Question Period Note: CUSMA - Rules of Origin: Automotive Goods

Automotive rules of origin and CUSMA.

• Canada is engaged with the US and Mexico regarding the implementation of the new automotive rules of origin and the finalization of the alternative staging regimes.
• The new automotive rules of origin require increased levels of North American content, changes that aim to incentivize production and sourcing in North America.

• The rules of origin will support Canadian companies in the sector and the Canadians they employ. It will also strengthen Canada's competitive advantage, help keep facilities here in Canada, and promote good, well-paying jobs for Canadians.
• Canada actively and constructively engaged in the negotiations and focused on modernizing the automotive rules of origin while seeking to maintain the competitiveness of the North American auto industry.
• Automotive producers and labour groups in Canada were consulted throughout the negotiations, and they support the Canada-United States-Mexico Agreement outcome.

Rules of origin are the criteria used to determine whether a good has undergone sufficient production in the NAFTA region to be eligible for preferential tariff treatment. They ensure that the benefits of the agreement accrue to producers located in NAFTA countries.
The CUSMA outcome on automotive rules of origin includes:
· a 75% regional value content requirement;
· strong content requirements for core parts such as engines and transmissions;
· 70% North American steel and aluminum requirements;
· a labour value content requirement which means that a significant percentage of the value of a vehicle must be produced by workers earning at least US$16/hour. This provision has the potential to improve the competitiveness of Canadian automotive manufacturers vis-à-vis Mexico; and
· strengthened rules of origin for auto parts.

During the negotiations, the U.S. objective was to strengthen the existing NAFTA automotive rules of origin, an objective that Canada also supported. Canada also sought to focus the negotiations on modernizing the autos rules of origin while seeking to maintain the competitiveness of the North American auto industry by eliminating or minimizing red tape and administrative costs for automakers, and providing reasonable transition periods.

Canada put forward ideas aimed at strengthening the North American autos production platform, reducing red tape and incentivizing production in North America, as well as increasing the use of North American steel and aluminum. These proposals helped to move the negotiations forward.

The Parties have also developed Uniform Regulations for rules of origin that detail how the Parties will interpret, apply and administer the rules of origin. The Uniform Regulations are based on the NAFTA antecedents and were designed to ensure consistent and uniform application of the Agreement and to provide greater certainty for importers.

Most automakers have requested permission to trade on the basis of a transitional alternative staging regime that includes less restrictive rules of origin. Decisions on these request will be made in the fall of 2020.

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