Tariff threat looms over battle for used cars

Under USMCA, light-duty passenger vehicles that do not meet the trade rules are subject to a 2.5 percent duty. But that increases to 25 percent for trucks, including pickups — which are popular and often highly profitable for dealers in both countries.

“If dealers are trying to get used trucks or cargo vehicles out of Canada, this is potentially quite impactful,” said Kristin Dziczek, senior vice president of research at the Center for Automotive Research in Ann Arbor, Mich.

U.S. trade groups are lobbying federal trade and customs officials to change how USMCA rules are applied to used vehicles. They argue that cars and trucks manufactured while NAFTA was in place should be subject to NAFTA-era rules.

In a June 26, 2020, letter to Robert Perez, deputy commissioner of U.S. Customs and Border Protection, U.S. industry groups argued that the government’s interpretation could “effectively lead to tariffs being assessed on all used-car trade.”

The letter was signed by the presidents and CEOs of seven groups that represent manufacturers and dealers, including the National Automobile Dealers Association and the American Automotive Policy Council. A letter making similar points was sent to U.S. Trade Representative Katherine Tai on March 24, 2021.

All used vehicles could be subject to tariffs “because, as a practical matter, it is impossible at this point to determine whether a vehicle built pre-USMCA meets the new requirements of the USMCA,” the letter to Perez reads.

The groups say that is because “there are no records or documentation” for older vehicles that could “feasibly establish that they comply” with new rules-of-origin requirements. The method for determining whether a vehicle meets regional-content value levels is different under USMCA than it was under NAFTA.

USMCA also includes requirements pertaining to labor as well as steel and aluminum content that NAFTA did not have.

“Thus, U.S. importers will be unable to show that vehicles built in the NAFTA region before the USMCA are eligible for duty-free treatment,” the letter reads. “Such an outcome would have a devastating impact on used-vehicle commerce among the United States, Mexico and Canada. And this adverse outcome could be exacerbated further if Canada and/or Mexico were to retaliate by rendering used-vehicle imports from the U.S. ineligible for preferential tariff treatment.”

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