Canada joins US in challenging US car trading rules, latest signal of tensions Reuters

Author: David Ljunggren

OTTAWA (Reuters) – Canada will sign a complaint against the United States for interpreting how free trade should be applied to the mainland auto industry, another sign of a strained relationship between North American residents.

Commerce Minister Mary Ng said on Thursday that Canada would join Mexico in requesting a panel to resolve the dispute, in accordance with the terms of the US-Mexico-Canada (USMCA) trade agreement.

The two countries want to resolve disagreements over how the content requirements for the automotive sector should be applied under the treaty, which came into force in 2020, replacing the North American Free Trade Agreement (NAFTA).

Mexico and Canada are also unhappy with the U.S. proposed tax rebates for U.S.-based electric vehicle manufacturers. This, they say, could weaken the highly integrated auto industry in North America.

According to the USMCA, 75% of the components of a vehicle must be produced in North America to achieve a tax-free status, more than 62.5% of NAFTA.

Mexico and Canada are in favor of a more flexible interpretation of the regulations than Washington, which wanted to revise NAFTA when President Donald Trump was president to protect manufacturing jobs.

“The interpretation adopted by the US … is inconsistent with the USMCA and the understanding that parties and actors share during the negotiations,” Ng said in a statement. Mexico welcomed the move.

US ANSWER

The U.S. Trade Representative’s office believed his interpretation was consistent with the USMCA.

Spokesman Adam Hodge said in an email that the original rules were needed to attract new investment and create good jobs.

But Flavio Volpe, president of the Canadian Automobile Parts Manufacturers Association, said the US approach could persuade manufacturers to use cheaper parts outside of North America and allow the United States to then accept a 2.5% tariff on its vehicles.

The biggest losers would be U.S. companies that supply about 55 percent of the car parts used in North American production, he told Canadian Broadcasting Corp.

Canada’s decision came when a three-member USMCA deputy trade minister held an initial meeting on Thursday. Joint Statement https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/january/mexico-united-states-and-canada-joint-statement-first-usmca-deputies – the meeting did not mention the issue of the automotive industry, rather than focusing on efforts to work on the issues of employment, the environment, small business, regional competitiveness and state-owned enterprises.

Joe Biden’s election did little to improve trade tensions with Trump-held Ottawa. A USMCA panel said last week that Canadian dairy practices violated the agreement https://www.reuters.com/world/americas/panel-finds-canadas-practice-reserving-dairy-quotas-inconsistent-with-usmca-2022 -01- 04 and last month Ottawa launched a challenge https://www.reuters.com/business/canada-challenge-us-softwood-lumber-duties-under-usmca-minister-2021-12-21 US against the duties on softwoods.

Washington is also unhappy with the Canadian tax on digital services and has reiterated its complaints https://www.reuters.com/business/us-trade-official-raises-concerns-about-canadas-proposed-digital-services-tax- 2022 -01-12 on Wednesday.