Despite repeated lobbying and threats of tariffs on U.S. exports from Canada and Mexico, the Senate Finance Committee is proposing that a purchase credit for electric vehicles remain more generous for union-made, U.S.-assembled cars and trucks through 2026, and be reserved only for U.S.-made vehicles starting in 2027.
USMCA
The U.S.-Mexico-Canada agreement is a free trade agreement between the three countries, also known as CUSMA in Canada and T-MEC in Mexico. Replacing the North American Free Trade Agreement (NAFTA) in 2020, the agreement contains a unique sunset provision where, after six years (in 2026), any of the three parties may decide not to continue the agreement in its current form and begin a period of up to 10 years where USMCA provisions may be renegotiated.
Canada's finance and trade ministers said that an electric vehicle purchase tax credit that excludes Canadian batteries or Canadian-assembled cars abrogates the USMCA, and they asked senators to write the tax credit differently than the House approach. That House tax credit would only be allowed for American-built cars after 2027, and would be more generous for American-built cars from 2023 to 2026.
CBP issued the following releases on commercial trade and related matters:
The Build Back Better Act that passed the House will offer an additional $4,500 tax credit for American-assembled electric vehicles from union plants, and it seems likely that the Senate version will strip the unionized portion of that, given West Virginia Democratic Sen. Joe Manchin's opposition. Georgia, which has two newly elected Democratic senators, also is home to a major electric battery manufacturer and a Kia plant. The Kia plant has not yet announced plans to make an electric car.
The Customs Rulings Online Search System (CROSS) was updated Dec. 2. The following headquarters rulings were modified recently, according to CBP:
Plans to increase a tax credit for electric vehicles containing a U.S.-made battery if the car was assembled in a U.S., union-represented plant is a source of worry for Canada, Prime Minister Justin Trudeau said in French Nov. 18 at a news conference after the North American Leaders' Summit, according to a story from the Canadian Broadcasting Corporation. "This would be quite a problem for vehicle production in Canada," he said. "We stressed this with the Americans throughout our conversations. They've heard us loud and clear." The provisions are part of the Build Back Better bill that passed the House the following day on Nov. 19.
Chambers of commerce in Canada, Mexico and the U.S. collectively are asking each country's leaders to hold each other accountable to fully implement USMCA. In a joint letter Nov. 16, they said, "The Canadian and Mexican private sectors share apprehension over differing interpretations of USMCA’s rules of origin and how the U.S. interpretation of these provisions poses risks to our integrated supply chains." They also said that the Canadian and U.S. private sectors are deeply concerned about Mexico's actions restricting investment in its energy sector. "Attempts to favor state-owned enterprises at the expense of renewable and other private energy providers only undermine investment certainty, put at risk ambitious shared goals to address climate change, and promise both added cost and diminished opportunity for our countries’ workers," they wrote, and said they hope government will engage the private sector in meaningful dialogue in both arenas. They also said in future emergencies like the pandemic, "there should also be greater cooperation on border management to ensure the flow of commercial traffic and cargo."
Witnesses at a joint Energy and Environment and Climate Change subcommittees hearing of the House Energy and Commerce Committee told members that incentives to buy electric vehicles would spur domestic battery manufacturing; that financial support for battery recycling would allow domestic battery production to move away from problematic cobalt imports; and that Buy American rules are critical for supporting domestic factories.
Mexico, not satisfied with the results of consultations over U.S. interpretation of roll-up provisions under USMCA's auto rules of origin, is going to ask for a USMCA dispute panel to be formed, according to unnamed sources quoted by Reuters. The U.S. auto industry was taken by surprise by how rigidly the Office of the U.S. Trade Representative interpreted regional value in super-core auto parts (see 2106180027), and after lobbying Congress was fruitless, Mexico asked for consultations on the issue (see 2108230041) and Canada joined the complaint (see 2108300056).
Although it's not known what sort of electric vehicle purchase incentives might be included in Build Back Better legislation, Canada and Mexico are arguing to congressional leaders that offering larger tax credits for U.S.-assembled electric vehicles hurts both the integrated North American auto industry and undermines the USMCA.