help Canada and Mexico, but the result would allow more production in China to count as North American for purposes of receiving favorable tariff treatment. This, of course, defeats the broader purpose of the USMCA.
Under the USMCA, 75 percent of a vehicle’s overall components must originate in North America to get tax-free status. Canada and Mexico challenged how that content is calculated. The panel agreed to a looser definition—which will benefit exports from China.
Adam Hodge, a spokesman for the U.S. trade representative (USTR), issued a statement saying, “The disappointing USMCA panel interpretation could result in less North American content in automobiles, less investment across the region, and fewer jobs.” He added that the Biden administration was reviewing its options.
In its submission to the panel challenging the demands of Canada and Mexico, the USTR had warned that the changes in the formula requested by the two governments could reduce North American content by as much as 33 percent, costing several billions of dollars in production and jobs.
Under the USMCA, the United States must now abide by the panel decision, or face possible retaliatory tariffs. But can you imagine Canada or Mexico, both of which depend heavily on the U.S. market, imposing retaliatory tariffs on the U.S.? I can’t.
Michael Stumo, who heads the Coalition for a Prosperous America, calls the ruling a windfall for China and urges the Biden administration to disregard the panel ruling and continue the existing content rules.
This is another case, like that of the World Trade Organization, where global trade bureaucrats impose decisions that are contradictory in their own terms and undermine the U.S. national interest. Biden, in devising a long-overdue industrial policy, has decided to ignore the WTO. The USMCA panel has earned the same treatment.
