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Duty-Free Status for Used Cars Sought From Administration or Congress

Trade groups representing importers of motor vehicles are asking the Interagency Autos Committee to advocate for allowing used cars made during the NAFTA years to enter duty free if those vehicles qualified for NAFTA benefits, and to make it easier to prove that cars built since July 1, 2020, qualify for USMCA tariff benefits.

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The International Motor Vehicle Trade Association and the North American Vehicle Trade Association both submitted comments to the committee; Ken Carmon, president of Bay Brokerage in New York and vice president of IMVTA, was one of four witnesses who spoke at the committee's public hearing Feb. 7. The committee is tasked with writing a report every two years on how USMCA is affecting the automotive sector in North America.

Importers of used cars cannot rely on bulletin notices of liquidation of the same model's import when it was new if they want to certify that a used car qualifies for USMCA benefits. Carmon said that manufacturers have not been responsive in offering the assurances that a particular car or, more importantly, light truck, qualifies for duty-free status.

Carmon argued that by cutting out small importers, the price of used cars is higher, as there is less competition for Canadian cars that could otherwise be sold in the U.S.

Cars that were built in the U.S. and were in Canada or Mexico can qualify for duty-free treatment if they are returned within three years of original export, and they have not been improved in condition while abroad. "The burden of substantiating eligibility lies with the importer and claims are subject to verification. See HQ H314176 (March 18, 2021)," CBP says.

Carmon noted that before NAFTA switched over to USMCA, imports of North American used cars had risen to 300,000 vehicles a year. But because NAFTA cars cannot meet the labor value content and steel and aluminum content rules -- and may not be able to meet the more stringent regional value rule of origin -- cars produced before July 1, 2020, now owe duties.

Carmon asked the committee to advocate for Congress to introduce a bill, as was done in the 1990s, after NAFTA came into force. He would like Congress to authorize CBP to return to its procedures from 2000-2020, when it had a certification process for used vehicles produced in North America based on producers' annual averaging reports.

Both Carmon and NAVTA said registered importers for motor vehicles should be able to file based on VIN numbers, which include country of origin identifying information. NAVTA's comment said if CBP learns "facts that might cast doubt on whether a given model of automobile produced in a particular plant at a specified time qualifies for preference under USMCA ...CBP could, as a practical matter and without an undue burden, be able to withhold liquidation on all vehicles within the category under consideration."

Carmon said if duty-free status was available again for NAFTA-qualifying or more easily available for USMCA-qualifying cars, it would save buyers millions of dollars annually.

David Coffin, an automotive analyst at the International Trade Commission, asked if the problem is mostly temporary, as long as there are a lot of used cars made before July 1, 2020, or if the need for a certificate from the manufacturer means this is a long-term trade barrier.

Carmon said with USMCA-era cars, "some manufacturers are cooperative, others not so much," but that the group's main concern is vehicles made during the NAFTA era. They are only 3.5 years old, and there are still large inventories of both Mexican-made and Canadian-made vehicles in Canada.

Allison Umberger, an attorney-adviser in CBP's Office of Trade, asked Carmon if there are any efforts in the industry to establish documentation for used vehicles.

He said: "We’ve reached out to the manufacturers, we don’t have anything positive yet."

Committee members also asked participants at the meeting to expand on comments they made in their written submissions (see 2402050048).

Coffin asked Ann Wilson of MEMA, the motor vehicle suppliers' trade group, if it is accurate to say that all Canadian and U.S. production employees make at least $16 an hour. MEMA had argued that allowing that to be the default assumption would reduce the compliance burden for U.S. auto parts companies.

Wilson said that while she didn't have wage statistics at her fingertips, "We see industry wages continuing to grow."

UAW's Jason Wade said the autoworkers union opposes a labor value content assumption for U.S. workers. While he, too, said he didn't have statistics ready, he said, "There are [auto sector] workers in the U.S. that are making less than $16," and he referred to newspaper coverage of factories supplying foreign automakers in the South that were found to be employing children younger than are legally allowed to work in those plants.

"I don’t think it’s an overly burdensome requirement," he said.

Committee Chairman Justin Hoffman, deputy assistant U.S. trade representative for industrial competitiveness, noted that a recent letter told U.S. Trade Representative Katherine Tai that the establishment of Chinese companies in Mexico was a problem (see 2401170058) and that there needed to be a way to prevent Chinese firms from avoiding Section 301 tariffs by manufacturing in other countries.

Wade said he agrees that it's a problem, and that he thinks the way to approach it is to expand which components fall under the labor value requirements, and to make sure the regional value content rules of origin are fully implemented.

He also complained that a 2.5% tariff is not a high enough trade barrier to convince all manufacturers to follow the USMCA rules.

He cited a Government Accountability Office study that said the proportion of automakers and suppliers in the region paying tariffs on their exports to the U.S. increased 16-fold since USMCA replaced NAFTA.

"We have to make it so the consequences of not following the rules of origin is not considered a minor infraction," he said.

Wilson said that her group feels that China is undertaking "an illegal diversion of manufacturing from China to get around the 301 tariffs. We’re seeing that in Thailand, we’re seeing that in Mexico, where there’s not substantial transformation going on."