The trade agreement that has knit the economies of Canada, the United States and Mexico more closely together will face a significant test this week, as a panel of experts is expected to rule that the United States has violated the agreement’s rules related to car manufacturing.
The pending decision on one of several prominent North American trade spats comes as the leaders of the three countries gather in Mexico City for a high-level summit. President Biden, President Andrés Manuel López Obrador of Mexico and Prime Minister Justin Trudeau of Canada have reaffirmed their commitment to deepening trade between their economies and upholding the terms of the United States-Mexico-Canada Agreement, which went into force in July 2020.
But all three countries are being criticized by their trading partners for violating various aspects of that pact, which revised and updated the older North American Free Trade Agreement, or Nafta. The United States and Canada continue to clash over Canada’s system for managing its dairy industry, while Mexico has garnered criticism for its energy policies and plan to ban imports of genetically modified corn, which would hurt American producers.
This week, a panel of experts established by the trade deal to resolve disputes is expected to rule against the United States in a complaint over how American officials are interpreting rules for car manufacturing, according to people familiar with the decision.
The dispute centers on the various requirements for the percentage of a car’s components that must be made in North America to qualify for zero tariffs under the trade deal. Canada and Mexico have challenged how the United States is making its calculations, saying that its measure of “North American content” is stricter than the rules require.
It remains to be seen how the United States will respond. Trade officials in December sharply criticized two World Trade Organization rulings against the United States to consider separate trade disputes.
People familiar with the deliberations said U.S. officials were not likely to publicly repudiate the ruling, as they have for the World Trade Organization. But there is a question of how actively the United States will seek to comply with a decision.
In a Jan. 8 letter, business groups from the United States, Canada and Mexico urged the governments to work toward a quick resolution of disputes on energy, car manufacturing and dairy products, and commit to full compliance with the terms of the trade agreement.
Since the U.S.-Mexico-Canada Agreement went into effect, there has been a sharp uptick in the number of formal trade disputes the countries have brought against each other. According to tracking by the Brookings Institution, the countries have started 17 trade disputes against each other since just 2021, covering issues ranging from Mexican labor violations to a U.S.-Canada dispute over lumber.
But Eric Farnsworth, the vice president of the Council of the Americas and the Americas Society, a think tank in Washington, said that is partly because the U.S.-Mexico-Canada Agreement covers even more industries and issues than its predecessor, Nafta, did, including topics like digital trade and the ability of workers at Mexico’s auto factories to form independent unions.
Officials say the trade agreement provides a way to compartmentalize these disputes and prevent them from poisoning the broader relationship.
“Too many jobs depend on these agreements to let these disputes get out of hand,” said Louise Blais, a former Canadian diplomat who is now a senior adviser to The Pendleton Group.