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Trump agreed in 2018 to shield Canada, Mexico from global

auto

tariffs

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No mention of USMCA side letters in recent US auto tariff

announcement

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Mexico, Canada each won annual US import quota of 2.6

million

cars, unlimited on trucks

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Canada says it fully expects US to honor 2018 deal on auto

tariff probe

By David Lawder and David Shepardson

March 29 (Reuters) - Canada and Mexico won protections

against potential new U.S. auto tariffs in 2018 as part of the

U.S.-Mexico-Canada Agreement on trade, but there is no evidence

that President Donald Trump will honor those commitments as he

imposes 25% duties on global automotive imports.

The side letters to the USMCA trade deal agreed to by

Trump's first administration granted both Mexico and Canada a

60-day delay on the imposition of any global auto tariffs as a

result of his first-term Section 232 national security

investigation into auto imports.

Once that North America-only grace period expired, Canada

and Mexico would each get an annual duty-free import quota of

2.6 million passenger vehicles and an unlimited number of light

truck imports.

The letters, signed by Trump's former U.S. Trade

Representative Robert Lighthizer, also granted Mexico a

duty-free quota on annual parts imports valued at $108 billion

and Canada a $34.2 billion parts quota.

The agreements further stipulate that even for automotive

products that are non-compliant with USMCA rules of origin, the

Section 232 tariffs cannot exceed the tariff rate in effect on

August 1, 2018 for the two countries - effectively 2.5%. If

upheld, this would provide relief to some automakers that had

been shipping Mexican-built cars to the U.S. at that tariff

rate, including BMW.

Trump revived the 2019 Section 232 investigation findings to

impose the 25% tariffs that take effect on April 3, but White

House officials made no mention of the 2018 USMCA side-letter

promises, subjecting Mexican and Canadian-built vehicles to

immediate 25% tariffs.

Instead, they said the only carve-out for Mexico and Canada

was to deduct the value of any U.S. content from the 25% tariffs

on U.S. vehicles and parts. Auto parts imports from Canada and

Mexico will remain on a duty-free basis until the Commerce

Department establishes a process for determining U.S. content

value, with no specified deadline.

A separate issue is whether the deadline for the Section 232

auto tariffs expired in November 2019 under the original report.

Trump administration officials are aware of the issue, auto

industry lobbyists said.

HONORING PAST COMMITMENTS

The Canadian government confirmed the USMCA auto side

letters' terms in an emailed statement to Reuters, and said it

fully expects the U.S. to honor the agreements.

Canada also has the right to take retaliatory measures in

response to U.S. Section 232 tariffs that are inconsistent with

USMCA and World Trade Organization obligations, the statement

said.

"Mexico is evaluating all the legal aspects before the USMCA

and the WTO," said Luis Rosendo Gutierrez, the Mexican Economy

Ministry's undersecretary for foreign trade. "The most important

consideration is to identify what is best for Mexican consumers

and producers."

The Office of the USTR and the Commerce Department did not

respond to Reuters' queries on the matter.

The White House did not address questions about the

protections but said: "America cannot just be an assembler of

foreign-made parts - we must become a manufacturing powerhouse

that dominates every step of the supply chain."

Canadian Prime Minister Mark Carney spoke with Trump on

Friday for the first time since taking office, a conversation

described by both men as productive. But Carney won no

commitment from Trump to ease tariffs on Canada, and warned the

U.S. president that he would impose retaliatory tariffs after

Trump's April 2 reciprocal tariff announcement.

ROOM TO GROW

The auto quotas were meant to allow for some growth in

Mexican and Canadian production. If honored, they would still

exceed U.S. auto imports from the two countries.

The protections agreed to by Lighthizer removed a major

stumbling block to the completion of USMCA negotiations as Trump

separately pursued the auto trade probe. They are posted

alongside the USMCA main text on the USTR website.

"The USMCA side letters for automotive were designed to

prevent the very situation Canada and Mexico now confront -

having to negotiate with the U.S. with the tariffs hanging over

their heads," said Dan Ujczo, a lawyer and former Canada trade

envoy who specializes in U.S.-Canadian trade matters.

He noted that as USMCA negotiations came to a close in late

2019, the Trump administration granted tariff exemptions to

Canadian and Mexican steel and aluminum imports, but Trump has

since rescinded them.

"As with steel and aluminum, the end game for autos is

increased domestic investment and resetting the quotas, along

with preventing Chinese OEMs (original equipment manufacturers)"

into the North American value chain, said Ujczo, who is senior

counsel with Thompson Hine in Columbus, Ohio.

Lighthizer, who had been under consideration for senior

Trump economic cabinet posts, declined to comment, referring a

query to USTR.