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In arguably biggest test of new NAFTA, Canada and Mexico defeat U.S. in auto rules dispute
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Canada, Mexico and auto companies have been declared the winners in arguably the most important trade dispute under the new NAFTA, landing the U.S. on the losing side in a case about calculating the origin of auto parts.
The long-expected decision was known for weeks to the parties involved, yet it was withheld from public release until after North American leaders appeared together at a summit this week in Mexico.
It involves small print with big consequences for the industry at the heart of the continental trade agreement: Automobiles.
At its core, the dispute was about how hard to push car companies to use parts from North America, at a time when countries are seeking to pry back manufacturing jobs.
The specific case involved two conflicting methodologies for calculating the origins of a car’s parts: One stricter, one easier.
Americans took a hard line. The U.S. wanted the toughest interpretation of the rules, which would force cars to include more North American parts to avoid a tariff.
Mexico fired off a suit against the U.S., calling its method damaging, costly to companies and counterproductive to the continent’s car industry.
Canada joined the suit. Car companies eagerly supported the suit. And the complainants ultimately won.
Canada, Mexico and the auto industry are now celebrating the ruling from a five-member international panel.
In a decision declared Dec. 14, but only released Wednesday, the panel said that the United States breached the new Canada-U.S.-Mexico agreement (CUSMA) when it tried imposing new rules.
The ruling pointed to a piece of evidence submitted by Canada: an email sent by a U.S. official that supported the complainants’ claim that all three countries originally understood they were agreeing to the simpler formula.
“Today’s decision is a good decision for the industry,” International Trade Minister Mary Ng told reporters in Mexico City. “It’s what we negotiated.… Clarity in the rules — it’s what today’s decision provides.”
It’s the second win for Canada under the new trade agreement; Canada also won a case on solar panels, though it was the main loser in a dairy dispute with the U.S.
The verdict comes as little surprise. The countries have been aware of it for weeks and, while it was still officially confidential, a Mexican cabinet minister blurted it out to a newspaper there late last year.
The trade community is now awaiting U.S. reaction, with its eagerly anticipated response being seen as an early litmus test of the reliability of the CUSMA dispute system.
Early reaction was vague from the Office of the U.S. Trade Representative (USTR): It did not spell out its next move, but called the decision disappointing.
“[This] could result in less North American content in automobiles, less investment across the region and fewer American jobs,” said the U.S. statement.
“We are reviewing the report and considering next steps. We will engage Mexico and Canada on a possible resolution.”
Background of the case
The dispute stemmed from the aftermath of the new NAFTA, originally reached in 2018 under the Trump administration.
The new trade pact requires more parts from North America to avoid a tariff, part of Trump’s protectionist push for more domestic manufacturing.
Yet the U.S. stunned its partners and the car companies after the deal was already signed: It insisted upon an unexpectedly strict interpretation of the terms.
Imagine a car part qualifies as North American because 85 per cent of its sub-components come from this continent. Under the pact, that part faces no tariff.
But then there’s a subsequent, bigger calculation for the entire car: Does the vehicle, as a whole, have enough North American content to avoid a tariff?
In making that calculation, when adding up parts of the car, how much does that smaller piece counts toward the car’s total amount of North American content?
The U.S. argued it should be 85 per cent. Others insisted on the so-called roll-up method: if that piece is deemed North American, then it should count fully as 100 per cent North American.
They say they were caught off-guard when, long after the deal was signed, the U.S. suddenly insisted on its tougher formula.
Mexico’s suit complained that this was not part of the agreement and represented an absurdly complicated regulatory burden.
It said car companies don’t need to be brow-beaten into building cars here when they’ve already invested massively in recent years in new North American production: “This development is particularly nonsensical [now].”
Canada: U.S. was trying to sneak in changes
Canada’s submission includes correspondence as evidence that the parties were stunned when the U.S. presented this new formula in 2020, after the pact had already taken effect.
“This reinterpretation came as a surprise to Canada, Mexico and the entire automotive industry,” said the Canadian submission.
The Canadian submission also implies the Americans may have been sneakily, belatedly, trying to tilt the deal in their favour. It argues that making trade more complicated benefits manufacturing in the country with the largest domestic market.
If it becomes more difficult to ship across borders, the Canadian suit argues, that’s an incentive for companies to simply produce in the market with the most customers: in this case, the U.S.
The Americans argued that their formula would help North America’s workers versus those overseas.
The U.S. submission said the stricter formula would result in significantly more North American content per car — anywhere between eight and 33 per cent.
It said the other countries’ looser formula means billions of dollars in lost manufacturing opportunities each year on this continent.
Group blasts Canada, Mexico case as anti-worker
One American-based group that promotes domestic manufacturing expressed frustration that Mexico and Canada launched this case.
Charles Benoit, a Canadian-born trade lawyer with the group Coalition for a Prosperous America, said those two countries sided with multinational companies over workers here.
“It’s disappointing,” Benoit said. “Mexico and Canada’s trade ministries didn’t stop to think about their own supply-chain producers and workers before bringing this case on behalf of global automakers.”
He voiced concern that this means more imports from abroad, including from China, undermining efforts to revive manufacturing.
But it’s complicated.
Industry players warn that making compliance more expensive holds unwanted negative consequences. They say more onerous rules would just force car companies to produce offshore to remain cost-competitive.
At some point, manufacturers would conclude it’s cheaper to bring parts from overseas and pay the tariff, said Flavio Volpe, head of AMPA, Canada’s auto-parts lobby group.
Auto industry: U.S. demands would have driven industry away
The tariff rate for cars is 2.5 per cent in the U.S. and 6.1 per cent in Canada.
The new pact is already a massive win for this continent’s parts manufacturers, said Volpe, as evidenced by the investment spree now happening in North American plants.
The U.S.-imposed requirements could have undermined this, he said, noting the panel’s verdict is good for North America.
“It’s a win for the automotive parts sector in all three countries. And also provides a win for stability in the new USMCA,” Volpe said.
“Instead of saying, ‘Hey, two years into the USMCA, we have the U.S. reinterpreting it and changing the deal.'”
Some UPEI students are earning extra money during the mid-semester break this year, simply by packing up and leaving campus.
The 2023 Canada Winter Games Host Society offered $1,500 each to students living in Andrew Hall if they give up their residence rooms to make space for arriving athletes.
The students have to leave a few days before the break starts, on Feb. 17, and can return March 7. They also had to give up their meal plan for the duration.
Many athletes are staying at UPEI’s new 260-bed residence, built to meet accommodation requirements for the Games’ temporary athlete village.
But Wayne Carew, chair of the Games, said there are 120 more athletes coming than originally planned.
“We ended up getting 44 rooms [in Andrew Hall] and that’s great,” said Carew.
He said the athletes staying at UPEI “are going to have a wild experience on the campus of the beautiful University of Prince Edward Island.”
Carew said the costs of doing this are a “lot cheaper” than arranging accommodations elsewhere. But he said the main reason is to provide all athletes the same, “once-in-a-lifetime” experience.
“Where they live, the food and the camaraderie and the experience of a lifetime: that’s what they’ll remember in 20 years’ time about P.E.I.,” he said.
‘Pretty good deal’
Some students were eager to take the organizers up on their offer.
“I’m going away to Florida during the two-week break anyways. So I was like, ‘May as well let them use my room then,'” said Hannah Somers.
“It’s $1,500. Pretty nice,” said Benji Dueck, who agreed to vacate the room with his roommate. “We’re moving out, living with a friend in the city. So, sounds like a pretty good deal to me.”
As part of the agreement, the students had to clear out their rooms. Canada Games organizers made arrangements so students could store their belongings.
But not all students thought it was a good deal.
“I’m not giving up my spot in Andrew Hall for $1,500,” said Maria de Torres. “It’s just too hard to pack up. It’s just too hectic. And since I’m an international student, I got a lot [of things] right now.”
Shelby Dyment is also staying in Andrew Hall. Dyment said she and her roommate are working as residence life assistants during the mid-semester break and she’s also doing directed study, so she has to stay on campus.
“There’s a lot of people doing it. It’s just for our situation it just wasn’t working for what we were doing,” she said.
In a statement, UPEI said that enough students had accepted the offer to host all the athletes.
It said the host society made all the arrangements with the students, including paying for their incentives and arranging for storage.
Organizers expect about 3,600 athletes, coaches and officials to participate in the Games. The event will run from Feb. 18 to March 5.
The German ambassador to Canada says Germany will not become “a party to the conflict” in Ukraine, despite it and several other countries announcing they’ll answer President Volodymyr Zelenskyy’s pleas for tanks, possibly increasing the risk of Russian escalation.
Sabine Sparwasser said it’s a “real priority” for Germany to support Ukraine, but that it’s important to be in “lockstep” coordination with other allied countries.
“There is a clear line for Germany,” she told CTV’s Question Period host Vassy Kapelos, in an interview airing Sunday. “We do want not want to be a party to the conflict.”
“We want to support, we want to do everything we can, but we, and NATO, do not want to be a party to the war,” she also said. “That’s I think, the line we’re trying to follow.”
Defence Minister Anita Anand announced this week Canada will send four Leopard 2 battle tanks — with the possibility of more in the future — to Ukraine, along with Canadian Armed Forces members to train Ukrainian soldiers on how to use them.
Canada first needed permission from Berlin to re-export any of its 82 German-made Leopard 2 tanks to Ukraine. After a meeting of 50 defence leaders in Germany earlier this month, it was unclear whether Germany would give the green light.
But following what German Chancellor Olaf Scholz called “intensive consultations,” Germany announced on Jan. 25 it would send tanks to Ukraine, and the following day, Canada followed suit. It is now joining several other countries, including the United States, the United Kingdom, and Poland, which are sending several dozen tanks to Ukraine.
NATO Secretary General Jens Stoltenberg said this week the tanks would allow Ukraine to “significantly strengthen their combat capabilities.”
“It demonstrates also the unit and the resolve of NATO allies in partners in providing support to Ukraine,” he said.
Meanwhile Sparwasser said Germany is “walking that fine line” of avoiding steps that could prompt escalation from Russia, while supporting Ukraine, and staying out of the war themselves.
“I think it’s very important to see that Germany is very determined and has a real priority in supporting Ukraine in its struggle for freedom and sovereignty,” Sparwasser said. “But we also put a high priority on going it together with our friends and allies.”
Sparwasser said despite warnings from Russia that sending tanks to Ukraine will cause an escalation, Germany is within international law — specifically Article 51 of the United Nations Charter — to provide support to Ukraine.
“Ukraine is under attack has the right to self defence, and other nations can come in and provide Ukraine with the means to defend itself,” Sparwasser said. “So in international law terms, this is a very clear cut case.”
She added that considering “Russia doesn’t respect international law,” it’s a more impactful deterrent to Russia, ahead of an expected spring offensive, to see several countries come together in support of Ukraine.
With files from the Associated Press
While Health Canada says it is “aware” of the U.S. decision to withdraw the emergency use of Evusheld, a drug by AstraZeneca used to help prevent COVID-19 infection— the agency is maintaining its approval, citing the differences in variant circulation between Canada and the U.S.
The U.S. Food and Drug Administration (FDA) announced on Jan. 26 that its emergency use authorization of the drug was pulled due to its inefficacy in treating “certain” COVID-19 variants.
The FDA stated in a release on its website that as the XBB.1.5. variant, nicknamed “Kraken”, is making up the majority of cases in the country, the use of Evusheld is “not expected to provide protection” and therefore not worth exposing the public to possible side effects of the drug, like allergic reactions.
In an email to CTVNews.ca, Health Canada said the U.S. Food and Drug Administration pulled the drug as the main variant of concern in the U.S. is XBB.1.5.
“Dominant variants in the [U.S.] may be different from those circulating in Canada,” the federal agency said in an email. “The most recent epidemiological data in Canada (as of January 1, 2023) indicate that BA.5 (Omicron) subvariants continue to account for more than 89 per cent of reported cases.”
On Jan. 6 the FDA said in press release that certain variants are not neutralized by Evusheld and cautioned people who are exposed to XBB.1.5. On Jan. 26, the FDA then updated its website by saying it would be limiting the use of Evusheld.
“Evusheld is not currently authorized for use in the U.S. until further notice by the Agency,” the FDA website states.
On Jan. 17, Health Canada issued a “risk communication” on Evusheld, explaining how it may not be effective against certain Omicron subvariants when used as a preventative measure or treatment for COVID-19.
“Decisions regarding the use of EVUSHELD should take into consideration what is known about the characteristics of the circulating COVID-19 variants, including geographical prevalence and individual exposure,” Health Canada said in an email.
Health Canada says Evusheld does neutralize against Omicron subvariant BA.2, which according to the agency, is the dominant variant in many communities in Canada.
The drug was introduced for prevention measures specifically for people who have weaker immune systems and are unlikely to be protected by a COVID-19 vaccine. It can only be given to people 12 years and older.
“EVUSHELD is not a substitute for vaccination in individuals for whom COVID-19 vaccination is recommended,” the agency’s website reads.
Health Canada says no drug, including Evusheld, is a substitute for vaccination.
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