Former Ambassador: UAW Goals Likely to Drive USMCA Review

Former Mexican Ambassador to the U.S. Martha Bárcena said that she has been told that the U.S. will not comply with the panel ruling that said that rollup was understood to be part of the automotive rule of origin (see 2403070067), and she said that is undermining USMCA. She said that's because both the Republicans and the Democrats are fighting for the political support of the United Autoworkers and Teamsters. (The autoworkers' union characterizes rollup as watering down the requirement for North American content in vehicles).

She said the automotive sector "was the backbone of the NAFTA, and this is still the backbone of USMCA," and so she is wondering how the U.S. will seek to manage trade in that sector as part of the USMCA renewal review.

Bárcena said the six-year review will begin in the second half of 2025, and she said the tenor of that review will depend not just on who is president, but also who controls the majority in Congress, because that's where it starts.

"The USMCA text is very clear, it says review, but there are already a lot of people talking about renegotiation," she said, but she hopes Canada and Mexico insist that it's not opening up the free trade agreement, but rather a review.

"I was even recently asked by the Canadians, who said, 'How do you think we should negotiate, or ask the U.S., which are your red lines with China?' We have to understand which are the red lines of the U.S. regarding China's investments, and China's presence and China's trade in Mexico," she said.

The former ambassador spoke on a panel of two former Mexican ambassadors and two former U.S. ambassadors to Mexico about how the new Mexican President Claudia Sheinbaum might approach U.S.-Mexico relations. The event was hosted by the Wilson Center's Mexico Institute.

U.S. Trade Representative Katherine Tai has never admitted that the U.S. will not comply with the ruling, but instead, talks about negotiating a settlement with Canada and Mexico to bolster North American supply chains. Most recently, she suggested that treating USMCA panel rulings as binding would violate U.S. sovereignty. It was "never meant to be something you can shove down the throat of the other side," she said at a think tank appearance. Many manufacturers in the U.S. auto industry, along with Canada and Mexico, want the U.S. to accept its loss and allow rollup calculations (see 2402050048).

While the rules of origin interpretation -- particularly with regard to electric vehicles -- is something that is sure to be discussed during the review, Tai has also been talking about the problem of Chinese foreign direct investment in Mexico leading to goods that can qualify as Mexican country of origin, but without reaching USMCA-compliant rules of origin. The MFN tariff on cars is just 2.5%.

The recent Commerce Department rule on connected vehicles -- which cover any car that can connect to satellites and cell phones, not just electric vehicles -- would allow the U.S. to ban the sale of cars made by Chinese firms, whether in Mexico, the U.S. or Spain.

Bárcena said that when she is talking to people in the know in the U.S., they are telling her "the U.S. will not allow any, any Chinese car produced in Mexico, either EV or traditional combustion engine, into the U.S."

This goes back to those red lines, she noted. "Mexico needs to understand how these internal fights in the U.S. for the soul of the workers ... how they are going to operate, or not, and what would be the margin of maneuvers for Mexico?"

She said if the Mexican strategy at renewal is just to talk about how great USMCA has been for business, and how the integrated automotive industry is great, it will miss the mark.

"The main strategy of Claudia Sheinbaum's government is to bet almost everything on nearshoring, on attracting investment to Mexico," she said.

Bárcena said that worries her, because as she listens to the debate on trade in the U.S., she sees an increased emphasis on protectionism and policies to drive investment in the U.S. rather than North America. She said it seems that the new Mexican administration is not correctly reading the mood in Washington.

Former Mexican Ambassador to the U.S. Arturo Sarukhán said he thinks there's overly optimistic thinking in Mexico, particularly in the private sector "that Mexico can have its cake and eat it too" in terms of importing inputs from China and exporting to the U.S. "I think Mexico is trying to be cute. I think Mexico hasn't figured out that Mexico's competition for nearshoring isn't Malaysia, Vietnam, Singapore, India -- it's Texas."

With regard to the lack of compliance with the USMCA dispute panel, Sarukhán said it's irritating that the U.S. "talks about rules-based international systems, [but] does not always put its money where its mouth is, and does not always adhere to either regional or global body decisions."

Sarukhán also said the way energy production is being handled is a brake on manufacturing expansion. He questioned Sheinbaum's recent comments that she will privilege the development of renewables, which he said is incompatible with trying to ensure that Pemex oil company and the CFE utility, both state-owned, are the strongest players in energy generation and distribution. He argued that unless Canada, the U.S. and Mexico have a common understanding of energy resilience, efficiency, security and independence, "the whole nearshoring phenomenon is not going to materialize."