Canada joins the automotive dispute against the U.S.

Canada joined the request for consultations made by the Mexican government to the United States regarding the interpretation of the rules of origin for auto producers established in the T-MEC, announced the Secretary of Economy, Tatiana Clouthier. Last week, Mexico launched the request, arguing that there were differences between the U.S. interpretation and the "more flexible" methodologies of the other two partners.

"We are pleased that Canada has decided to join the request for consultations, which we requested on August 20, regarding the US interpretation of the rules of origin for the automotive sector contained in the T-MEC," the official said on Twitter.

The different interpretations that exist regarding the content of origin that applies to automobiles and auto parts have become a headache for Mexico, the United States, and Canada. Last week, the Mexican government launched the petition by stating that there were differences between the U.S. interpretation and the "more flexible" methodologies. Luz Maria de la Mora, Undersecretary of Foreign Trade at Mexico's Ministry of Economy, explained in recent days that the U.S. interpretation could provoke automakers to leave the region due to difficult and costly content requirements.

The point of the trade dispute centers on the methodology for measuring regional content for cars to be marketed duty-free. According to Bloomberg, the U.S. is insisting on a stricter method than Mexico and Canada believe they agreed to for counting the origin of certain core parts, including engines, transmissions, and steering systems in the overall calculation.

The T-MEC requires that, in order not to pay tariffs, 75% of automotive production in Mexico must have components produced in the North American region, an increase from the 62.5% required under the previous agreement. The T-MEC also requires that 45% of this production must be built by workers earning at least US$16 per hour.

In recent days, Luz María de la Mora, SE Undersecretary of Foreign Trade, said that the US interpretation could cause automakers to decide to leave the region due to difficult and costly content requirements. The US has 30 days to respond to Mexico's request and 75 days to reach an agreement before Mexico can potentially request that a formal panel hear the two nations' arguments.

The request for consultations constitutes the first non-contentious stage of the State-State dispute settlement mechanism provided for in Chapter 31 of the MEFTA. Consultations must be held no later than 30 days after a country requests consultations and 75 days to reach an agreement before a formal panel is requested to hear arguments from the countries involved in the trade dispute.

The Canadian government's decision to join Mexico in this trade dispute comes on top of the tensions generated by the unprecedented rejection by employees of a General Motors plant in the city of Silao (Guanajuato) of the collective bargaining agreement negotiated by the Confederation of Mexican Workers (CTM), one of the country's largest labor federations.

The "no" vote came after the U.S. filed a complaint of labor rights abuses there and a new provision included in the T-MEC that allows the country to have labor representatives in Mexico to ensure compliance with the rules of the agreement. As a result, the plant's 6,000 employees will be able to elect a new union leader.