Canada is joining Mexico in formally disputing how the U.S. interprets rules governing the origin of vehicle parts under the trilateral trade agreement between the countries.
The country will join Mexico in requesting the creation of a tribunal of experts to rule on the matter as allowed under the U.S.-Mexico-Canada Agreement, known as USMCA, Trade Minister Mary Ng said in a statement. Mexico formally made the request last week.
The move is an escalation by Canada, which had previously said it was monitoring talks on the issue between the U.S. and Mexico. Bloomberg News was first to report Canada’s plans to participate in the dispute last month.
The conflict focuses on differences over how to calculate the percentage of a vehicle that comes collectively from the three countries in order to trade duty free. Both Mexico and Canada believe the trade deal stipulates that more regionally-produced parts should count toward duty-free shipping than the U.S. wants to allow.
The U.S. interpretation is inconsistent with the trade pact rules and “the understanding shared by the parties and stakeholders throughout the negotiations,” Ng said in the statement, referring to the talks in 2017 and 2018 that produced the updated North American trade pact.
Canada’s announcement came just before trade officials from the three countries were set to meet virtually on Thursday. The officials—Deputy U.S. Trade Representative Jayme White, Mexican undersecretary of economy Luz Maria de la Mora, and Canadian deputy trade minister David Morrison—met bilaterally on Wednesday.
The U.S. and Mexico discussed their differing interpretations on the automotive rules, as well as proposed U.S. incentives for certain electric vehicles, which have been criticized by Mexico and Canada as discriminating against their producers, according to a statement from Mexico’s economy ministry.
The U.S. brought up concerns about Mexico’s energy policies. White told de la Mora that Mexico needs to make it a priority to have its policies promote fair competition and renewable energy production to combat climate change, according to a statement from USTR.
Business groups have complained about Mexican policies that advantage state-owned oil company Petroleos Mexicanos, or Pemex, and electricity utility CFE over private firms. The concerns were echoed in a letter from the top Democrat and Republican on the Senate Finance Committee to Trade Representative Katherine Tai on Wednesday, urging her to use the USMCA’s “strong and innovative enforcement tools” to respond to alleged violations by Mexico and Canada.