Inaction on USMCA Creates Uncertainty for North American Auto Industry

In 2020, the United States, Mexico, and Canada Agreement (USMCA) became the guiding free trade agreement across North America, replacing the North American Free Trade Agreement (NAFTA) that was law since the 1990s. One of the key provisions the USMCA sought to update was the rules of origin for autos and auto parts aimed at encouraging more North American automotive sourcing and production.

The new provisions in the USMCA are the most stringent ever agreed to in a trade agreement. However, the North American auto industry was willing to step up to the plate by making additional investments and building new supply chains, sparking more job creation across North America.

Over a year ago, the United States’ interpretation of the rules of origin provision was called into question, and a panel of trade experts unanimously ruled that it was inconsistent with the text of the USMCA—and the interpretation Canada, Mexico, and the automotive industry held. Despite this ruling, the Biden administration has not taken any steps to implement the panel’s decision and clarify the rules of origin provision.

The U.S. automotive industry operates on long planning and production cycles and relies on rules that provide certainty as they make multi-million-dollar investments to meet the USMCA’s rules as they were agreed to by the three countries. But automotive manufacturers are stuck in regulatory limbo without the U.S. government implementing the panel’s decision and providing certainty and stability in our trade agreements. The resulting uncertainty and the potential precedent for ignoring future panel decisions may have a chilling effect on investments, stifling supply chain recovery, advances in research and development, and overall job creation.

By contrast, implementing the USMCA as written and agreed upon would attract more investment to the region and realize significant benefits to all parties involved. This is particularly crucial given the supply chain disruptions that slowed or stopped production at many manufacturing facilities across North America and worldwide during the global pandemic.

When it comes to trade policy, rules that provide stability and certainty are the best way to invite investment and support our economy. Proposals or unclear guidelines that increase barriers will only create a hostile environment for business and investment.

This month, Autos Drive America submitted comments to the U.S. Trade Representative (USTR) concerning the operation of the USMCA with respect to trade in automotive goods. We urged the USTR and administration to implement policies that will provide the intended benefits of the USMCA to the United States and all of North America, continuing to make the region a destination for investment and good-paying, high-quality jobs.