May 4, 2020

The U.S., Mexico and Canada continue to weigh North American auto industry requests to delay beyond July 1 the implementation of regulations that will guide the application of the U.S.-Mexico-Canada Agreement’s auto rules of origin, according to private-sector representatives familiar with the talks.

Sergio Gómez Lora, CEO of IQOM Strategic Advisors and CEO of the U.S. office of the Business Coordinating Council of Mexico, noted that auto industry representatives in each country have asked their respective governments to delay the auto rules’ entry into force beyond July 1, the day the overall deal is slated to kick in, until uniform regulation negotiations are further developed.

“The industry has been asking for more time because the uniform regulations need some time to be studied, analyzed and incorporated,” he said during an April 30 webinar hosted by Dickinson Wright. Gómez also pointed to complications sparked by the coronavirus pandemic as another reason the countries should give automakers some flexibility.

“The agreement will enter into force on July 1 and we expect the uniform regulation to be published before that, but there is request by the auto industry [in each country] to delay the entry into force of the auto rules of origin.” Gómez said. “My information is that the Mexican government is looking positively at that request and I hear the same from Canada.”

In the U.S., however, a “final decision on such a request” has not yet been made, he added.

A U.S. manufacturing source described the discussions with the Office of the U.S. Trade Representative as ongoing and positive, adding, “We are working toward an understanding.” USTR has made clear that the uniform regulations will be issued in “interim final form,” the source added. “I can’t imagine they will be completed by July 1 in final form. They will be in interim final form. That’s what we’ve been told.”

Rep. Ron Kind (D-WI) told Inside U.S. Trade late last month that U.S. Trade Representative Robert Lighthizer was considering ways to allow for flexibility in the implementation of USMCA’s auto rules of origin. 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.

Rep. Adrian Smith (R-NE) said last week that he had recently spoken with Lighthizer about USMCA. “Although July 1st is rapidly approaching, we must also recognize USMCA was written before the COVID-19 pandemic,” Smith said in a May 1 statement. “Our new reality created obstacles which we must now account for. For example, COVID-19 significantly impacted the newly required trainings and supply chain changes needed to comply with the auto chapter in USMCA.”

Smith was among a group of House lawmakers who recently wrote to Lighthizer “stating the auto industry either needs more time to comply with the automotive rules of origin requirements or requesting the auto sector not be penalized for not fulfilling new requirements,” he added. “I was pleased to hear USTR has since released guidelines and implementing procedures for the auto sector specifically on this topic, which is a critical step. When I spoke with Ambassador Lighthizer this week, I was also pleased with his determination for USMCA to move forward.”

A business community source recently told Inside U.S. Trade that USTR wanted to issue the uniform regulations by June 1.

Andrea van Vugt, the global director at Harper & Associates and a former Canadian trade official, said during the webinar that auto rule-of-origin discussions likely would have to be completed by early June to meet a July 1 entry-into-force goal.

“I believe [this] is going to go down to the wire … but it’s important that they do so that we get them right,” she said, noting the U.S., Mexico and Canada were also establishing uniform regulations for rules of origin pertaining to other parts of the agreement, including textile provisions, as well as customs procedures.

Van Vugt said the countries should “wrap up their work” on the auto regulations by early June because each country will need time to complete any legal reviews, cabinet procedures and respective translations ahead of a July 1 entry-into-force. “The timing on this is going to be a bit challenging,” she said.

However, development of the other uniform regulations shouldn’t be a heavy lift, van Vugt added.

“We are not drafting the uniform regulations from scratch,” she said. “We are working off of the NAFTA uniform regulations. This is a benefit because the three countries have been working together on these and the interpretation of them … for decades. There is a deep
knowledge and understanding of them. With the exception of sections like autos that received a pretty dramatic overhaul, you don’t have that same dramatic overhaul with many of the other sections within uniform regulations.”

Van Vugt and Gómez also addressed supply chain issues that might impact USMCA’s implementation. Gómez said USTR and the Mexican Economy Ministry were holding discussions “as we speak” about ways to address differences in the definitions of essential sectors.

“There is also a discussion both in the private and public sectors on how to work together in the reopening of the economy and getting back to the normal,” he continued. “But the most immediate and urgent issue is to address … the definition of essential products and essential sectors and that, as we speak, that is being discussed between the governments.”

Last week, a bipartisan group of senators urged the Trump administration to push Mexico to clarify its definition of essential businesses, hoping to mitigate economic harms caused the pandemic.

Van Vugt said Canada and the U.S. were not having similar issues because “our countries took a mutual approach to closing the border.” However, she said, relations could grow trickier if the countries do not coordinate more on when and how to reopen states.

“I think we are going to run into some challenges because our states and provinces obviously are not coordinating with each other on reopening. So, I think that is inevitably going to lead to some supply chain disruptions and some hiccups and some bumps,” she said.

Over the long term, she said, “I think that if there are still border measures in place when USMCA comes to implementation, I think that those hiccups that we are seeing on not coordinating the reopening are going to be exacerbated.”

The COVID-19 pandemic did spark one positive development, van Vugt said, touting the “historic” ratification of USMCA in which both chambers of Canada’s Parliament passed the trade deal in the same day.

“If it had not been for COVID-19 … though the agreement would have inevitably been passed … you probably wouldn’t have seen the deal ratified until Easter,” she said, which would have pushed the USMCA entry-into-force date far past July 1. — Isabelle Icso
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