USMCA: Automotive Rules of Origin
Changes from December 6, 2024 to June 23, 2026
This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.
https://crsreports.congress.gov
Updated December 6, 2024
USMCA: Automotive Rules of Origin
The United States-Mexico-Canada Agreement (USMCA; P.L. 116-113) entered into force on July 1, 2020, replacing the 1994 North American Free Trade Agreement (NAFTA). NAFTA was viewed as instrumental in creating, among other things, a highly integrated North American supply chain for the motor vehicle industry. Automotive rules of origin (ROO) under USMCA, which determine whether an import is eligible for the agreement's duty-free treatment, are the strictest among U.S. free trade agreements (FTAs). In 2025, the Trump Administration imposed a 25% global tariff on U.S. imports of certain automotive products, including vehicles, under Section 232 of the Trade Expansion Act of 1962. Goods that meet USMCA automotive ROO are largely, but not wholly, exempt from these tariffs.
The Trump Administration has raised changes to USMCA automotive ROO as a potential topic for the scheduled a highly integrated North American motor vehicle industry. USMCA negotiations over new rules for North American automotive trade created tensions among and within the three trading partners. Some uncertainty remains over the implementation of the automotive trade rules and potential impacts on the North American motor vehicle industry. Numerous stakeholders have raised USMCA automotive trade rules as a potential topic during the scheduled 2026 joint review of USMCA, when the three countries are to discuss whether to renew or modify the agreement. Congress has an oversight role inof USMCA implementation and the joint review. Congress could also consider whether to codify U.S. tariffs on Canadian and Mexican products, including those complying with USMCA, or whether to expand, constrain, or otherwise modify the delegated authorities the President has used to implement such tariffs.
Automotive Rules of Origin
ROO provisions in U.S. FTAs are intended to ensure that preferential duty treatment is granted to goods produced by FTA parties rather than to goods made wholly or in large part USMCA implementation and the joint review.
Automotive Rules of Origin
Most free trade agreements use rules of origin (ROO) to determine the national origin of a product. ROO provisions determine which goods traded between member countries are eligible for preferential treatment (reduced tariffs or duty-free trade). They generally seek to ensure that the benefits of the agreement are granted to goods primarily produced by a member country (and therefore subject to the entirety of its commitments) rather than to goods made wholly, or in large part, in other countries.
NAFTA phased out tariffs on automotive products traded among the three member countries as long as the products met the ROO, particularly regional value content (RVC) requirements (i.e., a certain percentage of North American content). USMCA maintains these tariff eliminations, but tightens the ROO, as shown in Table 1.
Table 1. NAFTA and USMCA Automotive ROOs
NAFTA USMCA
62.5% RVC for passenger vehicles, light trucks, engines and transmissions
60% RVC for other vehicles and auto parts
75% RVC for passenger vehicles, light trucks, core auto parts
65%-70% RVC for other vehicles and auto parts
No labor value content rule (LVC) (no wage requirement)
LVC rule stating that 40%-45% of a vehicle’s production by value be made by workers earning at least $16 per hour
No steel and aluminum requirement
70% of a vehicle manufacturer’s steel and aluminum purchases by value must originate in North America
Source: CRS based on USMCA and NAFTA text.
During USMCA negotiations, motor vehicle and parts producers generally supported retaining NAFTA ROO. The Trump Administration and labor advocates sought to require higher wages and RVC thresholds, which they argued would incentivize auto manufacturing in the United States. Some economists contend that the higher RVC requirements in USMCA may have unintended consequences. For example, they state that it may be more cost efficient for manufacturers to pay the 2.5% U.S. most- favored-nation (MFN) tariff on passenger vehicles rather than meet the extensive ROO requirements. They argue that the new rules may raise North American auto production costs, resulting in higher vehicle prices, reduced demand for motor vehicles, and fewer auto exports, as well as incentivize more automation in automotive plants, thereby reducing demand for workers.
Entry into Force and Economic Impact
USMCA provided a three-year transition period for the new automotive ROO. It also allowed vehicle producers to request an alternative staging regime that would permit a longer transition period to implement the new ROO (up to five years after USMCA’s entry into force, unless a request for a longer period is granted). The Office of the U.S. Trade Representative (USTR) approved alternative staging requests from 13 companies.
Since USMCA’s entry into force, U.S. trade of motor vehicles and parts with Canada and Mexico has been relatively stable (Figure 1). USMCA implementing legislation (P.L. 116-113), requires the U.S. International Trade Commission (USITC) to publish biennial reports on the economic impacts of the USMCA automotive ROO through 2031. In its June 2023 report, the ITC estimated that through the end of 2022, the USMCA automotive ROO had marginal impacts on U.S. competitiveness, and the full impact of the USMCA automotive ROO may not be apparent until the full implementation of ROO in 2027. The ITC noted that other factors, such as supply chain disruptions during the COVID-19 pandemic, had a greater impact than the ROO during the analysis period (July 2020- December 2022). The ITC estimated that through the end of 2022, the USMCA automotive ROO contributed to an increase in U.S. aggregate employment of less than 0.01%. ITC also estimated that the ROO led to 487,048 fewer imports of core auto parts from non-USMCA countries and 1,464 more vehicles produced in the United States in 2022, which were lower than previously forecasted numbers. The ITC stated that although cost increases have not yet been significant, the ROO will likely lead to higher production costs and, potentially, higher vehicle prices over time. In November 2023, the ITC initiated the second report, scheduled to be reported to the President and Congress in July 2025.
Additionally, P.L. 116-113 requires USTR, in consultation with the Interagency Committee on Trade in Automotive
USMCA: Automotive Rules of Origin
https://crsreports.congress.gov
Goods, to submit a biennial report to Congress on motor vehicle trade. USTR published its second biennial report in July 2024. In the report, USTR noted an increase in the share of U.S. vehicle and parts imports from Canada and Mexico for which duties were paid (not entering duty-free under USMCA). CRS analysis of data from the U.S. International Trade Administration found that the value of U.S. vehicle and auto parts imports from Canada and Mexico that paid the 2.5% MFN tariff increased from about 4% in 2019 to 16% in 2023. Most dutiable auto imports came from Mexico. USTR noted that auto industry groups have expressed concerns about continued administrative burdens related to implementing the ROO and called for flexibility; labor groups have called for stricter ROO and for increasing the 2.5% MFN tariff to encourage greater ROO compliance.
Figure 1. U.S. Automotive Trade with Canada and Mexico, 2017-2023
Source: CRS analysis of data from U.S. International Trade Administration, accessed November 26, 2024. Note: *USMCA entered into force.
Automotive ROO Dispute
In January 2022, Mexico and Canada established a USMCA dispute settlement panel to address a disagreement over the treatment of material in core motor vehicle parts (see text box). In December 2022, the panel ruled against the United States. USTR does not agree with the panel ruling and stated in the July 2024 report that the three countries are working towards a potential resolution. The USMCA panel decision cannot be appealed.
The Mexican and Canadian governments argued that if a core part qualifies for USMCA, 100% of its value should count towards the larger RVC calculation (referred to as “roll up”). USTR’s interpretation was that the overall RVC calculation should exclude the value of materials in core parts that are not sourced from a USMCA country (“non- originating”). Mexico and Canada contended that all parties agreed to these flexibilities during the negotiations to help North American producers meet the RVC requirements.
Under USMCA rules, Canada and Mexico could have begun suspending certain benefits to the United States 45 days after the panel’s final report was issued, but they have not done so to date. Some U.S. stakeholders, such as labor groups, expressed concerns that the ruling undermines efforts to boost the U.S. auto industry and undercuts workers’ confidence in trade agreements. Some analysts
have argued that the United States is undermining the USMCA dispute settlement process if it continues not to comply with the ruling.
Core Parts and Components for Determining Origin
Engine: Heads, blocks, crankshafts, crankcases, pistons, rods, head subassembly.
Transmission: Transmission cases, torque converters and housings, gears and gear blanks, clutches, valve body assembly.
Body and Chassis: Major body panels, secondary panels, structural panels, frames.
Axle: Axle shafts, axle housings, axle hubs, carriers, differentials.
Suspension System: Shock absorbers, struts, control arms, sway bars, knuckles, coil springs, leaf springs.
Steering System: Steering columns, steering gears/racks, control units.
Advanced Batteries: Cells, modules/arrays, assembled packs.
Source: Table A.2 in USMCA Chapter 4, Annex 4-B.
Considerations for Congress
As USMCA implementation continues, Congress may examine the impact of USMCA’s automotive ROO on U.S. producers, particularly small- and medium-sized companies, and the North American auto industry. Additionally, the electric vehicle (EV) tax credit in P.L. 117-169, referred to as the Inflation Reduction Act (IRA), contains certain North American assembly requirements that may further change the North American automotive supply chain, if producers choose to qualify for the EV tax credit. U.S. trading partners have claimed that IRA requirements violate World Trade Organization rules. Some Members of Congress have stated that these requirements are important for lessening reliance on China and supporting U.S. jobs. Labor groups have raised concerns about ensuring that the EV transition does not negatively impact U.S. workers. Congress may examine the impacts of IRA EV tax credit requirements on the North American auto industry and USMCA utilization. Other issues that Congress may consider addressing through legislation or conducting additional oversight over include • Any ROO implementation and/or compliance issues. • The implications of the January 2023 USMCA ROO
panel decision and the lack of a resolution.
• Whether to raise the 2.5% passenger vehicle MFN tariff
to encourage ROO compliance and the implications of such a tariff increase.
• Whether to address the automotive ROO dispute and
other issues related to the North American auto sector, such as potential investments by China-based companies, as part of the 2026 USMCA joint review.
Liana Wong, Analyst in International Trade and Finance Kyla H. Kitamura, Analyst in International Trade and Finance
IF12082
USMCA: Automotive Rules of Origin
https://crsreports.congress.gov | IF12082 · VERSION 6 · UPDATED
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
Economic Impact of USMCA Auto ROO
Congress, via USMCA-implementing legislation (P.L. 116-113), requires the U.S. International Trade Commission (USITC) and the Office of the U.S. Trade Representative (USTR) to publish biennial reports on the USMCA auto ROO. In its 2025 report, USITC found that the ROO's impact on the U.S. automotive industry varied since USMCA entered into force, with U.S. parts production slightly increasing and U.S. vehicle production decreasing. USITC noted that its analysis was limited due to the relatively short period since the full implementation of the ROO. The report pointed to external factors, such as tariffs (see below) and technological changes, that may also affect the U.S. auto industry.
In its July 2024 biennial report to Congress, USTR noted an increase in the share of U.S. automotive imports from Canada and Mexico for which duties were paid (i.e., not entering duty-free under USMCA). Most dutiable auto imports came from Mexico.
Table 1. NAFTA and USMCA Automotive ROO|
NAFTA |
USMCA |
|
62.5% Regional Value Content (RVC) for passenger vehicles, light trucks, engines, and transmissions |
75% RVC for passenger vehicles, light trucks, and core auto parts |
|
60% RVC for other vehicles and auto parts |
65%-70% RVC for other vehicles and auto parts |
|
No labor value content (LVC) rule (no wage requirement) |
LVC rule that requires 40%-45% of a vehicle's production by value be made by workers earning at least $16 per hour |
|
No steel and aluminum requirement |
70% of a vehicle manufacturer's steel and aluminum purchases by value must originate in North America |
Source: CRS based on USMCA and NAFTA text.
Note: Other vehicles include heavy trucks, which have a phase-in period until the RVC requirement reaches 70% in 2027.
Current Administration Tariff Actions
In 2025, President Trump cited national security concerns in imposing U.S. tariffs on passenger vehicles, medium- and heavy-duty trucks, and related parts under Section 232 of the Trade Expansion Act of 1962. The United States has also imposed Section 232 tariffs on U.S. imports of steel, aluminum, and other products that could affect the auto sector. Goods meeting USMCA ROO are partially exempt from Section 232 tariffs; for example, tariffs apply to non-U.S. content of vehicles that comply with USMCA ROO.
These tariffs have, in effect, increased the tariff rate for U.S. imports of automotive products that do not meet USMCA ROO—for example, the applicable tariff rate for non-USMCA-compliant passenger vehicles went from 2.5% (MFN) to 27.5% (Section 232 plus MFN rate). Data suggest that in 2025 around 84% of U.S. auto imports from Canada and Mexico met USMCA content rules but were subject to certain tariff actions. Figure 1 compares the value (right) of U.S. auto imports that entered the United States under USMCA and MFN status and the calculated duties (left) under each status. Canada has imposed retaliatory measures in response to U.S. tariffs. Some U.S. automotive groups have argued that current U.S. tariff policies could make USMCA-compliant vehicles made by U.S. manufacturers less price-competitive than those imported from non-FTA partners like Japan or the European Union, which face a 15% total tariff.Automotive ROO Dispute
In January 2022, Mexico and Canada requested a USMCA dispute settlement (DS) panel to address a disagreement with the United States over the treatment of material in core motor vehicle parts and related methodologies (see Table A.2 in USMCA Chapter 4, Annex 4-B). In December 2022, the panel ruled against the United States. USTR disagreed with the panel ruling and stated in its July 2024 biennial report to Congress that the three countries were working toward a potential resolution. USMCA does not provide a mechanism to appeal dispute settlement panel decisions.
The Mexican and Canadian governments argued that if a core auto part qualifies for USMCA, 100% of its value should count toward the larger RVC calculation (referred to as "roll up"). USTR's interpretation was that the overall RVC calculation should exclude the value of materials in core parts that are not sourced from a USMCA country. Mexico and Canada contended that all parties agreed to these flexibilities during the USMCA negotiations to help North American producers meet the RVC requirements. Some U.S. stakeholders, including some labor groups, expressed concerns that the ruling undermines efforts to boost the U.S. auto industry. Some analysts have argued that the United States would undermine the USMCA DS process if it were to continue to not comply with the ruling.
USMCA Joint Review
Trump Administration officials have expressed interest in strengthening the USMCA automotive ROO as part of the joint review scheduled for 2026. The Administration has not stated whether it will seek congressional approval for potential modifications to the agreement. Under NAFTA, the executive branch implemented modifications to the automotive ROO without congressional approval under delegated authorities in 19 U.S.C. 2483 and presidential proclamation authority in NAFTA-implementing legislation; similar authority was included in P.L. 116-113.
Some Members of Congress have argued that strong auto ROO support U.S. jobs. Some Members have also expressed interest in reducing U.S. manufacturers' reliance on imports from the People's Republic of China (PRC or China), particularly auto parts, due to concerns related to national security and the potential use of forced labor in China's supply chains. Some Members have introduced legislation intended to ensure that PRC vehicles cannot enter the U.S. market, including via Canada and Mexico (H.R. 9162; S. 4429) and for harmonizing North American approaches to PRC investment, including in the auto sector (e.g., S. 2861). In December 2025, Mexico increased tariffs on certain products, including vehicles and auto parts, from non-FTA partners. In 2024, Canada imposed a 100% tariff on electric vehicles (EVs) from China, mirroring the 2024 U.S. tariff increase on PRC EVs; in February 2026, the Canadian government announced a deal with China under which up to 49,000 PRC EVs annually can be imported at Canada's MFN rate of 6.1%.
Issues for Congress
Congress may consider issues including, for example,
- whether and, if so, how to address auto sector issues as part of the USMCA joint review (e.g., the auto ROO dispute, Section 232 and other tariff actions affecting the auto sector, approaches to foreign investment in the auto sector, and common North American tariffs on auto exports from other countries);
- whether and, if so, how to monitor or oversee ROO implementation and compliance, and potential effects on the U.S. and North American auto industry; and
- whether to codify higher auto tariffs currently imposed via executive actions, or to expand, constrain, or otherwise modify executive authorities to impose such tariffs, and to assess how such actions might affect compliance with the USMCA ROO.
Figure 1. U.S. Automotive Imports from Canada and Mexico, 2025-2026 YTD by Import Program Source: CRS with data from U.S. Census Bureau via U.S. International Trade Commission Dataweb, accessed June 15, 2026; and Harmonized Tariff Schedule (HTS) automotive subheadings by the International Trade Administration at https://www.trade.gov/automotive-trade-data.
Note: Section 232 tariffs are reported under Chapter 99 of the HTS; calculated duties are estimates and do not reflect actual duties paid.