Manufacturers Ask for Canada, Mexico Section 232 Exceptions and to Keep ROOs

The comments were due earlier this month, and will inform USTR as it prepares for the upcoming USMCA sunset review.

Many manufacturers also said that Section 232 tariffs on metals and vehicles are undermining the agreement and endangering the competitiveness of American manufacturing in the targeted sectors.

The aviation sector asked for a return to duty-free trade, though its union said that should apply only to USMCA-qualified goods.

In the textile sector, one group argued for no changes, one asked for liberalization, and one said the Tariff Preference Levels should be narrowed.

The National Association of Manufacturers wrote that USMCA is the most pro-U.S.-manufacturing trade agreement ever.

It said that Mexican and Canadian production is complementary to U.S. activities, and noted that Canada and Mexico bought more than one-third of U.S. manufactured exports, six times more than China.

NAM said that Section 232 tariffs on steel, aluminum, autos and auto parts applied to nearly 17% of Canadian exports to the U.S., and that doesn't include 232s on derivatives, copper and lumber and furniture. It said if all 232 investigations result in tariffs, it will be more than 40% for Mexican exports.

"With measures in place to tighten AD/CVD circumvention, transshipment and customs fraud, Canada and Mexico should be exempt from these tariffs for all USMCA-qualifying goods," NAM said. It suggested that all three countries should automatically open a trade remedies investigation if one begins in one of the other countries, and that they should increase information sharing in those cases.

The Ball Corporation, which makes aluminum cans and household products, has about 5,000 workers based in the United States, 775 in Mexico, and 300 in Canada. "Exempting Canada and Mexico from Section 232 aluminum tariffs is not only economically sound -- it is strategically essential," it said.

The Can Manufacturers Institute said its member companies have to source tinplate steel, copper wire, and primary aluminum from Canada, and the Section 232 tariffs just make canned goods more expensive. The group noted that carmakers buy the entire domestic tinplate supply, and that only covers 20% of production.

"Since 2018 when President Trump first instituted Section 232 tariffs on steel, U.S. tinplate lines have gone from 12 to 3," the group wrote.

They also asked that recycled metal from Canada and Mexico be tariff-free.

Committee on Pipe and Tube Imports, which represents 41 members with more than 40,000 employees, argued that Canada and Mexico should adopt identical tariffs on steel products from outside North America as the U.S. Section 232 action, including derivatives. They also argued that only steel melted and poured in one of the three countries should be originating.

"While the current USMCA limits the operation of temporary importation, duty drawback and duty deferral programs that allow for the waiver or refund of import duties when imported goods are re-exported, it did not fully eliminate them within North America," the group wrote, and said they should end for steel and steel products.

They asked that the review eliminate binational panels as an option to review antidumping duty and countervailing duty determinations. They say they are not as impartial as the Court of International Trade is.

The Korean Chamber of Commerce and Industry in the USA wrote that they believe the U.S. wants to tighten the automotive rules of origin during the review.

"However, implementing stricter rules without fully accounting for the realities of the regional supply chain and availability of materials could increase production costs for the U.S. automobiles and automobile parts manufacturers, delay product delivery timeliness, and destabilize supply chains," as well as weaken the competitiveness of vehicles.

KOCHAM said ambiguity around the roll-up provision has added to compliance burdens, and they asked for clear standards.

They said there should be a temporary relaxation of the rules of origin for electrical steel for electric vehicles and key battery materials, including precursors, cathode materials and anode materials.

The group also complained that if a product contains both U.S. and foreign steel, the Section 232 tariff on derivatives applies to all the steel. The Korea Electronics Association, which represents LG and Samsung, made the same point. It also said the 232 tariff undermines the pact in general.

Autos Drive America wrote that the COVID-19 pandemic, chip shortages and port congestion all made it harder on the auto industry after USMCA came into effect, at the same time it is trying to shift to electric vehicles.

“The industry also had to contend with the unexpected interpretation of USMCA’s rule-of-origin ‘roll-up’ provisions and uncertainty over implementation of USMCA panel findings relating to that interpretation,” the group wrote.

But all those compliance and sourcing headaches were dwarfed by the imposition of Section 232 on vehicles and auto parts. "Industry investments and efforts to meet USMCA rules of origin were premised on duty-free treatment for qualifying goods rather than the substantial duties now in place, and those duties are dramatically limiting resources available for building out U.S. production facilities and supply chains," said the group, which represents foreign name plate automakers with factories in the U.S. The group said USMCA qualifying vehicles and parts should be duty free.

It asked that ROO in the sector stay the same. If they must be changed, "such changes should reward and incentivize the massive investments now underway, rather than setting unrealistic targets that cannot be met, forcing duty payments outside of USMCA that would unnecessarily divert resources from localizing production."

Similarly, the Zero Emission Transportation Association, which represents electric vehicle battery makers, material processors, battery recyclers, EV manufacturers and charging companies, said that rules of origin "should not be crafted to reflect a hypothetical future state that might exist, but rather should reflect the current sourcing opportunities available in the market."

Toyota North America wrote that duty-free imports of Canadian and Mexican parts are critical to maintaining 31,000 U.S. manufacturing jobs. It also said the ROO is already rigorous, but if there must be changes, they should be phased in.

Toyota also asked that the Section 232 tariffs for autos and medium and heavy-duty trucks be adjusted. A battery electric truck falls under the latter action, while the same vehicle that's a hybrid or gas version is a light truck.

"This split complicates qualification for OEMs and suppliers, especially for common parts needing dual qualification under different Product Specific Rules of Origin," it said.

Rivian, an electric truck manufacturer, pointed out that retaliatory tariffs on trucks after the Section 232 tariffs went into effect hurt its Canadian sales. It also asked for an exemption to reciprocal tariffs for manufacturing equipment from Europe, Japan, South Korea, Brazil and Malaysia.

The Automotive Parts Manufacturers’ Association, a Canadian trade group, noted that there are 47,500 U.S. jobs at Canadian-headquartered parts companies. "Rather than viewing Canada and Mexico as competitors, the United States should recognize its USMCA partners as force multipliers in building the most secure, innovative and competitive industrial base in the world." the APMA said.

Cummins, which makes heavy truck engines and power generators, employs more than 9,000 Americans in manufacturing jobs.

It said that USMCA is what allows successful manufacturing, combining U.S. research and development, design, advanced machining, and final assembly with components made in Mexico or Canada. It said that cast-iron blocks and heads for its sector are not made in the U.S., because the domestic suppliers would rather concentrate on the higher-volume light vehicle market. It said it adds component manufacturing in the U.S. when it can, but that importing some parts makes "U.S.-based production more economically feasible."

It added, "Cummins’ experience in commercial vehicle markets shows that broad, rapidly changing tariffs function like overregulation: fleets pause purchases, suppliers reprice, and multi-year sourcing decisions are derailed."

It said that tariffs under the International Emergency Economic Powers Act, Section 232 or Section 301 shouldn't apply to any goods that meet USMCA rules of origin.

It asked the Office of the U.S. Trade Representative not to change the regional value content for the sector. "Heavy-duty vehicles are already required to meet an RVC of 65 percent and are scheduled to reach 70 percent by 2027; parts suppliers have developed multi-year bills of materials, tooling, and compliance systems to achieve those targets. Reopening or raising thresholds mid-cycle would necessitate costly redesigns and supplier changes, which in our industry typically require three to four years to validate, potentially disrupting production schedules and eroding price competitiveness just as markets normalize."

The Aluminium Association of Canada argued that for every job in "Canada’s primary aluminium sector, approximately thirteen jobs are supported in the U.S. downstream manufacturing economy, from rolling and extrusion to assembly and finished products."

It noted that Canada has harmonized its tariffs and enforcement to ban the import of Russian aluminum and impose 50% tariffs on Chinese aluminum, even products made in third countries from aluminum cast in China. It also created a digital traceability system for Canadian aluminum.

The Mining Association of Canada said 10% of all trade between Canada and the U.S. is minerals and metals, including copper, gold, nickel, potash from Canada, and metallurgical coal, precious metals, zinc and lead from the U.S.

It asked for a mining chapter in the rewritten USMCA, to guarantee tariff-free trade and prevent domestic-content restrictions or other non-tariff barriers.

Airbus Americas wrote that tariffs on parts and engines from Canada and Mexico "are putting domestic production of commercial aircraft at risk and will make U.S. manufacturing lines less competitive as the costs to produce and deliver aircraft in the U.S. will become more expensive." The company has 6,000 employees in the U.S. and buys $15 billion worth of U.S. parts from more than 2,000 suppliers.

It said that civil aircraft, engines and related parts and components should be exempt from Section 232 tariffs on steel, aluminum and copper, and derivatives.

The Aerospace Industries Association noted that aviation is the only manufacturing industry with a trade surplus, and last year, it was nearly $74 billion. It is successful through the integrated North American supply chain, it argued, and said Section 232 tariffs should be removed on North American metals.

"Our members support the streamlining of rules of origin requirements to be more practical and reflective of the deeply integrated aerospace supply chain," the AIA wrote.

The General Aviation Manufacturers Association, which represents companies that build small planes and helicopters, noted that the aviation trade surplus also extends to the region: $6.2 billion for Mexico, and $1.2 billion for Canada.

"Given that aerospace imports had generally been given tariff-free treatment under the 1979 Agreement on Trade in Civil Aircraft, many U.S. aerospace companies had to quickly learn the USMCA rules of origin and documentation requirements to take advantage of the provision providing an exemption from certain tariffs for USMCA-compliant goods," GAMA wrote. "This has burdened the entire supply chain, and it has been particularly difficult for small- and medium-sized enterprises to manage. As USTR considers any changes to rules of origin in the context of the USMCA review, GAMA urges USTR to ensure that any changes to the rules of origin applicable to aerospace products reduce, or, at a minimum, do not add complexity to the existing regime."

The International Association of Machinists and Aerospace Workers wrote that IAM opposed USMCA, and said they've been proven right, as offshoring of aviation jobs to Mexico continues.

It asked that the labor content provision be a minimum standard, not an average, and that it cover aircraft, ships and other manufacturing sectors. "The crucial aerospace sector warrants specific, enhanced rules of origin to help ensure that high-value aerospace work remains in the United States and performed by American workers."

Kawasaki Motors said its ATV plant in Lincoln, Nebraska, is facing unintended consequences, since one-third of imported components and materials are charged Section 232 and/or Section 301 and/or IEEPA tariffs, while competitors in Mexico and Canada have lower input costs and can export duty-free if their vehicles meet the rules of origin. If this doesn't change, it will have to look into moving production to one of those countries.

It also asked that the rules of origin for other vehicles be changed to the auto rules of origin.

The United States Fashion Industry Association wrote that while it has argued in the past for more flexible textile rules of origin, "the USMCA’s clear, predictable rules of origin have been important for our industry."

The National Retail Federation did ask for changes to the ROO, such as allowing short supply yarns and trims under CAFTA-DR to qualify for USMCA benefits, and removing the requirement that elastomeric yarns/strips must be originating. It asked to allow cumulation, so that Mexican factories could use CAFTA-DR fabric and still qualify. It asked that the de minimis amount for foreign content be higher than 10%, and for the tariff preference level to allow denim products that are currently restricted. It also asked that it be easier for smaller importers to get an apparel tariff preference level allowance from Mexico’s Customs authority.

It also asked for a way to petition for more products to be eligible for single transformation ROO,

The National Council of Textile Organizations also asked for changes to TPLs, complaining that hundreds of millions of dollars worth of apparel enters annually this way.

"Certain limited exceptions may permit U.S. producers to source inputs not readily available within the bloc, such as acrylic, duty free, which would enhance their competitiveness. We would like to fine-tune these exceptions, so they advantage U.S. textile manufacturers and other USMCA producers and do not undermine regional textile and apparel production and supply chains," NCTO wrote.

The Composite Panel Association, which represents North American manufacturers of composite wood panels, said the integrated supply chain hasn't hurt U.S. industry.

The Wisconsin Manufacturers & Commerce association asked CBP to clarify that pipeline oil from Canada is originating under USMCA.

The Industrial Fasteners Institute asked that Canadian and Mexican steel, aluminum and copper be exempted from Section 232 tariffs. "For U.S. fastener manufacturers that need specific steel chemistries from Canada to make automotive fasteners in the U.S., the loss of this tariff-free treatment has created competitive disadvantages with global competitors," it said.

If that can't be changed, "at a minimum, USMCA compliance should allow for a lower tariff rate under Section 232, such as mentioned in the recent Section 232 order for medium- and heavy-duty trucks/truck parts. That language appears to offer a 25% Section 232 rate to Canadian and Mexican steel producers that sell directly to U.S. automotive OEMs pending U.S. investments." But IFI said most steel is bought by suppliers, and fasteners aren't covered by the 232 parts order, but rather steel and aluminum orders.

The Personal Care Products Council said USMCA's Cosmetics Annex should remain, and that there should be no tariffs on "finished goods, packaging, ingredients, and raw materials essential to manufacturing and cross-border competitiveness."

The Tile Council of North America said "any substantive changes as a result of the joint review to the USMCA that would have the effect of making U.S. and Mexican tile more expensive would only jeopardize U.S. tile manufacturing jobs."