Overview
Our October 10 post, “USTR Kicks Off USMCA Review,” framed the legal process for the USMCA’s 2026 joint review and provided detail on the initial comment window recently opened by the Office of the United States Trade Representative (USTR). In this post, we discuss several issues that will likely affect the automotive sector, which is of critical importance to USMCA renewal. Rules of origin and labor enforcement provisions promise to be among the main discussion items at the negotiating table.[1]
Why Autos Will Matter in the 2026 Review
Due to the automotive industry’s dependence on complex, cross-border supply chains, vehicles and parts account for one of the largest categories of North American traded goods. As a result, USMCA rules of origin and labor compliance are critical for Original Equipment Manufacturer (OEM) operations and their investment decisions. In a recent report, the US International Trade Commission (USITC) found that USMCA rules of origin have reduced imports of core parts from non-USMCA countries, thereby increasing employment in US parts production and limiting the introduction of parts produced in non-market economies into North American supply chains.[2] However, while there has been an impact, the macroeconomic effects of these rules were found to be negligible during the first four years following their implementation. USMCA renewal presents an opportunity to reassess these rules, and the Trump administration has already expressed interest in ensuring that a revised USMCA maximizes domestic automotive production.
What Will Drive the 2026 Joint Review
Regional Value Content
The United States is widely expected to be the driving force behind reopening the auto rules of origin in the 2026 review. US officials across the administration have signaled dissatisfaction with USMCA auto provisions and have indicated a desire to tighten and clarify the rules to favor US manufacturers and workers, and generally to make it more difficult for imports with non-USMCA content – especially for China – to benefit from preferential treatment.
Currently, in order to be considered USMCA compliant, manufacturers must navigate complex interactions between auto parts and final vehicles. For instance, in December 2022, a USMCA arbitration panel clarified how core parts factor into a vehicle’s domestic regional value content calculation. If a core part, like an engine, qualifies as North American under the agreement’s rule of origin for that part, then all of its value counts as North American when calculating the car’s overall regional content. The United States sought to subtract the part’s foreign inputs a second time at the car level, but the panel stated that the subtraction occurs only once, at the part stage.[3]
That is the baseline companies have now been using under USMCA, together with higher content thresholds that took effect over time, including the rule that at least 70% of a producer’s steel and aluminum purchases must be North American. A defined share of a vehicle’s value (25% for passenger vehicles and 30% for trucks) must also come from manufacturing performed in plants with an average production wage of at least US$16 per hour (Labor Value Content or LVC). These rules are likely to be prominent in the USMCA renegotiation, posing the question of whether the Parties will formalize the panel’s interpretation or opt for a narrower approach that recalculates non-North American content at the vehicle level.
In addition to meeting the overall vehicle regional value content rules, USMCA’s Automotive Appendix mandates that certain core components, such as the engine, transmission, chassis, and axle, as well as for EVs, the battery, must themselves qualify as originating for the vehicle to be considered originating. In practice, a car maker must ensure these key parts meet their own regional value content (RVC) thresholds (often 75%). This requirement was intended to prevent a scenario where a vehicle meets 75% of its overall content by value but has a non-originating engine or other critical part.
The US may seek to tighten the rules of origin for autos and auto parts. Before Section 232 tariffs were imposed, not all companies had found it economical to comply. USITC’s recent July 2025 report suggested that, with a relatively low US tariff of 2.5% for non-USMCA autos, some automakers had at times chosen to forego USMCA benefits and pay the most-favored-nation (MFN) tariff on certain models rather than meet the rules of origin and the administrative costs associated. The imposition of tariffs of 25 to 35% on non-USMCA-compliant imports has no doubt changed that calculus, but in any case, the US will likely seek to amend the rules of origin to make this approach less attractive.
Discussions could seek to amend a variety of different elements of the auto-origin rules. The US may push for even higher content thresholds, proposing an increase in the RVC percentage above 75% for autos or certain parts, further squeezing out non-USMCA inputs. USMCA’s core parts rule ties the origin of the most valuable components directly to the vehicle’s status. An expansion of the core component rules may be an alternative approach to increasing North American content requirements in upcoming USMCA negotiations. Or the US could renew its 2022 view to subtract a core part’s foreign inputs from the RVC a second time at the car level.
Automakers with operations in Mexico or Canada may seek to push back against these proposed changes. Tighter rules of origin will raise compliance costs, and if the RVC percentage is raised too high, compliance may simply become impractical for manufacturers. Given the US’s concern with using the USMCA to effectively address competitive concerns involving China or other non-market economies in North American supply chains, it will be important to find a workable solution that automakers can actually comply with to ensure that any USMCA changes effectively incentivize limiting non-market economy influence in North America. Thus, it will be crucial for automakers to participate in the USMCA renewal process to ensure that the resulting agreement takes into account the pragmatic realities of the auto manufacturing industry.
Rapid Response Mechanism
USMCA Annex 31-A applies between the United States and Mexico and permits either government to invoke the rapid response mechanism (RRM) when it has a good faith basis to believe that workers at a specific facility in a priority sector, including autos and auto parts, are being denied the rights of free association and collective bargaining.[4] The complaining government may delay the final settlement of customs accounts for entries from the facility, and if a denial is ultimately found, may suspend preferential tariff treatment or impose penalties. If the offense is repeated, the complaining government may even deny entry of such goods. Please see our previous post reviewing the USMCA’s Rapid Response Labor Mechanism here.
The RRM has been most actively tested in the automotive and parts sector, including GM Silao, which yielded a negotiated remediation plan, and Goodyear San Luis Potosí, which resulted in the recognition of an independent union and the payment of approximately $4.2 million in back wages. While backpay and worker reinstatements are not trade remedies created by USMCA, they are common elements of remediation plans adopted by the governments to cure the denial, as seen in these auto sector matters.[5] The parties to the USMCA may wish to extend and clarify the types of remedies that are permissible or plausible under remediation agreements. Alternatively, or in addition, manufacturing companies may want to seek an amendment to the process surrounding RRM investigations, as the rights of those under investigation are currently not robust. USMCA renewal presents an opportunity for both parties and manufacturers to address these concerns.
Other Roads Ahead
- EV-specific rules and critical minerals. Potential origin rules for batteries, cells, and critical minerals could be considered during negotiations, ensuring consistency between federal tax credit rules and tariff treatment under the USMCA. Mexico, for instance, with growing EV assembly and investments in batteries and lithium, aims to be a key player in North American EV content rules.
- Concerns over the investments and content of adversarial nations: Another US objective is to address competitive concerns involving China or other non-market economies in North American supply chains. In the broader 2026 trade policy agenda, restrictions on Chinese investment or content could permeate the USMCA negotiations.[6] For instance, Senators Dave McCormick and Cortez Masto proposed legislation to direct USTR to prioritize protecting USMCA from PRC investment during the 2026 joint review.[7] Applied to autos, this might translate into proposals to exclude components made by certain state actors, or to disqualify vehicles from USMCA benefits if they use core components originating in China.
- Compliance flexibility: Rule of origin provisions are enforced through detailed certification and audit procedures. US Customs and Border Protection (CBP) verifies automotive origin claims with documentation and has issued extensive regulations for calculating RVC, LVC, and material tracing. Currently, the rules allow flexibility through averaging methods: automakers can calculate RVC or LVC on an average basis across specific categories, such as a model line or vehicle class, over a fiscal year. These options help manufacturers to comply with USMCA requirements, offsetting a vehicle with slightly below-threshold content with one above, within categories such as models produced in a specific plant or country. Further negotiations on compliance methodology are expected to be part of the trilateral conversations.
Through Our Windshield, on the Horizon
As the 2026 USMCA renewal has only just begun, it’s difficult to make any definitive predictions as to what this process will hold. But at this point, given the Trump administration’s prior actions, the most extreme outcomes – a pure extension of the current USMCA without revisions, or a complete re-write of all 35 chapters – seem unlikely. And given the administration’s preference for bilateral deals, where the United States has more of an ability to flex its power, it may be the case that rather than a revision to the current USMCA, we may see two bilateral deals to address the administration’s country-specific concerns.
However the negotiations progress, it seems undeniable that the auto industry will be in the center of the target for these negotiations and will be the industry most likely affected by how this agreement is modified. For that reason, all parties in this sector need to be acutely aware of and engaged in this process.
Steptoe’s trade policy team can help you assess renegotiation priorities and positions, craft persuasive filings, and deploy targeted, technically sound advocacy aligned with trilateral negotiating dynamics.
[1] Office of the United States Trade Representative, Request for Public Comments and Notice of Public Hearing Relating to the Operation of the Agreement between the United States of America, the United Mexican States, and Canada, 90 Fed. Reg. 44,869 (Sept. 17, 2025), https://www.federalregister.gov/documents/2025/09/17/2025-18010/request-for-public-comments-and-notice-of-public-hearing-relating-to-the-operation-of-the-agreement.
[2] US Int’l Trade Comm’n, Pub. 5642, Economic Impact of the United States-Mexico-Canada Agreement on the US Economy (Inv. No. 332-588) (July 2025), https://www.usitc.gov/publications/332/pub5642.pdf
[3] United States‑Mexico‑Canada Agreement (USMCA) Automotive Rules of Origin Dispute – Panel Final Report (USA-MEX-CDA-2022-31-01): https://ustr.gov/sites/default/files/enforcement/FTA/USMCA%2031/US.Autos.ROO.CS.8.3.22.pdf
[4] Office of the US Trade Representative, Chapter 31, Annex 31 A, Facility Specific Rapid Response Labor Mechanism, https://ustr.gov/trade-topics/enforcement/dispute-settlement-proceedings/fta-dispute-settlement/usmca/chapter-31-annex-facility-specific-rapid-response-labor-mechanism; See also. 29 C.F.R. pt. 810, Subpart B, Labor Value Content, https://www.ecfr.gov/current/title-29/subtitle-B/chapter-V/subchapter-C/part-810/subpart-B.
[5] See. Kathleen Claussen, The track record of the USMCA Rapid Response Mechanism, Brookings Institution, Mar. 6, 2024, https://www.brookings.edu/articles/the-track-record-of-the-usmca-rapid-response-mechanism/; See also. Press Release, Office of the US Trade Representative, United States and Mexico Announce Course of Remediation for Workers’ Rights Denial at Auto Manufacturing Facility in Silao, July 8, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/july/united-states-and-mexico-announce-course-remediation-workers-rights-denial-auto-manufacturing; Press Release, Office of the US Trade Representative, United States Announces Successful Resolution of Rapid Response Labor Mechanism Matter at Goodyear SLP Facility, Feb. 5, 2024, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2024/february/united-states-announces-successful-resolution-rapid-response-labor-mechanism-matter-goodyear-slp.
[6] Ctr. for Strategic & Int’l Stud., USMCA Review 2026 (Aug. 18, 2025), https://www.csis.org/analysis/usmca-review-2026 (“a critical focus of the 2026 USMCA review will likely involve the “China question,” that is, how North America should respond to the perceived challenges posed by China’s growing role in regional supply chains. US officials have clearly signaled their intent to use the review; US officials have clearly signaled their intent to use the review to bring their partners, especially Mexico, more in line with Washington’s approach.”); See also. Reuters, US, Mexico move to thwart China circumvention of US steel, aluminum tariffs, July 10, 2024, https://www.reuters.com/markets/commodities/us-mexico-move-thwart-china-circumvention-us-steel-aluminum-tariffs-2024-07-10/ (“The US and Mexico on Wednesday announced new steps to fight the circumvention of US tariffs on steel and aluminum by China and other countries that ship products through Mexico, implementing a North American ‘melted and poured’ standard for steel.”).
[7] See also. Office of Sen. Dave McCormick, Press Release, Senators McCormick and Cortez Masto Introduce Legislation to Protect the USMCA from Harmful Chinese Investment (Sept. 18, 2025), https://www.mccormick.senate.gov/press-releases/senators-mccormick-and-cortez-masto-introduce-legislation-to-protect-the-usmca-from-harmful-chinese-investment/
