Mexico prepares panel on Regional Content Value against the US at the USMCA

Mexico enlists a dispute settlement panel against the United States on Regional Content Value at the USMCA.

The Appendix to Annex 4-B of the USMCA contains certain requirements that passenger vehicles and light trucks must meet to qualify as originating.

One of these requirements is a Regional Value Content (VCR) of 75% for passenger cars and light trucks.

In addition, there is a requirement of a 75% VCR on «essential parts» for a vehicle to be considered originating.

Mexico considers that the alternative methodologies for calculating the VCR for essential parts, included in paragraphs 8 and 9 of Article 3 (Regional Content Value for Passenger Vehicles, Light Trucks, and their Parts) of the Appendix to Annex 4-B, may be applied in the calculation of the general VCR of the passenger vehicle or light truck.

For an essential part to be treated as originating, it must meet a VCR requirement that can be calculated under one of the methodologies provided in paragraph 8 of Article 3 of the Appendix to Annex 4-B.

Therefore, the methodology established in subparagraph (a) of paragraph 8 of Article 3 or the methodology established in subparagraph (b) of paragraph 8 of Article 3 may be used in order to calculate the VCR of the essential parts.

The use of any of these methodologies is allowed to qualify the essential parts as originating, and subsequently, in order to calculate the origin of the vehicle.

Regional Content Value

The Appendix to Annex 4-B establishes additional flexibility for «“super-core part», which allows the calculation of the VCR of all essential parts as if they were a single auto part.

As provided in paragraph 4 of Article 4.5 (Regional Content Value) of the USMCA, once a material («essential part») has qualified as originating and has been used in the production of a good, it must always be treated as originating in the calculations.

Therefore, if an «“super-core part» meets the required percentage of VCR, all the essential parts that comprise the «“super-core part» would be originating.

The Uniform Regulations, adopted by Decision No. 2 of the USMCA Free Trade Commission, develop and reiterate this principle, particularly in sections 14 (1) and 14 (4).

Likewise, paragraph 7 of Article 3 (Regional Content Value for Passenger Vehicles, Light Trucks, and Their Parts) of Appendix to 4-B indicates that once the essential parts (materials) have satisfied the percentage of VCR required in paragraph 2 of Article 3 of the Appendix to Annex 4-B, said essential parts are original.

Consequently, according to the government of Mexico, for the purposes of their use in the production of a subsequent good (vehicle), these essential parts will be considered as originating.

Letter

With the above arguments, Mexico requested the initiation of consultations under the general mechanism for dispute resolution of the USMCA.

The Government of Mexico, through the Ministry of the Economy, formally requested on August 20 the initiation of consultations with the Government of the United States on this case.

Both governments have a 75-day period to resolve the dispute during this stage. In the event of not reaching a mutually satisfactory agreement on the correct application and interpretation of these provisions, Mexico may request the establishment of a panel to decide on this matter.