The Twelve-Month Treaty: How the USMCA Review Reopened North America’s Car Rules Every Year

by Francis Rozange | Nov 4, 2026 | 0 comments

The notice runs to two pages of the Federal Register. Published on 5 October 2026 under docket numbers USTR-2026-0595 and USTR-2026-0596, it invites anyone with a view on the trade agreement between the United States, Mexico and Canada to file it by 11:59 p.m. Eastern time on Tuesday 12 January 2027. It promises a public hearing at a date still to be announced and asks for comments on compliance, the investment climate and “strategies for strengthening North American economic security and competitiveness.” What is new is its purpose. It opens the first consultation ever held for an annual joint review of a United States free trade agreement, a procedure that exists only because Washington declined, on 1 July 2026, to extend the agreement for another sixteen years.

For the automotive industry, that refusal matters more than for almost any other sector. The rules that decide whether a pickup assembled in Coahuila or a sedan built in Ontario crosses the border duty free are written into the agreement, and they are now open to discussion every year until the parties agree to renew or the treaty expires in 2036. In 2025 the United States imported 8.0 million vehicles worth $208.0 billion, according to the Congressional Research Service, and Mexico, Japan, the European Union, South Korea and Canada supplied 96 percent of that value. What follows sets out what the review legally is, where each negotiating track stood in late October 2026, and what official data show about a regional car trade already bending under tariffs.

What Article 34.7 actually requires

The agreement entered into force on 1 July 2020. Article 34.7.1 provides that it terminates sixteen years after that date, on 1 July 2036, unless each party confirms that it wishes to continue it for a new sixteen-year term. Article 34.7.2 required the Free Trade Commission, made up of the three governments, to meet on the sixth anniversary to conduct a first joint review. Had all three confirmed an extension in writing through their heads of government, the term would have been extended automatically for another sixteen years, with the next review due by 1 July 2032. Because one party did not, Articles 34.7.4 to 34.7.6 now apply: the Commission must meet annually until all three confirm an extension or the term runs out, whichever comes first.

Two features of the text are easy to misread. The first is that the annual review is not a renegotiation clause. Nothing in Article 34.7 obliges anyone to change a line of the agreement, and an extension remains available at any annual review if all three confirm it in writing. The second is that the review is separate from withdrawal. Under Article 34.6, any party may leave on six months’ written notice, a provision that has nothing to do with the review calendar. The Congressional Research Service observes that the agreement “does not specify the format or timeline of annual joint reviews,” and that as of 29 September 2026 the three governments had announced neither.

The virtual meeting of 1 July 2026

The first joint review took place by videoconference. Canada and Mexico affirmed their support for renewal. The United States Trade Representative, Jamieson Greer, issued a short statement saying that “the United States did not agree to renew the USMCA in its current form,” that Washington would keep working with its neighbours on what it called the agreement’s shortcomings and the trade deficits with both countries, and that the agreement remains in force pending resolution of those issues or until its termination. The statement also recalled that a third round of bilateral negotiations with Mexico had already been set for the week of 20 July. No equivalent round with Canada was mentioned, and none appears in the Trade Representative’s releases through late October.

In closed briefings to the House Ways and Means and Senate Finance committees on 16 and 17 December 2025, Mr. Greer said that “a rubberstamp of the Agreement is not in the national interest” and that his office would recommend renewal only if the issues it had identified were resolved. His list for Mexico opened with “Mexican policies that promote the use of third-country content and erode U.S. supply chains.” For both partners, it included strengthening the rules of origin for non-automotive industrial goods, aligning tariffs, export controls and investment screening, and penalising the offshoring of American production. The automotive rules themselves were addressed separately, in a dedicated report delivered to Congress on the day of the review.

A consultation built on a statute

The October notice cites Section 611 of the agreement’s implementing act, which obliges the Trade Representative to consult Congress and the public around each joint review. Ahead of the July meeting, the Trade Representative’s office published a notice on 17 September 2025, held a public hearing from 3 to 5 December 2025 and, by its own account, received 1,514 written comments. Mr. Greer told Congress that many stakeholders called for extension while “virtually all” asked for some improvement. The new notice asks, among other things, whether the agreement promotes investment that strengthens American “competitiveness, productivity, and technological leadership,” and how the three countries might cooperate on the non-market policies of other countries.

The date of the 2027 meeting has not been announced. The implementing act, as summarised by the Congressional Research Service, asks the Trade Representative to publish the Federal Register notice at least 270 days before a joint review; counted from 5 October 2026, that interval ends on 2 July 2027, which would be consistent with a meeting near the agreement’s anniversary, though no government has said so. The statute also requires a report to the congressional committees at least 70 days before any annual review that follows a refusal to extend, explaining the reasons given, the progress made and the actions the Trade Representative intends to raise.

The rules of origin at the centre of the argument

The automotive chapter is the most demanding part of the agreement. To enter duty free, a passenger vehicle or light truck must reach 75 percent regional value content, against 62.5 percent under the old North American Free Trade Agreement. Certain core parts must meet their own high thresholds before the vehicle can qualify. At least 70 percent of a producer’s steel and aluminium purchases, by value, must originate in North America. A labour value content rule, the first of its kind in a United States trade agreement, requires that 40 to 45 percent of a vehicle’s content be produced by workers earning at least $16 an hour.

One dispute over these rules has never been settled. Mexico and Canada argued that once a core part qualifies as originating, its full value should count towards the vehicle’s regional content, a method known as roll-up. The United States argued that non-originating material inside those parts should be excluded. A dispute settlement panel ruled against the United States in December 2022, and the agreement provides no appeal. The issue remains unresolved, according to the Congressional Research Service. Commenters cited in the Trade Representative’s reports, including an economist at the Economic Policy Institute, argue that roll-up allows non-North American content to grow as components move up the value chain, which is why a customs methodology has become a political question for the review.

Washington’s case, in its own figures

The report the Trade Representative sent to Congress on 1 July 2026 on automotive trade under the agreement is the clearest statement of the American position. It records that the United States deficit with Mexico in cars, trucks and parts rose from $91.9 billion in 2019 to $138.2 billion in 2024, an increase of 50.4 percent, before falling to $131.6 billion in 2025, a decline the report attributes to Section 232 tariffs. The deficit in heavy trucks alone grew from $3.7 billion to $16.7 billion between 2019 and 2024. About 90 percent of Mexico’s vehicle output is exported, the report notes, citing the Commerce Department, and 79.7 percent of that export volume goes to the United States.

The report’s sharper argument concerns content. Citing estimates by the American Automotive Policy Council, an association of American carmakers, it says that American parts made up about 85 percent of the parts content of Canadian-built vehicles and more than 60 percent for Mexican-built vehicles in 2017, falling to 50 and 35 percent respectively in 2024. Its own value-added calculations show the American share of value embedded in transport equipment imported from Mexico falling from 23.1 percent in 2017 to 18.3 percent in 2024, while the Chinese share rose from 4.5 to 7.1 percent and the Mexican share from 50.9 to 57.2 percent. These are industry estimates and model calculations, not customs records, but they frame the American demands.

What the preference is worth when tariffs are low

A rule of origin only bites if failing it costs something. The United States most-favoured-nation tariff on passenger cars is 2.5 percent, and most auto parts pay between zero and 6 percent, which the Trade Representative’s report calls “sometimes insufficient to incentivize changes to sourcing.” The data bear this out. The share of American vehicle imports from Canada and Mexico claiming the preference fell from 99.5 percent in 2019 to 91.8 percent in 2023, after the stricter rules took effect. The share then rose again, reaching 94.7 percent in 2025, with 99.0 percent for Canada and 92.9 percent for Mexico. About 78 percent of the vehicle imports that did not claim it in 2025 were petrol cars with engines between 1.5 and 3 litres.

The report attaches a caveat that any analyst should keep in mind. Beginning in July 2025, the Census Bureau changed how it records imports that claim the preference on products whose general duty is already zero, so part of the 2025 increase reflects a change in method rather than in behaviour. For parts, the claiming share fell from 73.4 percent in 2019 to 62.0 percent in 2023 before rebounding to 70.9 percent, or $70.1 billion, in 2025, a rise the report attributes to Section 232 tariffs, from which qualifying parts are exempt. More than 86 percent of the parts imported from the two partners without any preference in 2025 came from Mexico, worth $24.7 billion.

Section 232 and the arithmetic of American content

Since April 2025 the agreement’s preference has operated inside a second, national security tariff regime. A 25 percent duty under Section 232 of the Trade Expansion Act of 1962 has applied to imported cars and light trucks since 3 April 2025 and to certain parts since 3 May 2025. For vehicles that qualify under the agreement, importers can document each model’s American and non-American content to the Commerce Department, and once the department approves the submission the 25 percent applies only to the non-American share. Qualifying parts remain exempt until Commerce publishes a comparable process; none had been published as of July 2026. Manufacturers assembling vehicles in the United States can claim an offset against the duties on imported parts equal to 3.75 percent of the aggregate suggested retail price of eligible vehicles assembled between 3 April 2025 and 30 April 2030.

The same logic was extended to commercial vehicles. A proclamation of 17 October 2025 imposed a 25 percent duty on medium and heavy trucks and their parts from 1 November 2025, and 10 percent on buses. Qualifying trucks pay only on their non-American content, but buses received no such treatment and pay the 10 percent on their full value. The effect is that the agreement’s central concept has quietly changed. The treaty rewards North American content; the tariff regime rewards American content. A vehicle can satisfy the 75 percent regional rule and still pay duty on its Mexican and Canadian parts, which is precisely the gap that the reported American negotiating proposals would write into the agreement itself.

A tariff ladder that favours distant suppliers

The bilateral deals that Washington concluded in 2025 and 2026 produced an outcome that North American producers find perverse. Under arrangements listed in the Trade Representative’s report, British vehicles enter at 10 percent within a quota of 100,000 vehicles, while cars from the European Union, Japan and South Korea pay a baseline “all-in” rate of 15 percent, combining the most-favoured-nation duty and the Section 232 tariff. Taiwanese auto parts received a similar 15 percent ceiling from 1 May 2026. Vehicles from Mexico and Canada that qualify under the agreement pay 25 percent on their non-American content, and those that do not qualify pay 27.5 percent on a passenger car, according to the Congressional Research Service.

Stakeholders said so in their submissions. The American Automotive Policy Council argued that the gap gives cars from overseas more favourable and more certain terms than vehicles from the two neighbours that contain more American content, and asked for long-term preferential treatment for compliant vehicles to be restored. The Mexican Association of the Automotive Industry wrote that Mexican vehicles faced a higher tariff while complying “with the most stringent requirements of origin in any trade agreement.” Other submissions, including one from a domestic heavy-truck builder, urged Washington to keep the tariffs, which that builder said had allowed it to restore manufacturing jobs. Whether the review narrows the ladder or entrenches it will weigh on where future model programmes are sourced and assembled.

What Mexico’s assembly plants reported in September

The September figures from the light vehicle register of INEGI, the national statistics institute, were published on 7 October 2026. Mexico produced 301,803 light vehicles in September 2026, 15.1 percent fewer than a year earlier, and exported 277,369, a decline of 11.9 percent. The fall followed a stable August, when exports of 300,475 units were 1.3 percent higher than in August 2025. Over the first nine months, production totalled 2,946,943 units, down 2.4 percent, and exports 2,528,623 units, down 1.5 percent. Light trucks accounted for 79.0 percent of all vehicles produced in the period, a reminder of how closely Mexican assembly is tied to American demand for pickups and utility vehicles.

Two cautions apply to these figures. INEGI labels the 2026 production and export data preliminary, and the register compiles figures reported by the companies themselves, without statistical treatment, so revisions are possible. The second caution concerns interpretation. A single month’s decline of this size can reflect model changeovers, a plant’s temporary shutdown or a shift in inventory policy as much as a durable loss of demand, and the bulletin itself offers no explanation. Mexico’s domestic market moved the other way: retail sales of light vehicles rose 7.9 percent in September and 5.0 percent over nine months, to 1,143,988 units. The domestic figure includes imported vehicles, which makes it a measure of Mexican demand rather than of Mexican production.

Exports drift away from the United States

The destination figures tell a more specific story. According to INEGI, Mexico shipped 1,931,750 light vehicles to the United States between January and September 2026, 76.4 percent of its exports. The equivalent bulletin for 2025 recorded 2,022,867 units, or 78.8 percent, so the volume fell by about 4.5 percent. Shipments to Canada moved in the opposite direction, from 289,166 units to 314,185, an increase of about 8.7 percent, lifting Canada’s share from 11.3 to 12.4 percent. Germany remained the third destination, with 64,963 units. Industry association data reported by Reuters on 8 October show a 5 percent fall to the United States and a rise of just over 9 percent to Canada, which is consistent with these counts.

The same Reuters report put the September fall in Mexico’s total auto exports at 12 percent, which matches the 11.9 percent that INEGI reports for all destinations combined. A law-firm summary published on 14 October then recast that figure as a 12 percent September decline in exports to the United States. That reading has no basis in the bulletin, whose destination breakdown covers only the nine-month period. The more defensible reading of the data is therefore not a collapse in Mexican exports to the United States but a gradual shift in their direction, with the United States taking a smaller share of a total that has itself barely moved. This is the kind of distinction that disappears when figures travel from statistical bulletins into headlines.

Why Canada is buying more Mexican vehicles

The rise in Mexican shipments to Canada is consistent with the structure of Canadian retaliation, although the data cannot prove causation on their own. In April 2025 Ottawa imposed a 25 percent duty on American vehicles that do not meet the agreement’s rules and on the non-Canadian, non-Mexican content of those that do. Mexican-built vehicles are not its target. Canada also introduced a remission framework that lets companies producing in Canada import a set number of compliant vehicles free of the surtax, conditional on maintaining Canadian production; the current order is due to remain in place until 8 April 2027. On 23 October 2025 Ottawa announced cuts of 24.2 and 50 percent to the quotas of two carmakers with Canadian plants, after they decided to reduce their manufacturing footprint in Canada.

The Trade Representative’s July report states that American light vehicle exports to Canada fell by nearly 171,000 vehicles, worth $5.6 billion, between April 2025 and March 2026 compared with a year earlier. A White House fact sheet of 20 July 2026 put the decline at about 22 percent. Canada remains the largest market for American automotive products: in 2025 it took 38 percent of American automotive exports, worth $61 billion, according to the Congressional Research Service, while around 90 percent of Canada’s own automotive exports, $47 billion, went to the United States. When a market of that importance redirects even part of its purchases, Mexican plants are among the obvious beneficiaries.

Section 338 and the break with Ottawa

In the summer of 2026 the dispute with Canada moved onto legal ground that no president had expressly invoked to impose tariffs before. On 20 July, three proclamations invoked Section 338 of the Tariff Act of 1930 to impose additional duties of 50 percent on certain Canadian goods, to offset what the White House called Canadian discrimination in alcoholic beverages, dairy and motor vehicles. The motor vehicle proclamation cited Canada’s retaliatory duties and its remission framework. The White House stated that the duties apply “regardless of whether a good originates under the” agreement. After a brief suspension, they took effect on 22 August, when negotiations broke down. Canada answered with countermeasures on about US$20 billion of American goods from 8 September.

Washington escalated again on 8 September. A new proclamation changed the product lists from 15 September and, according to the White House, brought certain items already covered by Section 232, including some autos, steel and aluminium, under the Section 338 duty as well, with combined additional tariffs reaching up to 100 percent on some products. Separate proclamations banned imports of certain Canadian products from 29 September, among them alcoholic beverages, some dairy products and motorcycles; in 2025 the excluded goods were worth about $967 million. A further modification, announced on 23 October, added and removed products with effect scheduled for 30 October. Prime Minister Mark Carney said Canada could not accept terms that would make its industries “subsidiaries” of American ones.

Two bilateral tracks and one trilateral treaty

The review is being conducted, in practice, as two separate bilateral relationships. With Mexico, formal talks began in late May 2026 with a round in Mexico City covering automotive rules, steel and aluminium and economic security, followed by a second round in Washington on 16 and 17 June. During the third round, in Mexico City, Mr. Greer met President Claudia Sheinbaum; the joint statement of 23 July listed economic security, labour, agriculture, electronic payment services, steel and aluminium and derivative products, and automobiles among the subjects reviewed, and directed negotiators to hold a fourth round in Washington in September 2026. The Trade Representative’s published press releases for September and October contain no announcement that this fourth round took place.

With Canada, no official negotiation linked to the review had been announced as of the Congressional Research Service update of 29 September 2026. Canada has also been diversifying its trade. Citing Statistics Canada data, the research service reports that the United States took about 68 percent of Canadian goods exports in the first half of 2026, against 77 percent in the same period of 2024. The asymmetry matters because several of the questions at stake, starting with the automotive rules of origin, can only be changed trilaterally. Mr. Greer himself told Congress in December 2025 that rules of origin might require a trilateral approach. The annual review was designed as a trilateral meeting; the negotiation feeding it is not.

The demand for fifty percent American content

The most consequential proposal for carmakers has never been published. According to Reuters, the United States has sought a requirement that 50 percent of a vehicle’s content be American for it to receive preferential access, and reporting compiled by the Americas Society and Council of the Americas indicates that the original American position in May also involved raising the regional threshold to 82 percent. Mexico has rejected a country-specific share; one source told Reuters that Mexico was unwilling to accept “even 1%” of mandatory American content, because such a clause could be raised later. Neither government has released a text, and these figures should be treated as reported negotiating positions, not as rules.

Mexico’s counter-demand is about tariffs rather than content. Reuters reported in July that Mexico City wants the Section 232 duties, 25 percent on autos and 50 percent on steel and aluminium from both neighbours, reduced before it makes concessions elsewhere. On timing, Reuters reported Mr. Greer’s aim of reaching interim agreements in 2026 and taking up automotive content, labour and environmental standards in 2027. On 13 October, Bloomberg News reported, President Sheinbaum told reporters that her government was addressing American concerns about the deficit above all by buying more goods from the United States. None of this amounted to an agreement as of late October.

The Chinese question inside North America

Much of the American argument concerns a country that is not a party. The Trade Representative’s report says that the rising share of Chinese and other Asian content in Mexico’s automotive exports runs counter to the agreement’s goals. The agreement already contains Article 32.10, which requires a party to notify the others of efforts to conclude a trade agreement with a non-market economy. Both chambers of Mexico’s Congress approved on 9 December 2025, according to Caixin, a reform of the general import tariff law for goods from countries without a trade agreement with Mexico, applicable from 1 January 2026, which raised the duty on Chinese light vehicles from 20 to 50 percent. The committee text covered 1,463 tariff lines, according to El Financiero, while Caixin counted about 1,100 product types; the two counts use different units and do not match.

Canada took a different course. On 16 January 2026, Ottawa announced a strategic partnership with Beijing under which Canada will allow up to 49,000 Chinese electric vehicles into its market at the most-favoured-nation rate of 6.1 percent, instead of the additional 100 percent duty it had applied since October 2024. Measuring the Chinese presence in Mexico needs care. The Trade Representative’s report, citing a consultant’s newsletter published in November 2024, says Chinese vehicles were one-third of new cars sold in Mexico in 2024. Data from the Mexican Association of Automobile Distributors, reported by Reuters on 20 July 2026, put Chinese brands at 14 percent of new vehicle sales in the first half of 2025 and 17 percent in the first half of 2026, despite the new tariff. Even across different periods, the gap between one-third and 14 percent is too wide to be rounding; it most likely separates vehicles made in China, whatever their badge, from brands of Chinese origin, though neither source settles the point.

The evidence Congress will have in hand

A statutory economic assessment is due in the months before the agreement’s next anniversary. On 19 February 2026, the United States International Trade Commission opened investigation 332-608, the third of five biennial reports on the economic impact of the automotive rules of origin, which must reach the President and the two trade committees no later than 1 July 2027. It scheduled a public hearing for 14 October 2026, with post-hearing briefs due on 21 October and all other written submissions by 2 November. The report will examine effects on output, employment, wages, investment and consumers, and whether the rules remain relevant given technological change, a question that the shift to electric drivetrains and battery sourcing makes harder to answer.

The previous report, published on 1 July 2025, gives a sense of the evidence. The Commission’s model estimated that the rules increased employment and production among American parts and materials producers, slightly reduced employment and production among American vehicle assemblers, and slightly raised the average price of light vehicles in the American market. Its survey found that most sourcing changes made to comply raised production costs. American automotive manufacturing investment rose from $27.9 billion in 2019 to $87.8 billion in 2023 before falling to $34.1 billion in 2024, a movement the Commission said was only partly attributable to the rules. Economy-wide effects on output and employment were estimated at less than 0.01 percent.

Planning a vehicle programme on a twelve-month clock

For manufacturers and suppliers, the practical consequence is that sourcing decisions with ten-year horizons must now be tested against rules that can change every year. A model that qualifies under the regional threshold may still pay Section 232 duty on its Mexican and Canadian parts; a model assembled in Canada faces both the American Section 232 regime and, since the summer, the possibility that Section 338 product lists will be modified again; and the Canadian remission framework expires in April 2027 unless renewed. Documentation has become a competitive variable in its own right, since the reduced Section 232 treatment depends on content submissions that Commerce must approve model by model.

This is where measurement becomes strategy. The question of how much American, Mexican, Canadian and Chinese value sits inside a given vehicle line is not answered by any public statistic, as the gap between industry content estimates and value-added tables shows. The automotive research and competitive research practised by CSM International, for example, would approach it by reconstructing bills of materials and supplier footprints across rival vehicle programmes, because that is the level at which a 50 percent national content rule would bite. On the demand side, customer research on price sensitivity in the segments most exposed, such as mid-size pickups and compact utility vehicles, would show how much of any tariff cost can be passed on before buyers move elsewhere.

What remains of the sixteen-year term

Several facts can be stated precisely as of late October 2026. The agreement is in force and its preferences apply. Its term ends on 1 July 2036 unless all three governments confirm an extension. The United States has declined to confirm, which obliges annual reviews whose format and date remain unannounced. The United States and Mexico have held three formal rounds and scheduled a fourth for September that, on the public record, had not taken place by late October. The United States and Canada have announced no negotiation linked to the review, after their talks over the Section 338 duties broke down in August, and are exchanging Section 338 tariffs and Canadian countermeasures. No text altering the automotive rules of origin has been published by any of the three governments.

Everything else is negotiation, and negotiation on an annual cycle changes the value of the agreement even if not a word of it is amended. The negotiators who concluded the agreement in 2018 settled on a sixteen-year term after Washington first proposed a five-year sunset and Mexico and Canada objected that it would create uncertainty for investment. The 2026 refusal has, in effect, brought back a shorter horizon by another route. For a plant manager in Saltillo or Windsor, the treaty text matters less than the calendar: every year, from now until 2036 or until three heads of government sign the same letter, the rules governing North American cars can be put back on the table.