House lawmakers urge USTR to be flexible with auto industry on USMCA

April 13, 2020

Citing complications sparked by the coronavirus pandemic, a bipartisan group of 31 lawmakers is urging U.S. Trade Representative Robert Lighthizer to allow the auto industry a flexible adjustment period for implementing the U.S.-Mexico-Canada Agreement’s rules of origin.

More leeway for auto companies trying to meet USMCA’s auto rules-of-origin requirements is needed “to account for delays” caused by COVID-19, the lawmakers wrote an April 10 letter to Lighthizer, urging a delay of the deal’s entry into force or more flexibility to allow the industry to avoid penalties once USMCA is in effect.

The administration had been pushing for a June 1 entry-into-force date. However, as of last week, the U.S. had not yet notified Canada and Mexico that it had completed internal procedures required for the agreement to take effect. July 1 remains the earliest the pact can enter into force, according to language in the protocol of amendment.

The lawmakers contend more time is “necessary to allow the auto industry an appropriate adjustment period and account for delays caused by the COVID-19 pandemic,” the letter states. “Alternatively, we ask that you seriously consider other accommodations or flexibilities that will allow the automotive sector to avoid being penalized by the new requirements upon the agreement’s entry into force.”

Industry groups and senators have advised that a premature entry-into-force date could present challenges for automakers and parts makers — both domestic and international — with many warning of issues tied to ongoing negotiations on uniform regulations needed to guide the application of the complex automotive rules of origin. Such regulations will allow the three parties to address potential compliance issues. According to the U.S. implementing legislation, the regulations implementing the auto rules of origin must be issued by the date that USMCA enters into force.

The House lawmakers’ letter notes that complications from COVID-19 are “causing severe consequences for supply chains as manufacturing companies rapidly adjust to protect their workers and mitigate production disruption.” It adds that many North American automakers have announced facility closures and others have pledged to help manufacture key medical equipment in response to the pandemic.

“Amidst the economic hardship created from the current public health crisis, the industry is attempting to modify their production to comply with new ROO requirements in the USMCA. In order to comply, companies must complete complex and extensive solicitations throughout their multi-tiered supply chains,” the letter adds. “However, a substantial lack of clarity remains around the Uniform Regulations that are necessary for the U.S. auto industry to determine whether their supply chains comply with the USMCA. It is crucial that industry stakeholders have the opportunity to understand these details and ensure full compliance.”

While the lawmakers wrote that they look forward to USMCA’s implementation, they encouraged the administration to “consider options that will allow the automotive sector to meet the rules of origin requirements of the agreement in an orderly, successful manner.”

The letter was signed by several members of the House Ways & Means Committee, including Reps. Jackie Walorski (R-IN), Terri Sewell (D-AL), Darin LaHood (R-IL), Don Beyer (D-VA), Adrian Smith (R-NE), David Schweikert (R-AZ) and Suzan DelBene (D-WA).

A manufacturing source told Inside U.S. Trade the “good news” is that dialogue is continuing between USTR and USMCA stakeholders, adding that “we are hoping that we can have some reasonable delay of implementation.”

Last week, Mexican Undersecretary for Foreign Trade Luz María de la Mora said Mexico had asked the U.S. and Canada to provide the auto sector more time to comply with USMCA rules of origin. A key Mexican auto group, meanwhile, has asked the Mexican administration to postpone auto rule-of-origin implementation until January 2021.

The source said the “other parties are not underestimating the complexity of what they are dealing with, particularly in this area.”

The source noted USTR has until April 30 to send the U.S. notification if a July 1 entry-into-force is to remain feasible. “Hopefully they will be able to work some of these implementation concerns out in a positive direction,” the source said.

In addition to determining uniform regulations, the administration must implement an alternative staging regime aimed at bringing vehicle producers into compliance with the deal’s auto rule-of-origin provisions, as outlined in Section 202A of the USMCA implementing bill. Last month, the White House created a trade in auto goods committee to support their implementation.

Entry-into-force before the completion of such a regime would be difficult, the source said: “You would need to understand the alternative staging regime — whether you’re an [original equipment manufacturer] assembler or whether you’re a parts person — and to have to implement [USMCA] before the alternative staging regime is decided would be problematic.”

The source also said the administration had not yet issued implementation guidelines for USMCA’s customs procedures “with respect to automotive goods,” as outlined in the implementing legislation. Those guidelines were expected last week. — Isabelle Icso (